Welcome back to our in-depth series on early stage startup acceleration. If you missed it, you can find the first part here and the second part here.
Like too many other industries, the investing community lacks diversity (93% of US venture capital dollars are controlled by white males, according to a study by the Knight Foundation). This is bad for many obvious reasons, but it is particularly bad for the startup community and the future of business, as it can lead to missed opportunities and miscalculated potential. Similarity bias is likely the leading cause why 98% of venture dollars goes to startups with white male founders, making it disproportionately harder for female founders, founders of color and founders from the LGBTQ community to raise capital. The result of this is that the majority of venture businesses are completely misrepresenting the real world in terms of diversity. (For reference, the United States are currently 16.9% Hispanic, 12.6% Black, 5.2% Asian, 3.3% Mixed/Other and 50.52% female). Similarity biases trickle down and can lead to bad decisions when it comes to selecting candidates to join the team or deciding what customers to serve. Implicit biases around gender identity and race have been shown to be reflected in algorithms and machine learning models.
We fundamentally believe that more diverse founding teams lead to better business outcomes and better outcomes for cities and climate in the long term. Since the beginning of URBAN-X, we’ve put a strong emphasis on finding, addressing and supporting female founders and founders of color. 35% of URBAN-X alumni (25 companies) have at least one woman as a co-founder. 43% (31 companies) have at least one person of color as a co-founder. 19 of those companies have a co-founder that is Asian, or of Asian descent and eight companies have at least one co-founder that is Black or of African descent. Five companies have a co-founder that is Hispanic, Lationo or of Hispanic/Latino descent.
One example is Aquagenuity (Cohort 08). Doll Avant, the CEO and co-founder said: said, “Because of URBAN X’s connection from MINI and their engineering team, and the extension of runway from the URBAN X investment, we could position ourselves as a standard for environmental monitoring and climate change sustainability.”
Doll Avant, CEO and Co-Founder of Aquagenuity (Cohort 08)
A high share of female founders has a positive impact on closing the gender gap–companies with at least one woman founder have been found to hire 2.5 more female employees across the U.S. startup ecosystem based on data from Crunchbase. And URBAN-X companies with at least one female co-founder have raised 60% of capital across the portfolio. We are hoping this is indicative of a larger trend across US venture capital distribution.
In terms of founders of color, there’s still work to do. Only 7% of founders in our portfolio are Black (compared to 12.6% of the US population) and only 6% are Hispanic or Latino while this group comprises 16.9% of the US population. On average, companies with founders of color in our portfolio have raised $4.1M compared to $7.4M raised by companies with no founder of color.
Average Raise per Company by Presence of a Co-Founder of Color
For us, this means doubling down on reaching more Black as well as Hispanic and Latino founders and extending our network of Investors to include more funds that focus on Diversity, Equality and Inclusion (DEI). In Chapter 5, we will focus on the economic impact of URBAN-X portfolio startups.
Data collection, evaluation, projections, and figures by HR&A Advisors and Autocase. Graphic Design by Zihao Wang. Photography by Zack DeZon.