Venture capital out of reach for many black entrepreneurs.
White, male entrepreneurs get edge
When Lola Adeyemi started a company making chickpea stews and roasted carrot soups like the ones she grew up eating in Africa, she was expecting an uphill battle.
The food industry has notoriously low margins and fighting for grocery store space alongside longtime household brands can be difficult — and that’s before one factors in Adeyemi’s race.
The Toronto woman, who was raised in Nigeria, dipped into savings, landed loans and grants and turned to her husband’s small consulting business to start It’s Souper.
Her products can be found on shelves at Sobeys, Mcewan and Foodland Ontario, but Adeyemi wishes it was easier for entrepreneurs like her to find support.
“I don’t want to be a unicorn. I don’t want to be the only Black female and immigrant entrepreneur here,” said Adeyemi, as she drove around dropping off samples to potential customers.
“I want others to be here too.”
Her experience is common for Black entrepreneurs in Canada. They often find themselves underfunded and unsupported by venture capitalists, who pour money into companies run by people in their existing networks, which are predominantly white and male.
Quantifying how much less funding Black business owners are receiving is tough because such metrics are seldom tracked in Canada, but entrepreneurs and investors estimate it to be on par with — or even worse than — the U.S.
Less than one per cent of the US$543 billion in venture capital offered in the U.S. between 2015 and 2019 was given to Black and African-american founders, according to business information platform Crunchbase. That’s just US$4.9 billion.
Meanwhile, only two of 300 grants the Canadian government offered women-owned businesses went to Black-run companies in 2018, said Amoye Henry, the co-founder of Pitch Better Canada, which helps under-represented communities access capital.
Pitch Better has so far offered pitching advice to 306 Canadian companies and helped 50 find funding.
“People want to give money to and invest in people and things they’re very comfortable with, that look like them and that they can trust will get their money back,” she said.
Black business owners without university or Ivy League educations lack connections with wealthy alumni networks that offer ties to Bay Street or Silicon Valley.
The few that secure some funding are often resistant to taking it because they can’t rely on family, friends or banks if they run into trouble, she added.
“They just feel like they won’t be able to pay the debt back ... white people will just take on the debt and try anyways,” Henry said.
She and Pitch Better Canada co-founder Adeela Carter have had to plead with Black founders to take sums as low as $150,000.
“I remember saying I will help you find the money (if it comes to that), just take the money,” said Henry, of one situation.
“(The founder) was just like ‘I don’t want to ruin the opportunity for future black founders, if I take it and I can’t pay it back.’”
People Want To Give Money To ... People and Things They’re Very COMFORTABLE WITH.
Isaac Olowolafe Jr. has worked with early stage financing since 2015, when he noticed a dearth of Black founders in Canada and started Dream Maker Ventures, an investment arm for his real estate-focused asset management firm.
By 2019, he was also running the Black Innovation Fellowship, a Ryerson University-backed initiative to support Black-led startups.
However, he’s an anomaly. A 2019 study from the Canadian Venture Capital Association showed that only eight partners at the 145 private equity firms surveyed were “visible minorities.”
Black people made up 3.5 per cent of Canada’s population in 2016, according to the latest figures from Statistics Canada. Visible minorities made up 15.6 per cent of the population that year.
Of the 132 partners at surveyed venture capital firms, the association found only 24 partners or 18 per cent were visible minorities.
The survey did not specify how many of those partners were Black, but Henry and Olowolafe Jr. said there are few in Canada and that’s part of the problem.
Many of the Black entrepreneurs behind funds keep a low profile, said Henry, because they only have so much money to disperse and they worry that advertising their willingness to invest in the community will make them a magnet for too many pitches they can’t support.
But even getting to that point is tough, Olowolafe Jr. pointed out. Olowolafe Jr. believes raising venture capital for Black entrepreneurs relies on relationships because investors will write cheques for people they know and trust. “It’s not about recreating the wheel, but basically doubling down on what works for other communities and bringing it back to the Black community,” he said.
Addressing unconscious bias is also part of the solution, said Ariel Gough, the co-founder of Nova Scotia-based fragrance company Bailly. “Everybody has unconscious bias based on their experience, how they grew up and who they were around, but it’s important we recognize that we may not be judging entrepreneurs solely on their ideas or their objectives or their potential,” she said.
Venture capitalists, she said, want to see traction, but getting there takes money most Black founders don’t have. “It can be very discouraging coming out of those meetings,” Gough said. “You often feel like all the hard work you have put into your business has not got you anywhere.”
Adeyemi noticed funding opportunities have slowly cropped up for Black entrepreneurs after the death of George Floyd in police custody last year.
As companies pledged to help Black communities more, she found a $75,000 grant, but she’s always conscious that the momentum incidents like Floyd’s death created can easily dissipate.
That would be a shame, she said, because the benefits of investing in Black entrepreneurs are widespread.
“When you empower people that are marginalized or even just a Black community, you’re empowering the whole country.”