VC Investing Trends in Female, Latinx, and Black Founders Across America – 2020 Report

Where is the greatest number of women-, Latinx-, and Black-led startups being minted? Which cities have the greatest access to early-stage capital for diverse founders? What regions have the greatest proportion of seed investors investing in underrepresented founders?

Beta Boom is a pre-seed fund focusing on underrepresented founders outside of Silicon Valley, so naturally, we wondered what is the state of early-stage venture capital investing in startups led by female, Latinx, and Black founders in America. We set out to answer these questions and more, and we have discovered some stunning trends that we’re excited to share in this report.

Where do the greatest gaps exist?

Over the past three years, Beta Boom has seen startups applying from over 30 states and our portfolio companies are based in varied regions such as Milwaukee, Kansas City, Nashville, Los Angeles, and Utah.

Through working with our own startups and interviewing hundreds more, we have witnessed huge regional variations in the early pipeline of startups led by diverse founders as well as access to early-stage investors. We have also seen that female, Black, and Latinx founders in certain regions seem to face much bigger obstacles in reaching early-stage investors.

We were curious which geographies had the widest gap between the supply of startups led by diverse founders and sources of early-stage funding. We also wanted to know where is the largest opportunity for greater inclusion among local tech and innovation ecosystems. In essence, this analysis aimed to find where the biggest imbalances exist.

Specific questions that we asked are the following:

  • Which regions are producing the most and the highest ratio of startups led by women and founders of color?
  • Which regions have the greatest number and ratio of venture capital investors backing seed-stage startups led by women and founders of color?
  • In which regions do underrepresented founders have the greatest or lowest access to seed capital?

What we found really surprised us.

Seed-stage investment data as a proxy

For this analysis, we looked at data on seed-stage investments from Crunchbase as a proxy for both activity and availability of capital for diverse founders. We chose to look at seed-stage data because we are most interested in the earliest stages given that we are a pre-seed fund.

Answers to the above questions are both relevant to us as a firm but also to our portfolio founders as they seek to navigate the investor landscape across the United States.

It’s also worth noting that we found that pre-seed data on Crunchbase was somewhat spotty, and seed data seemed to enjoy a significantly higher level of integrity. Given those factors, we think that seed-stage data will best help us answer the above questions, and in the future, we plan to also look at growth-stage funding trends.

We will also note that while the data set seemed quite accurate, there were definitely shortcomings that we noticed through spot-checks.

First, not every funding event is correctly categorized. We noticed that Beta Boom’s portoflio startup, Fiveable, is missing from the 2020 seed data even though we know Fiveable raised their round last year.

Second, we found that some coding of the Diversity Spotlight data was inaccurate. For example, we noticed that some startups designated as being founded or led by South Asian, Southeast Asia, East Asian, and North African/Middle Eastern founders were rarely coded accordingly. On the other hand, startups founded or led by female, Black, and Latinx founders seem to be correctly identified in the data set to a high degree of accuracy. This was a big reason why we chose to focus on these three categories in our analysis.

The reader should interpret the integrity of this data set as accurate enough to allow for a consistent ranking, but some specific data points might be off. It’s probably not worth obsessing about decimal points, particularly given that some parameters have just a few data points to start.

Ok, with that out of the way, let’s jump in!

Cities with the most startups led by women, Latinx, and Black founders

It’s probably a given to most readers that the metro regions with the largest number of diverse founder-led startups include the San Francisco Bay Area and New York, but that’s where the predictable outcomes end.

Which other cities have large numbers of women- and founders-of-color-led startups? To try to discern this, we looked at the number of diverse founder-led startups that received seed funding in each metro in 2020.

In terms of raw numbers of diverse founder-led startups that raised a seed round in 2020, Los Angeles, Boston, and Washington D.C. round out the top five.

It might be surprising to some readers that Los Angeles has so many startups led by underrepresented founders (about half as many as New York). While there seems to be a lot of chatter about cities like New York and Atlanta, Los Angeles seems to be flying under the radar, but clearly has an abundance of diverse startup founders. This is consistent with what we have seen; Los Angeles has consistently been the biggest source of deal flow for us at Beta Boom—by a very large margin—since we started investing in 2018.

The rest of the top ten is rounded out by Denver, Atlanta, Philadelphia, Chicago, and Seattle. What was most surprising as we examined that top ten metros is that the Bay Area has 18X more seed funding events than Seattle, which is in 10th place. New York has 11X more, and Los Angeles has 5X more than tenth place.

The drop-off rate is astonishing. In fact, by the time we get to the middle of the list, we’re just looking at one or two startups that got seed-funding.

RankingCity/Metro RegionWomen-LedBlack-LedLatinx-LedWomen-, Black-, or Latinx-Led
1San Francisco Bay Area1352332166
2Greater New York82187100
3Greater Los Angeles3911347
4Greater Boston224227
5Washington DC Metro114115
6Greater Denver111213
7Greater Atlanta103010
8Greater Philadelphia8219
9Greater Chicago5229
10Greater Seattle9009
13Miami/ Ft. Lauderdale5046
14Dallas/Ft. Worth5206
16Greater San Diego6006
18Minneapolis/St. Paul4204
19Greater Pheonix4004
23St. Louis2102
24San Antonio1022
25Greater Houston2002
28Salt Lake City2002
31Las Vegas1001
36Greater Detroit0000
37Greater Tampa0000
38Greater Baltimore0000
39Kansas City0000
44New Orleans0000
49Grand Rapids0000
Data Via Crunchbase

There are a number of cities with large minority populations that are missing from the top ten. These include Miami, Dallas, Houston to name just a few.

On the other hand, some cities that are not known for the diversity of their populations, such as Boston and Denver, are minting many diverse founder-led startups.

Rochester, Grand Rapids, Birmingham, Buffalo, Hartford, Louisville, New Orleans, Richmond, Raleigh, Jacksonville, Milwaukee, Kansas City, Baltimore, Tampa, and Detroit have the dubious distinction of being at the bottom of the list. However, please keep in mind that the rankings at the bottom of the list are distinguished by just one diverse-led startup. It’s very likely that for some of the cities at the bottom, those numbers are underreported.

A quick note on the table above. The last column counts the number of startups led by a female OR Black OR Latinx founder that raised a seed round in 2020. Keep in mind that some startups are led by founders that identify with more than one category such as both woman and Black.

Raw numbers are fine, but the really just scratch the surface of which startup ecosystems are best at supporting underrepresented founders.

Let’s now look at which cities have the highest proportions of underrepresented founders to all founders of seed-stage startups.

Charlotte has the highest proportion of funding going to women, Black, and Latinx founders

To get a sense of which cities are best at minting startups led by underrepresented founders, we took a look at the proportion of seed funding deals that involved startups with at least one female, Black, or Latinx founder as compared to all seed funding events in that city. We think this is a good proxy for identifying ecosystems that have the most activity among diverse founders and are most supportive of their startups.

Charlotte, North Carolina has the highest proportion (35.7%) of seed funding going to women, Black, and Latinx founders among the top 50 most populous metro areas in the U.S.

Washington D.C. has the second-highest proportion with 25.9% of seed funding going to women, Black, and Latinx founders.

Not surprisingly, New York and the San Francisco Bay Area took the 3rd and 4th spot.

Other metro regions with the highest proportions of seed funding going to women and underrepresented founders include Philadelphia, Los Angeles, Boston, Portland, and Denver.

To us, this is a much superior measure of inclusivity than gross total metrics, where factors like population can obscure the lack of diversity in the startup ecosystem.

One note on this analysis is that because the activity in many cities is so sparse, we only considered cities and metro regions with at least five startups led by women or founders of color that raised a seed round in 2020.

RankingCity/Metro RegionWomen-, Black-, or Latinx-LedAll Seed DealsUnderrepresented Proportion
2Washington DC Metro155825.9%
3Greater New York10044422.5%
4San Francisco Bay Area16680420.6%
5Greater Philadelphia94719.1%
6Greater Los Angeles4725018.8%
7Greater Boston2715317.6%
9Greater Denver137716.9%
10Greater Atlanta106016.7%
12Miami/ Ft. Lauderdale64513.3%
14Greater Seattle97611.8%
15Greater San Diego65111.8%
16Greater Chicago98310.8%
17Dallas/Ft. Worth65810.3%
Data via Crunchbase

Dallas, Chicago, and San Diego have the lowest proportion of funding going to women, Black, and Latinx founders

At the bottom of the list are Dallas, Chicago, San Diego, Seattle and Austin. Those metro regions had the lowest proportion of seed-stage funding going to startups led by women, Black, and Latinx founders in 2020. This is striking because four of those cities have among the highest minority population shares:

Each of those cities above has about 10-12% of seed funding going to startups led by women or people of color despite about half of their population belonging to minority groups.

It’s worth noting that the data above only counts Black- and Latinx-led startups that received seed funding in 2020 because the data set does not reliably capture numbers for other ethnic groups. Notwithstanding, there appears to be a huge gap in cities like Dallas, Chicago, San Diego, and Austin where Blacks and Latinos/Latinas make up the majority of the minority population.

Cities with the greatest number of seed investors investing in women-, Black-, and Latinx-led startups

Another obvious question is which cities have the greatest number of investors that invest in startups led by women and people of color.

Once, again the top two spots are hardly a surprise, but there are a few metros that might have caught some readers by surprise.

Chicago, Washington D.C., Miami, Austin, and Seattle round out the top ten metro regions that have the greatest number of seed investors investing in startups led by women and people of color.

This is very surprising because saw above that Chicago, Seattle and Austin have among the lowest proportions of funding going to women, Black, and Latinx founders.

RankingCity/Metro RegionWomen-, Black-, or Latinx-LedDiversity Seed Investors
1San Francisco Bay Area166710
2Greater New York100405
3Greater Los Angeles47135
4Greater Boston27125
5Greater Chicago978
6Washington DC Metro1558
7Miami/ Ft. Lauderdale627
9Greater Seattle927
10Greater Atlanta1025
11Dallas/Ft. Worth621
12Greater Philadelphia917
13Greater San Diego613
14Greater Denver1310
Data via Crunchbase

While metros such as Dallas/Ft. Worth and Greater San Diego have both few seed investors investing in diverse founders as well as few diversity-led startups getting seed funding, there does not seem to be any correlation between available capital and activity among diversity-led startups in cities like Chicago, Austin, and Seattle.

Clearly, there is more to the story. Let’s keep diving deeper into the data!

Chicago has, by far, the greatest ratio of investors to diverse founder-led startups

We were perplexed that in certain cities like Chicago, there seams to be a profound lack of correlation between available capital and diversity-led startups getting seed investment.

In order to explore this correlation—or lack of correlation—, we wanted to explore which metro regions have the highest supply of diversity-focused seed capital to diversity-led startups using seed investments as a proxy.

We looked at the ratio between the number of seed investors in a given region that have invested in startups led by women or feople of color (“Diverse Investor” in the table below) to the number of startups led by women or founders of color (“Diverse Deal” in the table below).

Chicago, once again, seems to have the greatest supply of capital for diverse founders—by a very great margin. So do Austin and Seattle, which also have the lowest proportions of diversity-led startups receiving seed funding.

According to our analysis, Chicago has nearly nine diversity-focused seed funds competing for every funded seed-stage startup led by a women or founder of color. On the surface, that seems great for diverse founders.

The correlation between the availability of capital and success of seed-stage diversity-led startups also does not seem to hold for cities like Portland and Denver, which have a rather low ratio of funds that have invested in women or founders of color compared to startups led by the same. In Portland, for example, the ratio is completely flipped with each diversity-led startup competing for more than two funds.

On the other hand, other metro areas such as New York, San Francisco Bay Area, and Wasington D.C. that have very high proportions of diversity-led startups receiving seed funding also seem to have very strong supply of diversity-focused capital.

RankCity/Metro RegionWomen-, Black-, or Latinx-LedDiversity Seed InvestorsDiversity Investor to Diverse Deal Ratio
1Greater Chicago9788.67
2Greater Boston271254.46
3Greater New York1004053.79
4San Francisco Bay Area1667103.74
5Washington DC Metro15583.63
7Miami/ Ft. Lauderdale6273.00
8Greater Seattle9273.00
9Dallas/Ft. Worth6213.00
10Greater Los Angeles471352.55
11Greater San Diego6132.17
12Greater Atlanta10251.92
13Greater Philadelphia9171.55
16Greater Denver13100.71
Data via Crunchbase

Capital is not enough to create inclusive startup ecosystems

The most surprising finding for us was the lack of correlation, in many cases, between the availability of capital and the activity of diversity-led startups in the metro areas that we studied in this analysis.

On one hand, take a city like Portland which came in dead last in terms of total number of seed funds that invest in women and founders of color and dead last also in terms of the proportion of seed funds that invest in women and founders of color to diversity-led startups that got seed funding.

The data essentially seems to indicate that there is a serious lack of capital for women and founders of color in Portland. Yet, Portland ranks 8th in terms of inclusivity of their ecosystem as measured by the ratio of seed deals of diversity-led startups to all seed deals.

Charlotte, which has the highest proportion of diversity-led startups getting seed funding similarly has relatively low access to capital.

On the other hand, Chicago is absolutely off the charts in terms of availability of capital but ranks second to last (16th out of 17) when it comes to inclusivity of the early-stage startup ecosystem, which we measure as the proportion of seed-stage funding deals of startups led by women and founders of color to all seed funding events.

Seattle and Austin also break the correlation between available access to capital for women and founders of color and the inclusivity of their early-stage startup ecosystem.

Clearly, this simple analysis seems to indicate that capital is not enough in creating an inclusive startup ecosystem.

Huge variations exist across cities in the level of inclusivity and output of startups led by women and founders of color

As we review the findings from the above analysis, the other trend that clearly stands out is just how much variation there exists among startup ecosystems across the United States.

The San Francisco Bay Area and New York had more seed funding events of startups led by women or founders of color than the next 48 metro areas combined (266 vs. 220). The drop-off is profound. After the top four of five metro areas, the numbers fall rapidly and create a very long and steadily-declining long tail.

There is an equally astonishing range in terms of the density of available capital for women and founders of color with Chicago having more than 20X more capital for diversity-led startup than Portland. But as we saw above, Portland’s startup ecosystem is 1.7X more inclusive than Chicago’s.

Inclusivity of the ecosystems as measured by the proportion of seed deals for diversity-led startups versus all startups also varies greatly across U.S. cities with Charlotte, North Carolina being 3X more inclusive than cities at the bottom of the list like Dallas and Chicago.

What’s next?

Clearly, more rigorous and academically-sound research is needed, but even this elementary analysis seems to indicate that money alone does not lead to inclusive startup ecosystems or successful female and underrepresented founders.

In our own conversations with founders from diverse regions and backgrounds, we keep hearing consistent themes. Founders express a need for stronger communities as well as access to knowledge networks, operational expertise, and intensive coaching and mentorship.

We hope to start to explore these potentially critical components of startup success across the country in subsequent research. Stay tuned and subscribe to our monthly updates for upcoming analyses.

And thanks for reading!

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