Entrepreneur

African Americans Only 1% of Internet Start-up Founders

Black Web 2.0 has written about the importance of securing funding for Internet start-ups at various stages from the great idea to contracting the know-how to build it to the launch.

Private investment research firm CB Insights has released its first ever Human Capital Venture Capital report. In part one of the report, the company takes an in-depth look into characteristics of the founders of venture-backed companies including race, age and experience, and the number of founders per company. The study covers the first six months of the fiscal year (Jan-Jun 2010) and focuses on Internet companies that secured their first round of funding. To further narrow the study, the geographical locations are focused on The Big Three  in Internet funding: California, Massachusetts, and New York.

According to the report:

  • African Americans make up 1% of Internet company founders nationally.
  • The majority of the black founders were part of an all-black founding team. As far as mixed raced founding teams, New York led the pack with 14% with California and Massachusetts bringing up the rear with a close 13%.
  • The median amount of funding secured by an all-black founding team was $1.3 million, compared to $2.2M for a racially mixed team, and $2.3M for an all-white team.
  • Asian teams secured the most funding with a median range of $4 million dollars.

While young prodigies often receive the spotlight for their exciting new start-ups, most companies are founded by those in their mid-thirties and early forties and many were CEOs or founders at some time. According to the report, nationally more founders fall into the 35-44 age range (48%), with 26-34 in second (29%) and 45-54 in third place (19%). The founders in the 18-25 range only make up 14% of the national number.

If you’re looking to find the next whiz kid, look no further than NYC.  According to the report, 10% of New York founders are between the age of 18-25 while Massachusetts prefers experience to youth with 46% of its Web start-up founders falling into the 45-54 age bracket.

So what does this mean for burgeoning black techpreneurs with the next great Web breakthrough? If you’re a younger company, New York’s Silicon Alley might be the best place to start your business. With an increasing population of young start-ups setting up shop, NYC is the best place for a fresh-freshed talent to catch the eye of a potential investor. Overall, African Americans are still underrepresented in both the tech and entrepreneurial sectors.

To review the rest of the report click here and stay tuned for part two of the report.

Editor’s Note: CB Insights’ report findings are based on a sample set of 165 out of 185 companies that received their first round of venture  funding during the first half of 2010. The definition of black follows the U.S. Census definition of the term.

45 Comments

Comments

Wm_Tucker says:

I'm afraid you missed the point of my post entirely.

Noting only 1% of Internet start-ups headed up by Af-Ams *receive venture capital* (emphasis mine) is only relative to the number of Internet start-ups headed by people of any ethnic persuasion that receive venture capital. Not many 'Internet start-ups' receive venture capital of any kind!

While I'd enjoy nothing more than to see more Af-Am entrepreneurs, better educated Af-Ams, and more Af-Ams enjoy success as entrepreneurs, I don't believe there's a shortage of people trying given our collective legacy and social economic standing. The fact is, there's ample room for us to achieve more in many, many endeavors. If there is a collective weakness we've yet to address, it's forming the types of vehicles to channel (or recycle) capital for investment into our entrepreneurs' projects.

DEE says:

Well.. The REAL PROBLEM.. Is our parents and the schools that our children go to.. Many of our parents grew up in the 50's and 60's.. Times were very hard for african americans and owning a business was pipe dreaming.. Nearly impossible..So for our parents to encourage their children to own a business is not something that they would do.. They are just now seeing that despite belief.. Owning a business and working a job are nearly as risky. Many of our parents are now 50 and 60 year olds and complain about not having a fair share in corporate america and after working 20 and 30 years, have not accomplished much, but many still wont promote owning a business.. Its a stuck mentality.. Trust me.. Their childhoods shaped their outlook.. But times have changed.. Have you ever been to a “Black School” .. Then for the most part FORGET entrepreneurship being taught.. Most african american children are harrassed for learning, and how many of your kids friends parents own a business.. Not many, so it has become a viscious cycle.. So many African American children believe that only rappers, actors and ball player are wealthy.. They dont understand that the odds of acquiring wealth thru business are much more favorable then even being drafted as a garbage ball player..

Now lets talk about “Our” spending habits.. We are so $@## stupid with money as a people.. We are always wanting instant gratification.. We spend so much money on DUMB @#! stuff.. We dont invest anything, or save anything as a whole.. So how many lessons on investing and saving do we not teach our children? For the most part.. We hang out of folks just like us.. So what lessons do we teach our children? Being black doesnt mean hanging only with Black Folks.. And if you think you will own a business and only hire blacks, and do business with blacks and close deals with blacks.. You've got another thing coming..

Our children have the best shoes, clothes, video games, ipods, and every other stupid gadget.. But our children dont own a laptop, or computer.. How many books are they reading outside of school.. How important is education for our children.. Question.. How many black kids are walking and taking the bus to school? Where are the parents? I dont care what job you have.. Take your child to school.. Show them that the sacrifice you make to get them there and pick them up is important.. Go to parent teacher conference.. Count the black kids and black parents.. Yeah.. once again.. Not many.. Starting and growning a business is about saving every dime, minimizing cost, making sacrifices and not caring what other people think until you are successful… Not trying to fit in with these other broke idiots, by buying every dumb thing we see..

Miles Maker says:

This is a disparaging statistic and is in fact a call to ACTION.

Not for lack of ideas–this is all about tech sector financing and the perception of people of color within it. Our challenge is to remove fear and doubt among would-be investors who are looking for any reason to say NO.

[Miles Maker is an author, auteur, tribal tastemaker and new media maven exploring event-driven story models to produce unique interactive entertainment experiences.]

David Carter says:

I am just a normal man who just wants to make a change in the world and I will do that by starting my own business and making that a success and using it as an example to others that it can be done.

But like Drew Little said “There's been enough complaining, now it's time for a solution.. “

My solutions to the problem are to first teach our children that they truly can be millionaires.

We can start by teaching them a simple Fact: To be a millionaire in a year you only need to sell 2100 people in the whole entire world something for $40 dollars a month for 12 months. With the internet that is easily possible. Our youth are already using there time online why not focus that time into something that will make their lives better?

Just think how much we spend on coffee or soda a month per person. Easily $40 dollars right there.

There are people who pay hundreds of dollars for stamps if they get the right one. If people can find a niche market for stamps I know there are millions of other niches out there just waiting to be sold to. You don't have to be the biggest at it you just have to do something a little better than the other guys.

Teach them to find whats missing in their area and to fill that need.

My second solution is to get the church involved. As African Americans we have always been routed deep in the church with a since of community but we don't take advantage of our own spending power. With all do respect to churches and the people going why can't we invest in our own black business leaders as much as we do in our offerings.

If there was a weekly meeting after church were black entrepreneurs could showcase their business ideas to the church and the one that the people believe will have the best success gets the investment that week. Who needs angel investors then? Why not give stock in the company to the people you see everyday who need help just as you do.

We have the money as a people but what we do is after we give our offerings at the church we go spend the rest of our money elsewhere. We need to be thought that the offerings take care of the church but we also need to take care of our community which includes entrepreneurs who will in turn pay back the community.

You don't need millions right now to start your company. You only need a few thousand if you bootstrap your company and build a lean startup. If you look at this link it will explain what a lean startup is and how it works. This is how I plan to grow my business.

https://www.socrated.com/courses/226

What it does is teach you to validate your product first before you spend a million dollars on it and fail because nobody wants to buy your product/service. You do a small test first with your most basic features and make sure the customer has interest in what your trying to sell first. Its a little more detailed than that but thats the jest of it.

Once you have a guaranteed successful profitable business then VC should be more willing to invest because VC hate to invest and possibly fail but they love to invest and guarantee a profit.

We need to become the quality not quantity standard. If 83% of VC funding goes to white founders and 50% fail we need start with 20% funding and having 75% success rate. No matter what factors come in when deciding who to fund no one will be able to resist investing in guaranteed investments like that. Then the snow ball effect takes place and now we are at 50% of VC investments as it should be.

Continuing on with my solutions. I believe a mandatory mentor program should be include in any church / community investment. The goal of this to produce more leaders who can pass on there experience on to the rest of the black entrepreneur to come. After all the business advantage that they have over us is that they are willing to share and Network there information with each other to improve both of their businesses.

I have several more solutions but these are just the few I plan to start with once my company is successful.

David Carter says:

With all due respect to the person who posted here before me who stated that the “1% factoid isn't as relevant as it sounds” I would strongly have to disagree with you on the fact that 1 – 10% of any measurement of success or completion in business is disgraceful. We shouldn't hide this away as a non problem we should instead use this fact to show that there is in fact a real problem.

In my opinion we are not just lacking in funding which is a major part of the problem but we are lacking in a deep understanding of our worth and power in the world. I believe we as African American people don't promote entrepreneurship as well we should among our black youths. We don't praise our African American business owners enough and teach them to support there own.

I was fortunate enough to have been expose to this as a child by my mother and father who owned a mom and pop restaurant which sold fast food and deli sandwiches since 1975 – 2005 when they retired. I was to young at the time to understand the huge risk they took when leaving their steady hospital jobs in Belleville New Jersey and also being black in that time.

I now understand fully the risk and the impact that event had on my life. I was taught to be an owner since I was born but unless constantly reminded us as children learn to go with the mass norm until an event happens that unlocks the entrepreneurial rage in us all. When I say rage I mean pain. Thats were all entrepreneurs come from and thats were all business ideas come from. We either have a problem ourselves or see a problem from someone else that we believe could be solved. We need to foster the idea of entrepreneurship in our children from a young age instead of allowing them to continue life on the same road as our parents before us which in most case was working 10 – 12 hour days for someone else.

If we don't change our mind set from the thought that this small corner of life that we are living is enough then we will never change as a people.

Darrell says:

Also, I can understand how many African American CEO's want their work to qualify them and not their race.. And thats great.. I totally understand that. But even though we are profit and growth driven, we have a unique responsibility as African American CEO's. We have a responsibility to show younger generations that the most realistic path to wealth is Business Ownership. We cant show others if we hide behind our companies. Visit any urban school, (Majority African American and or Hispanic) most children have no idea that there are wealthy CEO's that are minorities.. Why because they only see whats put in front of them by means of Tv, Videos, and the internet. Look at the Forbes top 400.. Subtract rappers, actors and singers.. Subtract Oprah, Tyler Perry and Bob Johnson.. There are only a few African American's on that list that gained wealth from Business.. Im not knocking any of the ones that are actors, rappers etc… Im just proving a point.

Darrell says:

Hi.. I am a African American serial CEO.. Ive grown and sold 3 successful businesses in the Tech Industry. I am 27 years old and grew up in the “MTV” generation. So its interesting being an African American CEO. There is always the temptation to “hide” behind the company name, but we have to remember that for the “most” part, Technology is the equalizer. Most companies and consumers could really care less what you look or sound like..If the product is right, price right and experience is there, they most likely will purchase.. I know that there are some exceptions, but who cares. At the end of the day, its business . So if you are scared of others knowing who you are, you are also somewhat scared of the product and/ or service you provide.

Steven Otu says:

And just to dive a little deeper about “in a world that needs it” (sorry if I'm on a soapbox), I think it goes deeper than just underrepresentation in America, especially in the highly connected world of 2010. My family's of African descent and I know African web entrepreneurs that are working hard to make a life for themselves (check Jobberman.com for example). If I were to earn any level of success with my business here, then I'd like to use this leverage to continue creating value throughout the world. Again, glad to know there's a community out there shining light on an industry with infinite potential.

Steven Otu says:

Very interesting read. We're in the process of launching a crowdsourcing Web 2.0 business at http://www.iFundie.com and stats like these can be a little daunting. Glad to know there's a strong community out there that aims to bring light and gradual change to this in a world that needs it.

Drew Little says:

For our organization, we're going to use social fundraising and partner with relevant NPOs to raise capital using similar techniques that KickStarter.com uses. I think definitely feel it's going to be the future of financing start ups.

Another idea is Royalty Based Financing.

Best of luck with your endeavors…

Drew Little says:

There's been enough complaining, now it's time for a solution..

The Illuminated Ventures Project (IllVP) has created a plan to diversify New Media & level economic self suffiency …check us out http://illvp.com

Toast says:

Sorry to say but this is sad. Taysha S Valez is a beast in this telecom tech space but African Americans are so self loathing and so closed minded that they try to destroy this girl on the net. Her ish is tight though. Indonesia , all over Africa, and now her ish is picking up steam in the USA. I don't blame her for doing her thing and ignoring everybody but the right bodies. myTAY dot com is hers and so is gildedgossip dot com and about 100 0ther sites she's behind like heyaz dot com and so on.

Klj_mcsd says:

Hold up. I cannot believe people are surprised by this! Wow. Just think. African American are only 14% of the US population. Only a smal percentage of those are in IT. I think 1% is about right considering the percentage of African Americans in IT. As someone said we need to get more African Americans in IT. I am in IT and have worked with less than 10 blacks in my 13 year career.

Wm_Tucker says:

The hard reality, as you know Mike, is there simply aren't many Af-Am VCs. The few that I know of are better described as boutiques representing accredited investors. They tend not to invest in seed-, and/or proof-of-concept stage companies.

Under the model laid out here, that leaves angels. Dealing with angels is a hit-or-miss proposition, and involves a significant investment of an entrepreneur's time, financial, and social capital. Angel investors tend to be motivated by personal relationships, which may partially explain why Af-Am entrepreneurs are traditionally out of the loop. We haven't formed those social connections.

I would amend the diagram here to count 'friends and family' with 'founder's equity' as 'bootstrapping'. Beyond bootstrapping is traditional financing, where the entrepreneur will likely be required to put up security (cash and/or equity) of 10% or more, and have good credit. Also left out of this discussion is 'non-traditional' financing, which can include everything from landlord- and vendor financing to advance sales and factoring. AAMOF, I recommend entrepreneurs pursue non-traditional financing ahead of many alternatives, because it's relatively easy to procure.

I'd also pursue a private placement before angel- or venture capital. It's not as expensive and, done properly, expands your opportunity to a lot of people and organizations who might not normally invest.

Mike Green says:

I'm the founder and CEO of Vizitnow3D, an Internet innovation company based in southern Oregon. We're racing to bring a new interactive 3D brand of online experience to the sports market and monetize the social content generated by pro athletes. We have a proof of concept, a qualified team, advisers, board of directors, a marketing partner in the pro athlete space and a high tech partner with top industry quals. We've been invited to present to a number of angels and groups and we're currently in the hunt for funding to produce a working prototype to launch during the NFL playoffs.

Yet we have not seen one Black face. Not one. We can't even get access to present our idea.

There seems to be no easy public pathways to speak to Black investors, potential partners, Black media owners or even top tier Black athletes who could benefit from this new technology we're bringing to market.

On the other hand, there are Angel groups of White investors, public pathways to VCs, online invitations to submit business plans or executive summaries, invitations to events to pitch to White investors, incubators, etc. The road is tough, of course. But the paths are there. We have to network, of course. But the opportunities are there. We have to be creative, of course. But we've been successful in getting heard by White investors.

We haven't yet figured out why we cannot get any interest or even a returned email or phone call when we seek to contact potential Black partners. Perhaps I'm doing something wrong? I'm open to learning. Anyone have any ideas for me?

Coori says:

WOW! This is sad but true my wife and I are black entrepreneurs and we follow the same road of not letting the public know that we own our business. It's sad we have to take the back seat in 2010.

We were just having this conversation the other day the money we used to start our first company did not come from venture capitalist or loans from the local bank. It came from right out of pocket.

I always read the stories about the 24 year old white kid who had a awesome idea for a internet company had no prior experience in business but received 5-10 million in start up capitol from venture capitalist! Maybe I'm doing something wrong on my end!!! SMH

Rue says:

I agree with Reginald — we need to look to high net worth African Americans families and family foundations who have quiet money (i.e. non-celebrities) as potential partners.

Here is an interesting article I read a while back that might spark some new thinking about where to we might seek support: http://bit.ly/9if12u

Rue
Founder, Outdoor Afro
http://outdoorafro.com

Where are the Black VC's and Philantropists? You have plenty of potential connections reading this post.

Wm_Tucker says:

That's the wrong attitude for an entrepreneur to have.

Not that there's anything necessarily wrong with niche marketing — especially when the entrepreneur identifies an underserved market — but it's incumbent upon those of us starting companies to identify a market, then demonstrate our companies' value to that market.

Wm_Tucker says:

I think it needs to be pointed out this survey reflects those Internet start-ups that receive venture capital. So, it's quite likely the actual number of Af-Ams launching web-based businesses is higher than 1% (although how much higher I won't venture to guess).

To be honest, most start-ups — those owned byAf-Ams notwithstanding — don't get within sniffing distance of venture capital. Perhaps this '1%' factoid isn't as relevant as it sounds. While I think many here can testify to the dearth of Af-Ams involved at the executive/industrialist level in manufacturing, media, and telecommunications, we should be looking at why the discrepancies exist and how we might them.

mikeydigital says:

Cameron is right. I remember when the Washington Post did the “Being A Black Man” special report a few years ago (go here: http://bit.ly/19enLh) there were this the technology consulting name Enlightened Inc. run by about 3 black guys (here is the link to their story: http://www.washingtonpost.com/wp-dyn/content/ar…)

Basically what ended up happening is they removed any instances of some one realizing that the company was run by 3 black guys by for example, putting white guys in suits as images on their webiste.. if you read the story in the book that came out for the report, they go into detail about how they even hired a white guy to not necessarily be the face of the company, but to have him present to observe and speak at any meeting when they pitched their services to potential clients.

I can't say this is the case in all instances, but this could very well be the norm for most black business owners. The approach the guys at Enlightened Inc. took is basically the same approach I'm taking with the tech startups I'm working on outside of Noire Digerati.. at least in the beginning..

Sad.. but true..

Mikey Digital
noiredigerati.com

rmcaldwell says:

Cameron, you're not wrong at all. It's kind of funny, but it almost sounds like a reverse affirmative action. Thankfully, there is a space such as BW 2.0 (yep, I'm biased but honest) to share the journey.

The reason being that as a black founder, you won't get support from black consumers or any other race. So you have to play the background role in the beginning and then come out after success. Maybe I'm wrong but that's what I see.

James Harris says:

Thanks for the covering this. It important that we have some sense that we are not playing in this space as we should. A lot of work is needed in the area. More to come on what we are doing and our efforts around H10 soon.

All the best,

James

thefriendraiser says:

wow…i am going to have to seek out a potential partner here in CLT…i've got the ideas, just not the tech expertise

rmcaldwell says:

I've been reading this report as I'm writing an interview with a black founder. One of the things that has been articulated to me is that most black founders don't want to be initially identified as “black.” They want their work to stand on its own merit. My hope is that this post and the report encourage more black founding teams to identify themselves and even come together for support and to create an ongoing conversation. Great post.

Since I started up my own tech company, I have only met one other black founding team, but I didn't think it was 1%. We have much more work to do to push more African-Americans into the tech industry.

Marcus Finley

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