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Analyzing 120 companies that ranged from start-ups to established business, I found that approximately $1.92 billion was invested in that period alone.ĭiscouragingly, the findings, which are admittedly unscientific, nevertheless suggest that the racial and gender problem in venture funding is stubbornly persistent. To determine whether or not this industry problem has persisted, I conducted an informal study using CB Insights to identify companies that received a round of funding from March 18-19. Since the report was published, there have not been any follow-up studies to determine the extent to which the playing field has either been leveled, or whether the imbalance remains. The report showed that, four years ago, ethnicity and gender were disproportionately factored into that crucial “human capital” valuation equation, leaving minorities and women at a distinct disadvantage when seeking early investments.
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This demonstrates just how crucial human capital is in VC (venture capital) investment decision-making.” Rather, the first answer is frequently ‘the team’ or ‘the founders’. In the preface to the report, CB Insights writes: “When we ask venture capitalists what gets them excited about the young, emerging, and often unproven companies in which they invest, we never hear about deals and dollars.
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The impetus for the study was to determine what was behind venture capitalists’ investment strategies, which CB Insights suggests is a “critical lever in the United States to spur innovation, entrepreneurship and economic growth.” The study found that while less than 1 percent of venture-capital-backed company founders were African American and 12 percent were Asian, 83 percent had a racial composition that was entirely Caucasian. Regrettably, it seems that there is a pervasive, systemic problem throughout the venture capitalist community, where it seems distinctly risk averse when weighing investments in companies founded or led by women and minorities.Ī study conducted by CB Insights in 2010 examined the disparity in the amount of venture capital funding for Silicon Valley companies founded by minorities and women as compared to companies founded by Caucasians. Venture capitalists gain the confidence to gamble on a company’s future when they see the potential for that company to succeed. The investment game, however, is all about taking calculated risks while mitigating others. A venture capital fund reaps profits by acquiring an equity stake in the company, netting a percentage of businesses’ earnings based on the venture capitalist's percentage of ownership. Without their early financial backing, companies like Google, Facebook and Microsoft might never have taken off.īy definition, venture capital is early-stage funding for start-up companies that are high on risk but also high on potential. Venture capitalists are in the business of picking winners and losers.