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Intersectionality

The need for intentionality

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By Dr. Courtney L. McCluney, Assistant Professor, Cornell University

Diversifying entrepreneurial ecosystems requires the presence of people from different backgrounds and equitable access to resources. I have found in my research that this latter component is often taken for granted: VCs often think that if they have enough non-White men in the startup pool, then there will be more dispersion of capital. However, diversity alone will not resolve structural issues that generate less capital for White women and people of color. VCs must intentionally invest in these firms in order for systemic change to occur. 

The adage “it takes money to make money,” is especially true in the startup world. Founders are often advised to start with family and friends or tap into their networks for investors, which assumes that most founders have connections to individuals with disposable income. Yet, the wealth gap between races and genders are persistent and growing; the net worth of a typical White family is ten times greater than that of a Black family, and women own only $0.32 on the dollar compared to men. Examining the intersecting racial and gender wealth gaps create a gloomier outlook for women of color. The median wealth for Black and Latina women is $200 and $100 respectively, where White women’s median wealth is $15,640. Coupled with their work in low-wage occupations, women of color are less likely to have the capital needed to invest in their entrepreneurial ventures. 

My research has taken me to Detroit, Michigan’s entrepreneurial ecosystem as a space to understand the distinctions between diversity, inclusion, and equity in organizational contexts. As the country’s largest Black-majority city, Detroit has the diversity that other entrepreneurial ecosystems lack. Yet, the ecosystem also has concomitant rates of poverty and resource constraints due to compounded and systemic racial discrimination present in the city. My ongoing study seeks to uncover how ecosystem builders—including venture capitalists—seek to include Black residents in Detroit’s revitalization and build equity in their deployment of resources for small business owners. 

Backstage Capital, the brainchild of Arlan Hamilton, selected Detroit as one of its target cities during my research, and aimed to disrupt the VC world. Backstage Capital notes on their website, “Less than 10% of all venture capital deals go to women, People of Color, and LGBTQ founders. Other VCs see this as a pipeline problem. We see it as the biggest opportunity in investment.” Since its launch in 2015, Backstage has invested seven million dollars in over 130 companies. Arlan, herself, has been featured on the cover of Fast Company, is the protagonist of a popular Harvard Business Review case, and published her book It’s About Damn Time: How to Turn Being Underestimated into Your Greatest Asset. Arlan and Backstage’s approach to investing offers some important lessons for promoting inclusion in VC. 

First, the Backstage website mentions that other VCs see the lack of atypical founders as a “pipeline” problem, citing the lack of available diverse talent in the pool of VC-eligible startups. Yet, Backstage Capital has and continues to invest in firms with non-White, heterosexual, and/or male founders, which demonstrates the intention needed for VCs to create equity for entrepreneurs who do not fit this mold. This approach demonstrates that the “pipeline” problem (i.e., lack of representation in VC-eligible firms) is not a natural or immutable, but instead, a byproduct of structural discrimination. 

Second, Backstage sees the low amount of capital going towards these founders as “the biggest opportunity,” to reach an untapped group of innovators. Arlan often refers to women, people of color, and LGBTQ as ‘underestimated’, instead of merely underrepresented founders. To underestimate means to estimate something to be less important than it actually is, which is certainly the case for founders in the Backstage portfolio. This reframe situates the problem of underrepresentation in VCs within the control of venture capitalists; namely, by indicating that VCs are underestimating these founders, instead of the founders being naturally underrepresented. 

Third, Backstage Capital reserves their investment for three specific groups, women, people of color and LGBTQ, pushing back against meritocratic beliefs as the reason for their underfunding. Innovative ideas are widespread, but opportunity is not, which requires VCs to intentionally focus on getting capital into the hands of marginalized founders. Since its inception, Arlan also developed an exclusive fund for Black women founders, recognizing the unique impact of racial and gender inequity on this particular group. 

Drawing on the Backstage Capital model for building equity for entrepreneurs, I advise VCs to approach their investment opportunities with intentionality. Instead of assuming that the lack of women, people of color, and LGBTQ is a pipeline issue, reconsider your network as an area to diversify. Further, question the ways in which you are underestimating non-White male founders and/or their business ventures. Finally, create goals to invest in a variety of people, but be intentional about the intersecting identities of marginalized entrepreneurs and how to reach them. Until we have systemic interventions that address intersecting systems of racial, gender, and other forms of oppression, existing VC funding practices will reproduce inequity in entrepreneurial ecosystems–something that can be changed with intentionality on the part of VCs. 

The Intersectionality in VC Blog Series: Understanding the Concept

By Theresa Moore, President/Founder, T-Time Productions

Intersectionality (in·ter·sec·tion·al·i·ty) 

The interconnected nature of social categorizations such as race, class, and gender as they apply to a given individual or group, regarded as creating overlapping and interdependent systems of discrimination or disadvantage.                   —– Oxford Dictionary

Those of you who have participated in any Diversity, Equity and Inclusion (DEI) work are familiar with the use of the term intersectionality within this arena. It is based on the idea that individuals have numerous aspects of their identities which combine/integrate to make up the whole. As such, despite the narratives others may frame about a person, a person should not be solely defined through one prism/lens.

In 1989, Kimberlé Crewnshaw, a legal scholar and civil rights activist, created the term intersectionality, noting that, for Black women in particular, intersectionality created discrimination that was unique to them in that it was not discrimination resulting from the sum of racism and sexism but rather the exponential combination of the two.

While I often deal with intersectionality in my work in educational environments and settings, I had not really considered it as it applies to my role of entrepreneur/founder of a company and its possible impact as my company looks to secure funding sources to grow and scale our work. I know of various funding networks but do I truly have the same access and interactions within those networks as other founders do based on my race and gender? And if I don’t, who, including me, bears some responsibility for this?

Fortune Magazine noted that, in 2018, U.S. female founders raised $2.88 billion, a figure which represents 2.2% of the $130 billion total in venture capital money invested during the year. This is the exact same percentage the publication reported for 2017. This number is even smaller for Black women entrepreneurs. According to Digital Undivided’s Project Diane 2018 report, since 2009, Black women–led startups have raised $289MM in venture/angel funding, with a significant portion of that raised in 2017. This represents .0006% of the $424.7 billion in total tech venture funding raised since 2009.

Venture capitalists consider many factors when deciding in which companies they will invest. A 2017 article is Entrepreneur Magazine noted that the character of the business partners is one of the most important factors in the decision process – do you have faith in the founder(s)’ abilities and can you trust them with your money? Key to building this trust is getting to know a founder on both a business and personal level which is hard to do if you are not a part of the same networks or have limited exposure/interaction to founders who may not look like you or have similar backgrounds/life experiences.

I recall one of my first interactions with the venture capital network in Rhode Island, a network whose composition mirrors the VC demographic on a national basis, namely white males. Please note that I recognize that my privilege even allowed me access to the network, which is not the case for many Black and/or female entrepreneurs in the state. The person I was introduced to suggested that I attend a monthly meeting of some of his fellow VCs at a local coffee shop. While I appreciated the invitation, I could not help but think that connections that this network was making with my fellow white male founders were most likely not taking place for an hour in a large group setting over a café mocha but on a more consistent, personalized basis at school events with their children, at dinners with mutual friends, at sporting events, at religious institutions and pre-arranged business meetings where they could get to know the founder on both a personal and business level. While not intentional or malicious, this difference in interactions does have a real, tangible impact.  

So how do we work to change this pattern in the venture capital world? How do we ensure that more diverse venture capitalists, women and/or people of color, can successfully enter and impact the venture capital industry? Just as importantly, how can we increase the interactions between entrepreneurs from underrepresented demographics and those who have the power and financing to change the trajectories and futures of their companies so that the VCs can truly start to learn more about these founders as both individuals and business creators. Over the next few blog posts, we will explore the issue in more depth with a goal of creating actionable items to help diversify interactions and access in the VC ecosystem.