Between 2009 and 2019 in the U.K., just around 40 Black people received VC funding, equating to less than 0.4% of all funds allocated to founders. Though the latest figures haven’t been released, it’s safe to say that plenty of work needs to be done to ensure that more people receive funding.
One way to do this would be to launch more funds that specialize in backing diverse founders. There is an increasing number of funds saying they are dedicated to backing diverse founders, and around five are known to be dedicated specifically to Black founders.
While funds targeting members of the Black community won’t fix systemic and cultural discrimination, there’s certainly no harm in having more. More Black funds, for example, could help support more businesses otherwise overlooked. This, in turn, would increase the possibility of a Black unicorn and may spawn new sectors and create new jobs. Smaller VCs also tend to offer more than just money, such as money and a dependable ecosystem, which could prove essential for many founders.
There is a growing desire for more funds and resources in the U.K. targeting Black founders, according to several that we spoke with. But angel investor Andy Ayim points out that there are two major roadblocks to this: For one, Black people make up just 4% of the U.K. population, compared to 14% in the U.S.
“The wheels are starting to turn, but we’ve got a long road ahead.” Karl Lokko, Black Seed
“This drastically shrinks down the available market for investors to find category-winning startups that can grow big enough to return the fund,” he told TechCrunch+. The second hurdle, he said, is where the funding comes from. “This group is very homogenous and tends to favor emerging fund managers with general partner experience at an established fund as well as a track record with their fellow GPs,” he said.
Mandy Nyarko, an angel investor at Ada Ventures and founder of Startup Discovery School, said that many potential limited partners see Black businesses as nonfund returners that exist mainly within the lifestyle sectors; that makes the pitch for dedicating a fund to scale such businesses almost impossible.
Right now, only 1% of asset investment managers in the U.K. identify as being Black, and many of them are independent investors or working at a firm. Last week, venture firm Black Seed announced a £5 million raise for its inaugural fund targeting Black founders. The team raised that amount in just six months, much faster than anticipated. Karl Lokko, the firm’s co-founder, said this represented an appetite from investors in the U.K. to back Black British founders.
Lokko hopes to make the “commercial case” to investors and limited partners for why backing Black funds — and thus Black founders — is an untapped opportunity in the U.K.
“The wheels are starting to turn, but we’ve got a long road ahead,” Lokko told TechCrunch+. His co-founder, Cyril Lutterodt, said that for more funds targeting Black founders to be created, “we need to see a mindset shift, one where investors understand that this is not a charity case. As we start to see more and more Black-founded companies get the funding they need and go on to succeed, that will help make the commercial case for more investment.”
This also means educating the community about the venture asset class. Andy Davis, who is building 10×10 Capital, a fund dedicated to Black founders, said he’s noticed that many Black people in the country are first-time founders and investors. Getting an investing track record can be hard since many do not know, for example, the various rules, such as SEIS or EIS, which provide tax breaks to those who invest in early-stage companies in the U.K.
“I’d propose information being explicitly shared regarding SEIS/EIS when a new business is registered at Companies House and, more impactfully, enabling retrospective SEIS/EIS tax relief on investments where eligible,” he said.
“It will be challenging to provide the level and depth of capital that these founders need.” Check Warner, co-founder of Ada Ventures
There are steps being taken, however. Black investors are stepping up to back more Black founders, and established firms, like Impact X and Cornerstone Ventures, are supporting Black founders as well. Cornerstone is a Black-owned fund that just closed £20 million to target diverse founders in the U.K. There are also accelerator programs, like Foundervine, that invest and support Black founders at its earliest stage.
But many of the funds that focus on diversity, in general, are still small compared to the actual opportunity that exists to back Black founders and underrepresented groups.
“One of the challenges is that the funds are typically smaller, therefore have to write smaller checks and risk under capitalizing the founders that they invest in, meaning they may not reach the next major milestone to unlock seed or Series A funding,” said Check Warner, the founder of Ada Ventures, which focuses on backing diverse founders. “Until we have bigger funds all the way through the funding ladder dedicated to investing in diverse founders, it will be challenging to provide the level and depth of capital that these founders need.”
Ayim is operating the Angel Investing School to help people from underrepresented backgrounds create investment track records, develop investment theses, and gain experience investing alongside others through syndicating deals. But, he said, it will take a change of mindset to create more funds dedicated to Black founders. Venture is an industry rooted in risk-taking, he said, yet the existing market continues to concentrate capital on a narrow set of players, stunting progress.
“Organizations such as British Business Bank can help influence this given that they are the largest domestic backer of venture capital funds in the U.K. through their enterprise capital funds,” he said.
There is progress and hope, though, especially as the U.K. tries to convince the world of its self-dubbed “Unicorn Kingdom” moniker. The ecosystem is well aware of what is needed to change. The desire for more innovation will perhaps force its hand.
“Non-dilutive capital vehicles targeting Black founders would be really innovative and a systemic game changer,” Nyarko said. “One of the huge disadvantages Black founders have is the lack of ‘space,’ to take risks to build a business when they don’t have financial cushions as big as many of their white counterparts.”
This piece was updated to reflect the number of Black startups that received funding between 2009 and 2019.