Overcoming startup funding bias.

By most accounts, raising new venture funds for an early-stage startup or business venture is hard. In fact, less than one percent of all new businesses receive startup funding and less than 13 percent of businesses receive bank loans.

While there are many types and sources of funding, knowing where and how to get it can be difficult to understand and navigate. Access to capital for entrepreneurs can be difficult for founders from all backgrounds, but underrepresented founders face systemic challenges in funding their businesses.

In 2020, less than 10 percent of capital for small business funding went to women founders, and less than one percent of funding went to Black founders. Black founders are 25 percent less likely to receive bank loans for their ventures. Additionally, on average Black families have less than 15 percent the mean net worth of white families. This means that the notion of “friends and family” funding is out of reach for many Black entrepreneurs.

The statistics can be daunting, so I’d like to share three ways in which I navigated funding ecosystem bias to raise over $2 million for my startup and over $25 million (and counting) for my venture fund, Collab Capital.

Many entrepreneurs I meet with believe fundraising is one of the first steps in starting a business. It is common for me to hear entrepreneurs say, “I have a great idea and if I can just find an investor, I will be able to launch it.”

The chances of finding an investor or investors who will invest in your business before you’ve built anything is extremely low. In reality, the vast majority of founders would be better served prioritizing the foundational elements of starting a business, such as customer discovery, developing the product, and selling to customers.

Fundraising is a tool in a full arsenal needed to build a great business. Developing the rest of the arsenal is critical and helps you create a real and sustainable business.

The more you can lower the risk of the business opportunity, the more likely you are to find interested investors. The riskiest factor of an early stage startup is whether customers care enough about the product or service you are offering to pay for it.

The more you can prove that you know your most ideal customer, and have early evidence that they will pay, the more likely you are to convince a funder that they should support your business to help you find more of those customers to grow the business.

People prefer to do business with people they like and trust. This statement is true for investors as well. In the early stages, investors are mostly betting on the team. A bet on you and your team is easier to make if there is a strong relationship in place. Investment agreements are typically long-term contracts, so it’s important that there be mutual respect and belief.

When I was raising money for my startup Partpic, my first checks came from two family friends who had watched me grow up. Even though they didn’t know much about my product category, visual search for replacement parts, they knew that I had been a high performer my entire life, and if I was putting my full energy into anything, it was likely a worthwhile effort.

As you determine a need to raise funding, I recommend starting first by taking inventory of your existing network, thinking particularly about people who know your character and work ethic.

If you don’t know anyone who has the means to invest, it’s still important to express to the people who are close to you that you are fundraising. In my experience, there were several people who could not personally write a check but wanted to help me and made meaningful introductions that led to positive outcomes.

If you aren’t having success with your personal network, you will have to build a new network of advocates and champions who can help you meet your goals.

I recommend finding high-quality entrepreneurship support programs and/or accelerator programs that can assist you in growing your contacts. You can determine if a program is high quality by taking a look at their alumni and mentors and whether those businesses have been successful.

Getting comfortable with the word “no” is one of the best things you can do for yourself as a fundraising founder.

There are many reasons beyond your control that an investor would decline to invest. In most cases, those reasons have nothing to do with you or your business.

One of the most powerful shifts I made as a founder was recognizing that I had the advantage in fundraising conversations. I was the one with the innovation, I was the one with the opportunity to grow and scale the business and return capital to the people who believed in me.

Investors can’t do their job without great businesses to invest in. This recognition helped me to build my mental toughness even in the face of hundreds of ‘nos.’ It is easy to let your mind get stuck on the nos, but doing so might block you from getting to a yes.

Overall, raising new venture funds in a system that is known to have both explicit and implicit biases is difficult, but certainly not impossible. If you focus on the fundamentals of your business, build and leverage relationships, and maintain a positive and determined mindset, you can overcome the hardships and reach a successful funding outcome.