Speaking ahead of Black Tech Fest, a sister event to London Tech Week, successful and innovative businesswoman Erika Brodnock reveals how black-owned companies are less likely to attract venture capital.
Black founders of companies received just 0.24% of venture capital funding in the past ten years, and for women, the figure was only 11%.
These stark figures are highlighted in the Diversity Beyond Gender report by Erika Brodnock. She is co-founder of Extend Ventures, which helps diverse entrepreneurs to develop successful businesses, CEO and co-founder of software companies Kami and Karisma Kidz and a speaker at the forthcoming Black Tech Fest.
It was her own experience as a woman of colour that led her to co-found Extend Ventures. She launched Karisma Kidz in 2012 and grew the business over the next four years. It was used by millions of children on devices around the world and won numerous awards. Despite this, raising further funding proved impossible.
“It started to dawn on me that this wasn’t because of the quality of the company, how much money we were making or any of the other reasons I was being given why we couldn’t get funding,” Brodnock states. “I was watching people who were white and male, and who had been to Oxbridge, get funding for their companies for treble the money I was asking for. I realised that the problem in my start-up was me.”
Then, in meetings with potential investors, she and her female co-founder were asked who actually ran the company. When a white male colleague who dealt with the technical side accompanied them, all the business questions were directed at him.
Brodnock’s response was to take an MBA course, where she graduated in the top 2% of her class. She is also studying for a PhD to understand access to venture capital and innovation finance for diverse entrepreneurs.
Make investment more transparent
Her Diversity Beyond Gender report reveals the need for more transparency. “People need to say which investments they’re making and when because a lot of them are made incognito,” she explains.
There had been cases where white individuals had received funding based on an idea rather than an actual product. In contrast, Black entrepreneurs would have to prove that they had products likely to be successful. A lack of transparency also meant that investment in the ‘idea’ wouldn’t be made public until there was an actual product.
“So, you don’t know that you’re not comparing apples with apples when your making decisions about whether things are fair or not,” Brodnock argues. “If every transaction is conducted publically, right from the outset, then we can start to make comparisons.
“When people say to Black people, ‘I’m not investing in you because you don’t have traction’, we can see whether that’s true. Or that they do invest where there’s no traction because they have enough belief in the founders. If we have transparency of the data, we can analyse it better to come to informed conclusions, which will shape how things do or don’t change in future.
“The next thing is mandating people to invest more fairly. People say they’ve invested in this number of people of colour. Then, when you break it down, you see that it’s largely South Asian males that have received money, and everyone else has been woefully left behind.”
Brodnock believes that many Black people are hampered by not having the networks that would connect them to venture capitalists. Also, there was a perception that Black businesses were weaker and underperforming.
Unconscious bias testing
However, Extend Ventures published a report last year into whether Black businesses could withstand the impact of COVID-19 and if they would be able to access any of the Government support.
“We found that 48% did not access or expect to qualify for Government funding and 68% had never accessed any grant funding or private investment, despite trading for nine or more years,” she reveals. “They felt they had enough cash in reserves to withstand the effects of COVID for up to 12 months. So, when people say we’re riskier, it simply isn’t true.”
Brodnock recommends two things venture capitalists need to do to engage with Black entrepreneurs. “Unconscious bias testing – I’m not in favour of unconscious bias training because it doesn’t work – is imperative,” she says. “Identifying which groups that you are most biased towards as a venture capitalist is going to be imperative in terms of making the unconscious bias conscious. Once you understand which groups you’re predisposed to be biased towards, then it’s a case of seeking out people within those areas.
“Reaching out purposefully to organisations that can connect you with the best and brightest Black founders is the way forward. I think that a lot of the fear that venture capitalists have around investing in Black companies, and indeed dealing with Black people, is based on propaganda passed down generationally since slavery. ‘We are lazy; we’re less…anything’.
“Using terms such as minority subgroups isn’t helpful because it conjures up the feeling that you’re taking greater risks which, the data shows, isn’t true.”
Organisations that venture capitalists should reach out to include the Black Young Professionals Network and FounderTribes. They should also attend Black Tech Fest, Europe’s largest festival celebrating culture, showcasing innovation and creating pathways for underrepresented talent.
Black Tech Fest
For Brodnick, the importance of Black Tech Fest, for bringing like-minded individuals together to have discussions and share successes, cannot be underestimated.
“I can’t tell you how demoralising it can be that there are factors about yourself that you cannot change and can negatively affect your business,” she points out. “The mere fact that I’m me could block our progress. Coming together with other people on the same journey trying to find ways around the situation makes a massive difference. There is strength in numbers.
“Extend Ventures contributes to that by providing the data into the ecosystem that says this isn’t fair. Then, hopefully, some Black venture capitalists start to get funding. Then we can build our flywheels to invest in Black companies, who become successful and go on to invest in other Black companies.”
However, there are other sources of funding that Black entrepreneurs can tap into. These include their turnover, grants from organisations such as Innovate UK and loans.
Diverse and inclusive parental support
Turning to her first venture, Kami, Brodnock says it was inspired by her experience suffering from post-natal depression and juggling a career with family life.
She explains: “In places like the Caribbean and Africa, it’s said that it takes a village to raise a child. I wanted to see how we could put that village around people in a virtual way and to enable parents to get the support they need, and at the point, they need it most.
“Statistics show that Black women are five times more likely to die in childbirth and 17 times more likely to suffer from a mental health issue because we’re not listened to and overlooked. That is a massive problem that I wanted to solve. So, Kami is about ensuring that we make the support that is usually reserved for the ‘haves’ available to the ‘have nots’ as well.”
Kami is diverse and inclusive. The team is 60% female and includes people from various ethnic backgrounds, as well as those from the LGBTQ+ community. Diversity also runs through all the consultants that work for the company.
“We wanted to truly provide a service that supported the needs of parents, no matter what walk of life they come from,” Brodnock adds. “But the level of care is bespoke to individual needs, rather than one size fits all.”
Meanwhile, she continues to collect data that demonstrates the importance of diverse businesses to the venture capital industry.
“It shows that investing in females and ethnicity, both from the team perspective and the investors’ perspective, pays massive dividends.”