Setting the scene
In 2018, over 70% of women in the UK aged 16 to 64 are employed – a figure indicating that more women are working than ever before (Catalyst, 2018). This realisation emerges at a time when 70% of the newly UK self-employed are women (Prowess, 2018). This would be a promising outlook without the realisation that UK women-led businesses also possess a higher churn rate, implying more women create start-ups but more women also suffer business closure (Prowess, 2018). Disaggregating UK entrepreneurs by race, government research shows that although almost a third of Black people in England wanted to start their own business, only 4% actually managed to do so – the lowest figure for all ethnic groups. (The Guardian, 2013). With the knowledge that UK women-led businesses disproportionately face higher churn rates and Black people face more difficulties in starting in the first place, it is conceivable to come to the conclusion that Black Women’s start-ups are most susceptible to challenges. One particular challenge addressed in this article is Black Women’s access to venture capital to fund their start-ups.
Challenges for Black Women in accessing venture capital funding and contributing factors
Women in the UK of all races are around 10% more likely than men to see finance as a barrier to entrepreneurship (Prowess, 2018). “Women-led businesses achieve far lower levels of equity investment, with male entrepreneurs 86% more likely to be venture-capital funded, and 56% more likely to secure angel investment” (Barclays, 2017 via Prowess, 2018).
However, historic under-representation of Black Women in business, limited market data into Black female entrepreneurs’ successes, perceived credit risk due to racial prejudice, and lack of technical expertise on the part of banks as to determining how to meet Black Women’s entrepreneurial needs are just a few determinants of the added challenges that Black Women suffer in the venture capital space (World Bank Group, 2018). Shantel Poulson, co-founder and general partner at Reach Capital tells Refinery29 that venture capitalists assess teams and their capacity to build great companies, but also base their decisions on pattern recognition whereby “You’ve probably seen a lot of white males be successful. So applying that lens,” to an entrepreneur that looks as different to a White Male as a Black Woman “means it’s harder to make the case of ‘Oh, I’ve seen this before, and I know that they can be successful.” (Refinery29, 2018).
Altogether, these factors describe “the black tax”, i.e. “the fear of funding founders of colour due to them being held to higher standards and with greater expectation” (FastCompany, 2018) to perform successfully in order to produce higher returns for investors. “The black tax” can also be described as the intersection between discrimination produced by the gender glass ceiling and racial discrimination (BITC, 2014). Despite a lack of existing data, these factors give reason to believe that Black Women-led businesses achieve far lower than 86% probability of securing venture capital investment, lower than their male and female counterparts.
Being a Black entrepreneur in tech: Digging deeper and comparing with the US
In the US, “Women start companies at twice the rate of men” (FastCompany, 2017), are “twice as likely to be entrepreneurially active as women in the UK” (Prowess, 2018), and Black Women are the most educated group in the US (2011 US Census Bureau via FastCompany, 2017). However, only 0.2% of tech founders who are women of colour receive venture funding (FastCompany, 2017). In the UK, there are “increasing numbers of women studying science, engineering and technology (SET) degrees, but over 70% drop out of SET careers, compared with half of men” (Prowess, 2018). The picture for Black Women in technology in the UK is less clear-cut than that of the US experience, but this is reminiscent of the earlier realisation that women-led start-ups generally face high churn rates.
Incentives for change
In light of “the black tax” and its contribution to reducing Black Women’s access to venture capital funding, it is important to display why change is imperative. “Businesses run by Black and minority ethnic (BME) entrepreneurs were estimated to contribute between £25-£32 billion per year to the British economy” (RealBusiness, 2018). Of this contribution, Black Women are recognised as the most entrepreneurial female group based on total economic activity (Global Entrepreneurship Monitor via The Guardian, 2013). Clearly, venture capitalists are facing a lost opportunity by not investing in Black Women-led start-ups. “RBS has calculated that boosting female entrepreneurship could deliver approximately £60 billion extra to the UK economy” (The Guardian, 2013 via Prowess, 2018). This is a figure focusing on female entrepreneurship in general. FastCompany (2017) describes the Black female demographic as determining “the ‘cool’ factor of a product once released, and provides access to influencers and a group that can determine the next ‘it’ technology”. Therefore, by boosting Black female entrepreneurship, not only is there opportunity in investing in diversity, but also in investors being able to tap into the returns of Black businesses accessing massive amounts of buying power.
What does this mean for GOODsoil? For economies around the world?
The factors discussed make it difficult to ignore the experience of Black Women as most likely to feel that the intersection between their race and gender negatively impacts their chances of receiving venture capital funding sufficient to advance their business ideas. Thus, GOODsoil sees it is wise to invest in these businesses for the good probability of return on investment” (FastCompany, 2017), and for the opportunity to create new standards investing in social minorities and individuals who would not normally gain access to capital.
“Although a growing number of policies and programs are arising to address the needs of the growing number of women business owners and their enterprises worldwide, access to finance is still the single biggest obstacle facing women entrepreneurs.” (World Bank Group, 2018). With a board that is 75% Black and 50% female, GOODsoil aims to utilise the rare opportunity to help some of the 2.3 million BME Women in the UK build their networks and realise their full potential through the creation of successful start-ups. Now is the time to create change, away from a world that struggles to name a well-known Black British Woman in business, and towards industry progress with the capacity to create real technological advances, and new products and services.