It’s no secret that minority startup founders remain underserved by the traditional venture capital funding model. Using data provided by Crunchbase, Fortune reports that “Black and Latino founders accounted for less than 4% of all venture capital deals and only 2.3% of all venture dollars raised in the U.S in 2019.” This lack of diversity among venture-backed founders has spurred numerous calls to action in recent years, including The Diversity Rider, a pledge to commit specific percentages of a fund to underrepresented founders. Big names like Greycroft and Lerer Hippeau have already signed on.
But what about the online private markets? This week we broke down both the percentage of minority-founded companies that raise via equity crowdfunding as well as the percentage of total capital raised that went to companies with one or more minority founders. The data was pulled from Regulation Crowdfunding equity deals that closed between January 1 and May 31, 2021. Minority founders were classified as non-white and/or LGBTQ+, regardless of gender.
Overall, companies with a minority founder made up about one third (33.3%) of total equity deals that closed in the first five months of 2021. Encouragingly, the percentage of overall funding that went to underrepresented founders was roughly the same at 32.9%. This suggests that individual startup investors may not be perpetuating the sort of bias that exists in the world of venture capital. Instead, they are funding minority-founded companies just as much as other deals. In just five months, crowdfunders have already far surpassed traditional VC when it comes to investing in minority founders.
There are new venture firms — like Backstage Capital and One Way Ventures — that focus on underrepresented founders. But the online private markets offer individuals an opportunity to actively and intentionally invest in minority founders. Platforms like Republic make it even easier by tagging deals as having minority, LGBTQ+, and immigrant founders.
Note: all data used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the crowdfunding market.