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Though more women and entrepreneurs of color are leading venture-backed startups across the country, founding teams are still predominantly white, male and located in the Bay Area.
A report from RateMyInvestor and the nonprofit Diversity VC looked at data from 2018 to 2019 — before the killing of George Floyd and others thrust the country into a racial reckoning. Using data from its previous report taken over a four-year period beginning in 2013, it tracked the top 100 U.S. VC firms accounting for $68 billion in funding across 3,304 companies.
Just as the first report found, startups funded by the top VCs were nearly 90% male. Seventy-two percent of founders were white and a little over a third — 35% — were based in Silicon Valley. Almost 14% were Ivy League-educated.
"Women and people of color are starting companies at a record rate and yet, investors are still saying there is a talent pipeline problem," said Shila Nieves Burney, founder and managing partner at Atlanta-based Zane Ventures.
In Los Angeles, female founders are funded at a higher rate than the national average. Nearly 30% of the companies funded in the city have a female founder, compared to 22% nationally. Data also shows that Black founders are more likely to be backed if they are based in L.A.
Funding raised by companies the authors tracked nearly tripled in 2019 from six years earlier. And companies in L.A. raised 7.5% of all seed funding over the time period analyzed. The average amount per deal represented 20% more than the national average.
Despite the bump and considerable attention paid to the issue last year, many figures from that first study have barely budged.
The Bay Area still holds a tight grasp on VC funding, but more investors are turning to companies founded in other cities. An average of 388 funds were launched outside of the Bay Area, New York and L.A. in 2018 and 2019, according to PitchBook data. That number hit just 180 between 2013 and 2017.
The report released Thursday found that over two-thirds of investments were brought in from other cities, 28% of which came outside of major metropolitan areas.
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Women entrepreneurs in Southern California are more likely to receive early-stage funding from the nation's top 100 VC firms than if they live elsewhere, according to an exclusive new look at a report on U.S. VC investment in diverse founders.
The report, previewed Wednesday at dot.LA's summit, was conducted by RateMyInvestor in partnership with Diversity VC. It looked at investments under $100 million made by the nation's 100 most active VC firms by deal numbers during 2018 and 2019. It also accounted for the "perceived" race and gender of founders, said Bennett Quintard, co-founder and COO of RateMyInvestor.
The survey fills a glaring gap in official data around the racial makeup of companies receiving VC-backed investment. Earlier this week, dot.LA reported that VC investment in all-female founded companies in L.A. dropped 70% in the third quarter compared to last year, while all male founded companies saw a 385% bump, according to an analysis of PitchBook data. But PitchBook does not track data around race.
Of the total capital invested nationally, about 5.5% went to 429 founders and 187 startups in Southern California.
The report found 84% of capital in the U.S. went to male founders. But in L.A., female founders fared better. The percentage of all-female teams that received funding is almost twice as high as it is nationally. Female and mixed-gender teams were likely to receive larger seed and Series A checks than the national average, and mixed-gender teams tended to raise more money than single-gender teams.
Women who received capital were more likely to have an Ivy League education than men — 20% versus 12.75%. And everyone was more likely to be white. Of the 429 L.A. founders, only two were LatinX and nine Black.
"To be honest with you, I'm not surprised, and I'd be surprised if anyone was surprised by the data," said Eyana Carballo, manager of global commercial strategy & IP at BCG Digital Ventures, the corporate venture arm of Boston Consulting Group.
"'I've seen VCs really increased portfolio diversity by investing in gender and gender equity, from board and founder representation to, honestly, target-setting: percentages of funding reserved for women-led startups," she said. "But diversity isn't a side hustle, nor is how we attack it. We tend to attack it like in a singular monolithic way. I would love to see firms and stand up to solve more structural and institutional diversity by weaving more equitable solutions into every business outcome."
Anthony Zhang, co-founder and CEO of Vinovest said that "it takes years for an ecosystem to change at the Series A or later stage." He added: "It doesn't seem like those founders that maybe have started their company a little bit earlier, have seen that support."
Other issues that crop up among racially diverse founders is the inability to access the same "friends and family" capital and networks many white founders start off with. On the flip side, "disenfranchised communities of color" are often left on the sidelines in terms of getting opportunities to write checks to create generational wealth, Carballo said.
Quintard acknowledged that "Asia is a massive, massive place" and that the data should include a better breakdown of data that differentiates between Asian Americans from different geographic areas.
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