RALEIGH – In the wake of George Floyd’s murder and the summer of racial reckoning in 2020, North Carolina’s tech industry promised to do better when it came to diversity and inclusion. But recent data and interviews with experts suggest efforts to diversify the famously white male-dominated industry are struggling.
Black-led startups accounted for four – or roughly 1.6% — of the total 251 “growth-stage” startups in the Triangle for 2021, WRAL TechWire counted, even though Blacks make up 21% percent of North Carolina’s population.
Women-led startups fared better with 18 startups, or 7.1%. Latino founders accounted for three, or 1.1%.
The analysis is based on recent data compiled by Scot Wingo, a Triangle-based serial entrepreneur and co-founder and CEO of Spiffy. Since 2015, he’s released the high-profile, much anticipated annual “Triangle Tweener List,” highlighting local techs startups in what he calls the “Goldilocks” phase. It defines growth-stage as a startup that generates more than $1 million but less than $80 million in annual revenue, and/or employs at least 10 full-time workers but no more than 500. Wingo said the list is gleaned through public data sources such as Crunchbase, LinkedIn and PitchBook. He also takes referrals from the ecosystem, including venture funds, lawyers, universities, accountants, and companies themselves. He doesn’t track demographics.
Raleigh-based Global Data Consortium (GDC) co-founder and president Bill Spruill said he’s not surprised by the lack of representation. “Nor should it be surprising for anyone,” he told WRAL TechWire.
GDC, a digital identity verification platform, was among the handful of Black-led startups to make the list. The others included Raleigh’s coworking software platform Coworks; Raleigh-based content marketing firm Creative Allies; and Durham-based fintech startup LoanWell.
“It makes me sad but also validates the total addressable market of the problem to be solved,” Spruill said. “We have work to do when it comes to providing opportunity and access to all.”
While its metrics and the methods by which those startups are selected may be up for debate, the Tweener list has become one of the best snapshots of what’s happening on the ground in the Triangle’s funding ecosystem. It also mirrors national trends.
Startups with at least one Black founder have received 1.9% of deal counts and 1.2% of overall venture dollars invested in the U.S. so far this year, Crunchbase data shows.
“The problem is not Scott counting right,” said Durham-based Jurassic Capital venture partner Joe Colopy. “The problem is, there’s a lack of [diverse] representation, not only in the Triangle but everywhere.”
But deeper issues are also at play, say others.
Doug Speight, Triad Growth Partners’ chief executive and American Underground’s former executive director, believes the dearth of Black-led startups on the Tweener list is partially due to a “fairly homogenous founder and investor network” from which referrals are sourced.
“There is a wealth of research indicating the critical importance of representation in venture,” he said. “Heterosexual white males tend to invest in heterosexual white males.”
“In Scot’s defense,” he added, “I will say that he has reached out to me and other founders and investors of color, but there can and should be more channels mobilized in order to reach a more representative sample.”
Wingo’s response: “If a company is missed in that process, we are happy to add them and do this frequently,” he wrote in an email to TechWire. “I fully denounce the completely unfounded allegations that there is a racist element to the Tweener list, or the process associated with it.”
Funding remains elusive
Funding to Black startup founders in the U.S. have always been disproportionately small. Despite an uptick last year that coincided with the racial justice movement, dollars invested have fluctuated between 0.8% and 1.3% since 2017 per year as a proportion of U.S. funding.
Meanwhile, female founders secured only 2% of venture capital in the U.S. in 2021, the smallest share since 2016, according to a report by PitchBook.
“Given the composition of the VCs, both nationally and in our local area, it’s not a [shock,]” said Sophia Lopez, co-founder and chief operation officer at Raleigh-based blockchain startup Kaleido, one of the 18 female-led startups to the make the list. “It’s a reflection of human nature. People more easily trust and invest in people who they can relate to through shared experiences.”
Still, she remained optimistic. “As there’s more diversity on VC teams and LPs, I’d expect better representation of minority groups in portfolio companies,” she said.
Some bright spots
There are some hopeful signs of progress in the Triangle.
Though it missed the cutoff to be considered for Tweener’s “big exits” this year, Global Data Consortium got acquired by the U.K.-based London Stock Exchange Group for $300 million in May, sources confirmed.
In terms of funding, Coworks, led by DeShawn Brown, landed roughly $750,000 led by VentureSouth last May; and LoanWell, co-founded by Bernard Worthy, raised $3 million in capital from five backers last December. Durham’s Latinx-led MuukTest secured $750,000 in convertible notes from NY-based Contour Venture Partners last April. Compare that, however, to the record $700 million funding haul the Tweener group recorded that year.
On the bright side: Firms like Durham’s Resilient Ventures, specifically targeting Black-owned businesses, are leading rounds to close the funding gap. To date, it has already deployed $1.9 million out of the $3.5 million of its committed capital investment fund to Black founders. Of its 11 portfolio companies, it reported, six are in subsequent “up” rounds, meaning they have new investors willing to put more money in at higher valuations.
“Early results show great promise. and we’re in the planning stage of a second fund,” said its co-founder Tom Droege, president of Droege Computing Services, who launched the group with Keith Daniel, owner of Durham-based Madison Consulting Group, in 2018.
There are also a growing number of Black angel investors on the scene stumping up the cash for Black founders, and programs like American Underground’s Google for Black Founders Exchange continue to seek out minority-led companies to support.
Still, experts say North Carolina still lags states like Georgia, Florida and Ohio in enabling more lead investors in Black ventures. The Peach State has witnessed $749 million – or 8.4% of its total venture funding — flow to Black founders in the last five-plus years, Crunchbase reported. Only California and New York rate higher.
Because of this funding gap in the Triangle, Droege said, Black founders are increasing opting to move of the region. He pointed to clean tech startup Optimal Solar, founded by Reginald Parker in 2018 and launched out of First Flight Venture Center, an incubator for science-based startups located in the heart of the Research Triangle. It relocated to Atlanta last year.
“The numbers are not going to move quickly,” but there’s room to feel positive, he said: “Our Fund I portfolio companies have demonstrated that the companies are out there. When capital is provided as needed, they do well.”
Less than a dozen or so venture funds are headquartered in Triangle today. Most are led by white males.
In 2019, Joe Colopy, co-founder and former CEO of Bronto Software, which sold for $200 million in 2015, teamed up with his former partner Chaz Felix to launch he Durham-based growth equity firm Jurassic Capital. Its aim is to find “the next Bronto.” It closed on $20 million for its first fund in January.
He said he wants to be part of the solution, but there’s no quick fix. “I don’t think anyone has the perfect answers,” he said. “We need to do more. It’s sometimes not always obvious what that is.”
He also pointed to the “real realties” on the ground and the racial wealth gap that runs deep across the country. The country’s median white household is an estimated 7.8x wealthier than the typical Black household — $188,200 vs. $24,100 — and Black Americans hold just 4% of the nation’s wealth.
That matters when startups are looking for seeding funding and “friends and family” rounds, he said. “It’s very, very hard to do startups or anything of a risky venture. It takes money from very familiar [sources].”
For his part, he’s working on it, at least from a gender perspective, he said. In later 2020, as one of its first deployments, it invested $2.9 million in Durham’s female-led WorkDove, formerly Performance Culture. Jurassic Capital recently appointed a female associate to its growing team.
“We’ve made a very deliberate effort from a gender perspective. From a race perspective, it’s a bit of a tougher nut,” Colopy said. “We haven’t made great strides.”
Jason Caplain of Bull City Venture Partners (BCVP) said his firm is also working to address inequities on the ground. It closed BCVP Fund IV with $53 million in capital commitments in May. Between its last two funds, he said roughly 25% of its portfolio companies are led or co-founded by a woman, while 80% have women on executive team. 20% of its companies are co-founded or led by a minority founder.
“Massive amounts of work still remain to be done to close this gap,” he said. There’s no overnight solution.” He wouldn’t indicate any future investments in minority-led startups, but hinted at some prospects and said the number is “much greater than the national average.”
“We’re actively putting in the work,” he said.