Statistically, Black startup entrepreneurs face an uphill battle when it comes to raising venture capital. Through the first half of 2021, a record $147 billion in venture capital was invested in U.S. startups, but only 1.2% of that went to Black startup entrepreneurs, according to Crunchbase.
It's a statistic three Houston Black entrepreneurs are all too familiar with. Because of the challenges they themselves faced while building their own companies, they decided to form a venture capital fund to invest in diverse founders at the critical early stages of their businesses.
Fund managers Tiffany Williams, Kiley Summers and Phillip Yates launched Diversity Fund Houston in early December. DFH aims to invest in startups led by Black and Hispanic founders during the early-stage "friends and family" rounds. Raising pre-seed funding is a critical step in a startup's growth, and it's a step each of the three fund managers have seen too many founders struggle with, Yates said.
"They don't have that friends and family to give them $25,000, $50,000, $75,000 to actually take a chance to try to build capacity, or at least the opportunity to build a concept," Yates said.
Diversity Fund Houston was launched to be the friends and family that founders in Houston need to bootstrap early-stage funding, but the venture fund's goal is to make money. The fund was also formed to focus on demographics that have historically been left out of the venture capital conversation, Williams said. She sees a lot of potential in overlooked founders innovating and disrupting in the tech space.
"We are a social impact fund and that's very critical to our mission and our thesis," Williams said. "But we are also a fund, and we are looking to give our investors a return."
One of DFH's investors is Charlotte-based Bank of America Corp. (NYSE: BAC), which has committed to invest $1.25 billion over five years to address racial equity and opportunity. Having Bank of America as an investor was incredibly validating for DFH and made approaching other institutional investors with the fund's model much easier, Yates said.
DFH's community partners include the Houston Area Urban League, Houston-based business development startup Hello Alice, Impact Hub Houston, Houston-based financial literacy company Equiliberty, Austin-based startup accelerator DivInc and Prairie View A&M University.
Summers said that since the death of Houston native George Floyd in Minneapolis last year, corporations big and small have made the pledge to address racial inequalities in America. He invites corporations in Houston to reach out to DFH to partner together to further those commitments.
"This is not charity — this is an investment, and I think it's important that we say that," Summers said.
Diversity Fund Houston aims to round out the fundraising process for its first venture fund, Grit Fund I, in the first quarter of 2022.
