We need to fund diverse founders

Progress on gender diversity in European Tech stagnated in 2020, with all men teams capturing 90.8% of all capital raised. That statistic should upset us all. It leaves you feeling that in times of crisis investors turned away from diverse founders and back to what they knew. Diversity is not just about gender, it is also about age, nationality, sexual orientation, socioeconomic backgrounds, neurodiversity and ethnicity.

The State of European Tech Report documented that 62% of underrepresented founders report finding it more challenging to get funding in 2020 — a 32% jump from 2019.

Research from Extend Ventures notes that:

  • While all ethnic entrepreneurs are underfunded, Black founders, who represent 3.5% of the UK’s population, are most heavily impacted with only 38 Black founders receiving venture capital funding in the last 10 years, representing just 0.24% of the total sum invested.
  • Black women founders received even less support with only 10 receiving VC funding equating to 0.02% of the total amount invested across the 10-year period and none so far raising late-stage funding.

It is incumbent on everyone to make the necessary changes to rebalance the landscape. In our community at FutureX we support purpose-driven leaders who are pioneering a new way of business. Where everyone recognises they have a role to play in making business and society more equitable and more sustainable. Businesses and investors have the opportunity to effect change at a systemic level.

In order to rebalance the scales you need to look at the whole and understand where issues intersect so you can start to target long-term solutions.

Having the desire to broaden your scope and recognise that incredible ideas are born through diverse thought and experiences is a good place to start. However you must now recognise that your language, approach and methodology for assessing good opportunities has not been cultivating the environment for underrepresented founders to thrive.

Organisations like The Diversity VC Standard are helping to pioneer systemic change within the Venture Capital industry. They have come together to provide other VCs with the tools and recommended practices they need to open their networks and make funding available to underrepresented founders, as well as the resources needed to cultivate an environment where founders and colleagues from all backgrounds feel they belong in the industry and the ecosystem.

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Tech Nation’s toolkit, including checklists, case studies, and other resources, is available now. Read here

Balancing purpose and scalability

It’s important to stress that raising money is not a marker of success and it comes with a new set of challenges that you should prepare for.

To raise money, first you must ask yourself if Venture Capital (VC) is right for you. For the vast majority of businesses VC funding is not the right avenue, it sets you on a particular course that can be hard to deviate from and it comes with expectations.

Managing these expectations is very important when you seek investment and you should do your research to know what to expect. Research potential investors and reach out to their portfolio companies to ask for their experience – they will be more willing to help than you might expect.

The main reason to raise money from investors is to increase your speed and to bring world-class talent onto your team. You must be targeting a big (and growing) market and you have done the research to identify where you fit or how you will disrupt the market. It is also important to share the belief that owning a smaller part of a bigger company is better than owning 100% of a tiny company. Following several funding rounds (Seed, Series A, Series B, etc.), and depending on the type of sector you are in, as a founder of a tech company you can expect to own between 15 – 30% by the time you exit and sell the business (5-10% if you have several co founders).

At the end of the day, traditional investors and impact investors will want to see financial returns on their investment because professional VCs are investing money on behalf of their limited partners – typically pension and insurance funds. The rise of Impact Investors has also meant that VCs are looking for a triple bottom line, Profit, Planet and Profit balanced.

Big Society Capital, a social-impact led investor, describe two types of start-ups that they would typically be interested in investing in: “unicorns” and “zebras” (stay with it).

A “unicorn” in the world of venture capital is a start-up that is valued at over USD 1 billion. Don’t panic — while that’s a pretty hefty figure, for Big Society Capital, it’s about identifying start-ups that have the potential to reach this unicorn status through rapid growth. They claim that a purpose-driven business may be more likely to achieve this, thanks to being more likely to retain founders, employees and customers, and having a deep understanding of their users.

A “zebra”, on the other hand, is a start-up that has slower growth targets and seeks to balance scalability against commitments to another cause. These companies tend to achieve growth by designing excellent products or services that truly meet the needs and goals of their customers.

There are different approaches to growth as an impact driven business, but whatever your strategy, there’s plenty of evidence that having a strong purpose is a help rather than a hindrance.

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Investment opportunities for diverse founders

There are a range of investors and funds that specialise in funding founders from traditionally underrepresented backgrounds. Investors such as Ada Ventures, Big Society Capital, Extend Ventures, ImpactX Capital and Ananda Ventures are just a few examples to explore.

Other avenues for funding your business include grants, awards and competitions, crowdfunding through platforms like Seedrs & Crowdcube, and start-up accelerator programmes for impact-led businesses—websites like the Can Do Collective in Scotland have a list of lots of organisations that offer support.

In 2021 I joined Ada Ventures as part of their Scout Programme, which helps identify underrepresented founders. Named after technologist and mathematician Ada Lovelace, who was under-appreciated in her lifetime, Ada Venture seeks to identify and fund the next generation of Ada Lovelaces. At Ada Ventures, they are particularly interested in funding Women, LGBTQ+ founders, BAME founders and founders outside of London.

The time is now

While starting up a new business and finding investment can feel daunting, you’re not alone if you feel constantly on the verge of chucking in the towel — many famous companies and founders were rejected over and over by investors until they found the right VCs for them.

There’s never been a better time to take the plunge. Lots of investors are actively looking to back you — if you’ve got a great idea and a killer business strategy, it’s time to put yourself out there and get ready to take on the world.

Written by Bruce Walker, CEO and co-founder of FutureX

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