Silicon Valley Cash? Not for Blacks and Women

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Silicon Valley is a white male dominated world. Is America’s womb of technology struggling to find people of color to add to the mix or simply rejecting them?  There are probably plenty of answers to that question depending on who you ask. Some of the valley’s biggest and best known companies are at least trying to bring color to the white world of technology.

One of the companies trying to step up to the diversity challenge is Intel Corporation. In an effort to boost diversity in IT, Intel Capital has launched a $125 million investment program aimed at startups run by women and under-represented minorities. This in addition to a seperate investment program of $300 million announced last January with the stated goal of bringing more women and minorities into its workforce by 2020.

Intel has plans to change its capital investment program to make it more accessible for women and minorities. The world’s largest chip maker wants to be more open and responsive to funding requests from startups run by women and minorities. Intel has also established an advisory board of senior Intel employees to help make funding decisions.

Apple, the most successful company in history, is donating more than $50 million to organizations that intend to get more women, minorities, and veterans working in tech.

Apple’s chief of human resources, Denise Young Smith, granted an exclusive interview to Fortune magazine. In the interview Young Smith said that Apple is joining forces with non-profit organizations in a multi-year, multi-million-dollar effort to increase the number of women, minorities, and veterans in the technology industry and at Apple.

“We wanted to create opportunities for minority candidates to get their first job at Apple,” said Young Smith. “There is a tremendous upside to that and we are dogged about the fact that we can’t innovate without being diverse and inclusive.”

Apple’s efforts include a partnership with the Thurgood Marshall College Fund, a non-profit supporting students enrolled in public, historically black colleges and universities or HBCUs. In total there are 100 HBCUs in the U.S of which 47 are considered public  graduating 20 percent of African-Americans who earn undergraduate degrees.

Diversity is a big issue with Apple CEO Tim Cook who see’s diversity as a vital ingredient to the future of the company. “I think the most diverse group will produce the best product, I firmly believe that.”

Other companies that are pumping money into diversity efforts include AOL which launched the $10 million BBG Fund. The fund will focus on women-led Internet startups. Cable giant Comcast venture fund, Comcast Ventures, launched the $20 million Catalyst fund in 2011 to invest in companies led by women and members of minority groups.

But there are some that believe that investing in minority owned start ups just because they are a minority is not the best approach. Some black entreprenuers are asking that investment be made in minority start ups because its good business.”The more people who think this is an obligation, a social obligation, that’s probably not a good thing,” said Hamet Watt, a venture partner at Upfront Ventures.

The problem is pretty basic and straightforward, white venture capitalists are not interested in female or minority led start ups. White men make up the overwhelming majority of venture capitalists. The National Venture Capital Association/Dow Jones VentureSource reported that 89 percent of VC Partners are men, specifically white men who made up 76 percent.  A study of all VC Partners showed that just 10 percent identified as Asian, 1 percent as African-American, and less than 1 percent as Latino.  In 2014 total VC capital investment reached $48 billion the highest total in over ten years. 

It is a sad fact that there is clear prejudice against companies founded or led by women and minorities. A  2010 study conducted by CB Insights  focused on the disparity of venture capital funding for companies founded by minorities and women as compared to companies founded by whites.

The results revealed that less than 1 percent of venture-capital-backed company founders were black and 12 percent were Asian, 83 percent had a racial composition that was completely white.

In the report preface 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. Rather, the first answer is frequently ‘the team’ or ‘the founders’. This demonstrates just how crucial human capital is in VC (venture capital) investment decision-making.”

To translate that statement it simply says race and gender makes a difference when it comes to who gets the money in Silicon Valley.

Of the $1.92 billion invested in March of 2014,

• Companies led and made up of whites received 61 percent of the total investments, which equates to $1.41 billion.
• Asian-led companies recieved a 17 percent share of investments at slightly more than $383 million.
•  Latin American and Middle Eastern led companies took in $460 million, or 18 percent.
• Mixed-race leadership teams received $96 million in investments, or 4 percent.
• African-American led companies recieved the lowest share of investments. Only one black company recieved capital funding in the time period studied and that totaled a paltry $1.9 million. (Source: CB Insights)

Because of this glaring prejudice many black entreprenuers are faced with unfair pressure to back black owned start ups.

Charles Hudson, a partner at SoftTech VC, said he feels like he has to make himself accessible to African-American entrepreneurs.

“I also feel a certain pressure to try to help African-American entrepreneurs who I think are talented not work on terrible ideas,” Hudson said. “It’s not that they’re terrible ideas in general, it’s just that they’re not appropriate for venture. To me, that’s not unique to African-Americans.”

Hudson admitted to feeling “an enormous amount of pressure backing an African-American entrepreneur.”

“Pursuing an African-American business, for whatever reason if that investment doesn’t work, the buck stops with me,” Hudson said. “You realize that for whatever reason that investment’s failure is likely to be scrutinized to a greater degree than that SaaS company that didn’t work out. And I think about that. I wish I didn’t have to think about that.”

But the complexion of Silicon Valley is changing make no mistake about that. More and more black athletes like Floyd Mayweather and hip-hop artists are bringing their money into the technology start up game. Black athletes are also taking seats on the board of major technology companies. Most recently Magic Johnson took a seat on the board of directors of Square. The payment start up company is preparing to go public this year.

Now you know