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Securing funding for a startup relies heavily on the connections you have among investors, as well as your ability to attract attention to your business. What happens when those investors are mostly upper-class white men, and you are not? It can be difficult for people of color, women, and working-class backgrounds to find investors for their startups when most of the funding comes from people outside their social circles. The lucrative startup landscape has been particularly exclusive and inaccessible for non-white male and female entrepreneurs, whether intentionally or not.
For ambitious entrepreneurs who don’t benefit from a privileged background, it’s important to understand the challenges you may face when seeking funding. It’s also equally important not to let these extra obstacles overwhelm your vision and stop your business from getting the investments it needs. This article will discuss the most common challenges for non-white, female, or working-class startup entrepreneurs and provide some tips and insight about how you can overcome them.
Have patience – and persistence
Many people with experience in the startup environment will tell you that your first startup funding round should take about six months. However, we already know that your experience in this landscape won’t be typical. Consider that 90% of tech startups are male-founded, with 77% being white. These folks often have access to vastly more resources than your average entrepreneur and may even have a long line of successful entrepreneurs in the family.
Give your startup a more realistic business strategy for obtaining funding, and understand that it may take a lot more effort, work and persistence on your journey than for others. When you are the highest-earning or most successful person in your circle of family and friends, you don’t have the luxury of phoning up a loaded uncle for a short-term loan, after all.
Unfortunately, an initial lack of funding is often a turnoff for investors, who may see your lack of investments as a liability, proof that people don’t buy into your idea, or that you haven’t worked hard enough. Because of this, you will likely need to start looking for funding earlier on in your startup’s lifecycle.
Even though this is a challenge, it’s one that many black, brown, and female entrepreneurs face, as well as white men from working-class backgrounds. Don’t give up or get discouraged! With persistence, you can find an investor who understands your business and your vision – which is just as important as the funding itself.
Try searching online for angel investors, early seed investors, or incubator/accelerator programs that could help your business get funding. Social networks such as Angel.co, F6S.com, backstagecrowd.com, or even crowdfunding websites can help you get started.
The good news is that the tide is slowly – but surely – turning in terms of the number of investments black businesses receive. In 2021, black businesses secured more than quadruple the amount of funding they did in the previous year.
Use failure to find success
People who feel like they don’t fit in often feel more pressured to avoid mistakes. They often feel like they serve as an unofficial representative for people of their race, gender or background. People of color and women in male-dominated industries understand this pressure all too well. However, succumbing to these feelings can be a death knell for your startup’s success.
The only commonality between all successful people is that they have failed many times throughout their lives before finding the method that brings them success. In 2019, the failure rate of startups was around 90%. Typically, entrepreneurs found success after their third, fourth or even fifth business venture. However, many people from marginalized groups are more risk-averse because of the life experiences they’ve had.
Part of this is because people of color and female business professionals are generally judged more harshly for their mistakes. While a normal part of running a business, a mistake can reinforce negative racial and gender-based stereotypes, sometimes on a subconscious level.
The truth is, every business professional makes mistakes – especially those who are just starting a business. Avoid shying away from risks and remember the adage “no risk, no reward.” If you have a fear of failure (actually, most of us do!), remind yourself that failures can be the most valuable learning experiences that money can’t buy.
Don’t be afraid to be open about your failures when talking to investors, and be sure to highlight how you have changed your approach since then. Showing potential investors that you can recognize mistakes and grow from them will prove that you have the characteristics of a great salesperson and leader.
Find your people
Those who feel sidelined and marginalized – for example, non-white men in an industry full of white men – can be tempted to isolate. A lack of trust in the system – which has not, after all, been designed for people who look like you – can result in self-sufficiency that, while admirable, will not help grow your business. A good team is of vital importance to a startup entrepreneur. You will need support from others to take your business to the next level and, most importantly, to prove that you can work as a team.
Even the best businesses and the strongest leaders can fail if they don’t have a solid sense of trust in teamwork. Investors love to see when a company can communicate and collaborate efficiently. While funding is important, so is connecting with the right people who can add to the vision of your business.
Get out there
Securing funding when you don’t already have a network involves a lot of extra legwork. For entrepreneurs who didn’t grow up surrounded by successful businessmen, it will take some extra effort to get the word out about your startup. So be sure to attend networking events, seek mentors and always talk about your business to friends, family and anyone else who will listen.
Researching investors who have expressed an interest in working with diverse startups can pay huge dividends. You may also want to check out the Community Development Financial Institutions (CDFI) Fund, a government-backed fund that provides “loans, investments and financial services … to underserved populations and communities.” Furthermore, the Minority Business Development Agency (MBDA) is a federal agency “tasked with promoting the growth and competitiveness of minority-owned businesses” and can offer many resources in your funding journey.
Harlem Capital Partners, Humble Ventures and Kapor Capital are just some of the venture capital firms that focus on allocating funding to diverse founders. Research the venture capital firms in your local area and around the country to see if you can find an investor who can help you with your startup while also having a better understanding of your experience as a non-white entrepreneur.
Startup entrepreneurs must face a seemingly insurmountable number of obstacles on their journey to success. These challenges can be amplified greatly if you are a person of color or female.
However, with persistence, a strong belief in your startup’s vision and an unswayable attitude, you can find investors who can give you the funding you need to align your business with your goals.