Underrepresented and underinvested, BAME tech founders start the fundraising race several steps behind their white counterparts. With accusations of VCs actively avoiding BAME-run businesses on the rise, Lucy Alderson spoke to the founders and investors who are fighting for change.
If you are a white company founder, you have an instant head start when it comes to fundraising. As far as sentences go, this one is pretty stark. It is also unacceptable. But sadly, that doesn’t make it any less true.
We live in a world where something that has nothing to do with how talented you are, how brilliant your idea is, or how passionate you are about your concept can make life as a proptech entrepreneur, or any entrepreneur for that matter, much, much harder.
You don’t need to look too hard to realise that, like real estate, the world of tech is still overwhelmingly white.
But digging deeper into the statistics gives an even starker insight into how ingrained white privilege is in the sector – especially when it comes to fundraising.
According to research by RateMyInvestor into the top 135 venture capital firms – a number of which invest in proptech – in the US by deals activity, more than three-quarters of all investment between 2013 and 2017 was poured into companies whose founders were white.
Roughly 18% of funding went to companies set up by Asian founders, 2.4% went to Middle Eastern tech founders, 1.8% went to Latino-founded firms, and Black proptech founders received just 1% of all funding.
It is clear from statistics that race does play a part in how likely you are to secure investment. But this year, the world has shifted and the need for change has finally been recognised as a matter of urgency.
As people of Black, Asian, and minority ethnic backgrounds are telling their stories about the challenges they face simply because of the colour of their skin, proptech founders have told EG about their own fundraising setbacks – and outline how change can, and must, happen.
The proptech clique
The statistics show that ethnicity certainly does have an impact on the likelihood of clinching investment. But why is this the case?
One reason that Travtus founder and chief executive Tripty Arya says she hears being cited for this is that there are fewer BAME proptech founders to invest in. Although there is a lack of data specifically for proptech, we can look to UK property and technology statistics to get a rough idea of the lack of diversity in both sectors: in the built environment, BAME workers make up 1.2% of the overall workforce and, according to Tech Nation, around 15-20% of the UK’s tech workforce are from BAME backgrounds.
With such a limited pool of talent to start with, the number of founders who succeed in securing investment will narrow even more. Although this has been offered as an explanation for such a low proportion of deals allocated to non-white founders, Arya says that the issue is far more complex than that. White people start the fundraising race steps ahead of BAME-founded start-ups, she says, in a number of different ways.
“The problem is that no one wants to acknowledge that real estate is cliquey, and so is tech,” she says. “So if you have both of these cliquey industries come together, they won’t look around the room and say: ‘Why does every person in the room mirror me, and how can we change that?’”
She also says non-white founders have less access to vital connections, networks and resources which are essential to start-up success and clinching investment. And although Asian founders statistically have more success at securing funding than other founders from non-white backgrounds, Arya says this is because these founders have most likely been given money by their own friends and family to get their businesses off the ground.
“Asian communities have now reached a stage in history where they are able to fund themselves through their own Asian network,” she says. “For someone like me, there’s no way I would have been able to do anything that we are doing if it wasn’t for friends and family who have deep pockets.”
It is therefore privilege, Arya says, that means white – and to an extent, Asian – founders are more likely to be able to make a success of their business pursuits. “Is it unfair?” Arya says. “It’s absolutely unfair.”
‘VCs are excluding Black businesses’
Although all founders of non-white ethnicities are more likely to be overlooked for investment, Black founders are the most unlikely to secure funding. Why is this? Cubic Lease co-founder and chief executive James Owusu, one of very few Black proptech founders, thinks cultural differences play a part in why Black people are overlooked in these business transactions.
“How I would speak to another brother would be different to how I speak to a white person, Asian person, and so on,” Owusu says. “That in itself introduces a cultural divide amongst how everyone interacts.”
That cultural difference is what makes some VCs and investors, in Owusu’s opinion, hesitant about investing. In turn, this creates further division, Owusu says, and Black people may find that doors remain closed to them for reasons that have nothing to do with the business they are pitching, but because of their ethnicity. Owusu says he has experienced this first-hand. One VC who he approached for funding told him that he “would be better off” going to VCs who invest in BAME-owned businesses for funding instead.
“Having race included in the conversation was extremely annoying, to say the least,” Owusu says. “We are no longer having a conversation about the opportunity to make money, or the returns on the investment, or about innovation. It changes the conversation from one about investment and the business case to a conversation about culture.”
In Owusu’s opinion, overall VCs are excluding BAME-owned businesses, especially Black-owned businesses, from investment decisions. “It’s hard for me to say whether it’s innocent or not, as I’m not in the boardroom when they are making decisions about what to invest in. But as a result of the biases… they are excluding non-white founders.”
What the VCs say
There is significant work to do in order to level the playing field when it comes to fundraising, says Aaron Block, co-founder and managing partner of MetaProp. He says that the level of VC investment into BAME-owned companies is “abysmal”.
He says while he doubts that VCs are deliberately overlooking BAME-founded companies, the sector needs to do much more to ensure it is making diverse investments. He also believes that the limited pool of BAME proptech founders needs to be grown first, and that VCs have a role to play in this.
“We have a responsibility not just to fund the ones that exist but to help encourage the whole ecosystem so more can be created,” he says.
Block admits that this process is complicated, but he says that VCs can set targets in terms of investing in and helping to develop talent, and ensuring their workforce is diverse.
He says it has taken MetaProp years to build up its investment in BAME-owned start-ups. Now, nearly a third (31%) of the VC’s portfolio company chief executives are people from non-white backgrounds.
“When you lead with diversity, you have a chance,” he says. “And we work really hard at this. We track it, talk about it, push it, write about it. And yet we’re still not doing a good enough job.”
Taylor Wescoatt, managing director of Concrete VC, says VCs need to take more care looking into the business cases for BAME-founded businesses. “Take a second look and take a third look and challenge your own assumptions that might be causing you to dismiss this business,” he says. “Think about if you’re missing an angle – I would always say minority-founded start-ups and female-founded start-ups automatically get extra time spent in this process.”
Closing the gap
Owusu says that the most effective solution to boosting the number of investment deals struck with BAME founders is quite simple.
He suggests VCs could create a BAME fund, which operates like a social impact fund, whereby a certain proportion of investment is allocated into BAME communities. “By having some form of charter, or committee, or pledge that VCs abide by, this could lead to a positive impact. If all VCs did that, the amount of funds available to the BAME community, and Black communities in particular… that automatically changes the conversation.”
Owusu says that when steps are taken to overcome cultural differences, VCs will quickly make returns on overlooked talent.
No matter what approach is taken to close the investment gap between white and non-white founders, as Owusu says, change needs to happen now. If it doesn’t, not only will talented founders continue to struggle to break into the proptech circle, but the sector itself may be missing out on brilliant ideas that will never be realised.
Tech’s diversity problem
Tech likes to paint a picture of itself as a vibrant, forward-looking sector, making the seemingly impossible, possible. But this is not translating into its commitments to upping its diversity game.
According to analysis by CNBC into a number of the world’s most prominent tech giants, little progress in hiring minorities has been made – particularly Black people.
Facebook, for example, grew the number of Black employees working at the company from 3% to just 3.8% over the past five years. Twitter had roughly 2% Black employees in its workforce in 2014, which it only grew by 4% over five years to 6% by 2019. According to Google’s 2020 Diversity Report, just 5.5% of the company’s annual global hires identified as Black.
The same pattern emerges in the UK. Black people are heavily underrepresented in the UK’s tech sector, making up only 3% of the workforce. Asian workers, meanwhile, make up 17%, and white people account for two-thirds of the workforce, according to Tech Nation.
Almost three-quarters of boards and 70% of senior executive teams at the UK’s biggest tech companies have no BAME representation ,according to a report by the Inclusive Tech Alliance. And, as of 2018, Amazon UK and Facebook UK had no directors from ethnic minority backgrounds.
To send feedback, e-mail lucy.alderson@egi.co.uk or tweet @LucyAJourno or @estatesgazette
