We need to boost Black-founded STEM startups
In Embrace Boston’s recently released Harm Report, there is a section on entrepreneurship.
We at Greater Grove Hall Main Streets are proposing a study funded by one of our institutions such as The Barr or Boston Foundation, or the New England Venture Capital Association that would examine why Boston, a hightech, bioscience mecca for white start-ups is underperforming much smaller metros such as Nashville or Memphis or Huntsville, Alabama, when it comes to the production and success of Black, STEM-based start-ups.
If we are truly interested in reducing the wealth gap, then we must solve this problem as it could produce thousands of Black millionaires over the next ten years.
Why do fewer Blacks in our region get venture money in this area? It is because the Boston/ Cambridge area has such a diverse and robust economy, that the economy’s future success is not dependent on Blacks in the high-tech sector as founders or employees. In other words, if there was never another Black founder in technology, life science, or any STEM-based startup, it would not have a material impact on the economy. As a result, there are no strong economic motivations.
Unlike other metro areas, political, business and civic leaders do not view the lack of Black-founded start-ups as a problem, therefore, no one is working on a solution. A second critical factor may be access to social capital and networks, which are influenced by race.
These are our hypotheses, but they need to be tested with research from an organization such as The Initiative for a Competitive Inner City (ICIC) and/or The Brookings Institute.
The greater Boston/Cambridge area is one of the nation’s top start-up “clusters” in America with the others being Silicon Valley and New York City.
How can Boston/Cambridge be number two or three for tech start-ups, but Massachusetts ranks 20th for the percentage of venture capital going to Black founders? The Boston-Cambridge-Quincy metro area ranked 12th out of 140 such regions in terms of the number of venture capital deals in 2022, raising $24.3 billion in funding across 199 deals. The region’s ranking for the number of companies receiving venture capital funding in 2022 was 11th out of 140.
In 2022, venture capitalists funneled a record $34.8 billion to startups in Massachusetts. But only a tiny fraction — 0.4 percent — went to startups with Black founders, according to a Boston Globe analysis of Crunchbase data published in January. At 0.4%, Massachusetts is underperforming the nation, which is at a little over 1%. According to our research, Massachusetts ranks 12th in total number of Black-founded tech firms. When it comes to cities with Black tech founders who had large successful exits, Boston doesn’t have any, compared to Atlanta which has at least five.
Things are much better nationally. According to a 2022 report by Crunchbase, 2.4% of venture capital funding went to Black-founded startups in 2021. This is despite the fact that Black people make up 13% of the U.S. population. The report also found that the number of Black-founded startups that received funding in 2021 increased by 10% from the previous year. However, this is still significantly lower than the number of startups founded by white people, which received 73% of venture capital funding in 2021.
According to co-founder and former America Online CEO Steve Case, who is currently CEO of a large venture and growth capital firm, 75% of the nation’s venture capital money goes to just three states—California, New York, and … Massachusetts?
A study by attorney Nick Aquino, then at Harvard Law, looked at the legal avenues for channeling public and private funds to Black Entrepreneurs in Massachusetts and compared it with other cities that seemed to have a greater number of Black Tech founders. The study looked at public pension and university endowments, direct public investments through quasi-public agencies, private foundation investments, federal tax incentives (e.g. new market tax credits) and opportunity zones, and donor-advised funds. The conclusion: Massachusetts had all the legislative or regulatory tools in place relative to any other city or state.
The fact that venture capital isn’t making it to Massachusetts’ Black founders means there is some type of failure or friction in the marketplace.
Why would Boston/Cambridge underperform smaller metros, which arguably have fewer assets as a tech start-up cluster, if the assets that make up a tech cluster are equally available to all races and ethnicities? Especially since venture capitalists say they don’t see Black or white, just green.
Increasing the number of STEM-based start-ups and accelerating the growth of existing firms is important for the following reasons. Reducing the racial wealth gap. Tech startups can lead to tech millionaires. Tech jobs pay well, have good benefits including stock options. These jobs have a clear path to the middle class. Studies show that Black businesses tend to hire more Black employees. This could have an impact on the well-being of those in the Black community. It’s often more cost-effective to focus on launching hundreds of startups, rather than trying to lure in a large employer who will demand millions in tax and infrastructure incentives.
Increasing the numbers of Blacks in STEM-based companies as founders or employees helps resolve other problems such as health care disparities and the affordable housing crisis. We need Black founders as role models to inspire and create the next generation of problem solvers, wealth creators, and philanthropists. Those in venture capital need to see examples of Blacks as successful founders, in order to feel comfortable taking the meetings and making the investment.
Finally, there’s proof that these investments can have higher returns. Reinventure Capital, a venture fund focused on “investing in a more perfect multicultural, equitable, and prosperous union,” shows that BIPOC funds can outperform their peers.
Tech firms have proven to have the ability to transform a community. Increasing STEM-based start-ups means there are more people working on the world’s problems such as climate change, or unsolved problems that groups such as Blacks have. Increasing the participation in the STEM-based economy increases the nation’s competitiveness.
We believe increasing the number of STEM-based startups founded by Blacks is important and we want to see a study that looks at why Massachusetts in general and the greater Boston/Cambridge area have underperformed other cities in terms of their plan, their actions, and determining the best practices.
Boston has done some things, but it’s not enough, as we are underperforming when we should be leading.