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Fund More Black-Owned Startups through Better Deal Sourcing Strategies

We live in extraordinary times. In recent weeks, countless Americans shared outrage over the criminal killings of George Floyd, Breonna Taylor and others. The movement for real equality in the US has its most significant mainstream traction in recent memory, and the painful issues at the forefront are racial equality, police brutality, and a societal infrastructure designed to serve White Americans over all other groups.

As we progress into the long haul of “doing the work” towards a more equitable world, firms are looking beyond simple shows of support, to direct, measurable, and impactful action. For those of us in the startup and venture world, an urgent focus is closing the funding gap for Black-owned companies.

Not funding Black-owned businesses is wrong on the individual level, but a greater loss materializes in the wealth creation loop. How this plays out in the venture capital world:

  • Black-owned companies are under-funded: a 2019 study found that amongst 10,000 venture-backed founders, 77.1% were White and 17.7% were Asian or Asian-American; Black and LatinX founders made up 1% and 1.8%, respectively. Additionally, 80% of venture funds have no Black investors (via BLCK VC);

  • Startups that close venture funding are more likely to realize exits or major liquidity events;

  • Exits and major liquidity events create wealth and produce the next generation of angel investors;

  • A dearth of Black angels and VCs re-starts the cycle.

In this article, I’ll focus on direct actions that funds and individual investors can take to improve the density of Black-owned startups in their deal pipeline.

Note 2: this article does not touch on the very real problem of explicit and implicit racism in venture capital.

Note 2: this article focuses heavily on funding to Black-owned startups, but the guidance is applicable to improving deal flow from other underrepresented groups, including LatinX-, female-, and LGBTQ-owned companies; all of whom are typically excluded from the venture capital system.

Traditional Venture Networks Create a Barrier to Diversity

Most investors support deploying more capital into Black-owned startups in theory. In practice, however, there are functional barriers to making those investments a reality.

Most early-stage direct investments are sourced from the investor’s immediate network. As we know, Black founders often face extreme barriers to entry into traditional venture networks. Despite this problem, in-network referrals remain the highest-ROI sourcing activity for the simple fact that out-of-network channels can yield a crush of pitches without an efficient method of qualifying them. Precious time is wasted sorting through startups that aren’t an investment fit for myriad reasons: industry, stage, round size, etc. Additionally:

  • Accelerators, incubators, and even Angelist provide a minimal level of qualification, but produce opportunities that often vary wildly in quality and investment-readiness;

  • “Open Call” requests suffer the same inefficiency, magnified by zero layer of distillation; hours and days sorting through submissions can yield few viable investment targets.

Suffice to say, the typical angel or small fund will struggle to devote more time to out-of-network sourcing.

So if an investor’s time is best spent sourcing via her network, which does not contain an abundance of Black-owned startups, how can she drive diversity in her portfolio while hitting her target returns, holding down fund operations, nurturing portfolio companies, and a host of other competing priorities (even, perhaps, a day job for an angel investor)?

Examine your Historic Deal Flow

Start with a thorough examination of your preferred channels for deal flow. If you’re an institutional investor, you’ve likely already devoted time to outlining your sourcing strategy. If you’re an angel, this may be your first time really considering it. At any rate, look at a recent time period, perhaps a week or month, what sourcing activities are you participating in? Often it’s a mix of:

  • Scheduling intros and pitch meetings from in-network referrals;

  • Reviewing pitch decks received via email;

  • Attending events, doing research, and nurturing your investment network.

When you have a snapshot of your sourcing channel mix, put together a simple table detailing sourcing strategies based on:

  • Passive vs. Active;

  • Time requirement per instance;

  • Number of instances per period;

  • Total time spent per period.

At this point your table may look something like this:

Incremental Changes to add Black-Owned Startups to your Pipeline

Now that you can visualize your time sourcing, consider how you can improve each channel. The guide below outlines action steps for the channels we’ve discussed.

In-Network Referrals

Set a target number of referrals to Black-owned companies relative to your current time spent:

  • If you’re currently taking 4 referral calls a week, set a target of calls from Black founders (or even underserved founders of color, in general) that is proportional to that; or choose a target number.

  • Think incrementally: start with a realistic goal and work towards a target: maybe you start by adding 1 call per week and work up to 50% of weekly call volume.

Cold-Inbound Pitch Deck Reviews

Require deck submissions to be accompanied by a brief sourcing questionnaire before you review. This is an opportunity to share your investment criteria, decrease time spent reviewing decks that aren’t relevant to your portfolio, and limit bias.

Pitch and Startup Event Attendance

Prioritize events that have an ethnically-diverse speaker lineup that includes Black presenters.

Bonus points for dropping a line to the organizers of events that you passed on due to lack of diversity. A simple email template: “I was interested in your event but decided not to attend because I noticed no / few presenters of color in your lineup. Please let me know how you’re addressing this and I’ll reconsider attending.” Your voice as an investor has power.

Black-Owned Investment Network Development

This sounds simple, but as with most strategies, execution is everything.

Build up your connections in the communities in which Black-owned startups thrive. Use the suggestions at the end of this article as a starting point.

Reach out to funded or later-stage Black-owned startups: keep your expectations low (they are busy) and drop a quick email introducing yourself, your investment scope, and your interest in improving the diversity of your investment network.

Similarly, connect with diversity-focused funds that work later than you. This is particularly helpful if you’re an angel investor or Micro VC: funds see so many startups that need <$100K to get started, but the fund simply can’t write a check that size. Perhaps you can bridge the gap and give that startup equal footing amongst its peers.

Like other strategies, start with a simple goal: add 1–2 new connections per week and grow from there.


Signup for newsletters and follow media outlets that highlight Black-owned startups and Black tech and business talent. See the suggestions at the end of this article.

Direct Email Outreach to Black-Owned Companies

Lastly, the above guidance should yield more referrals to Black-owned investments over time as your network develops. So as you’re doing the work to develop your network, recognize that results take time. In the meantime, you can still make an impact by reaching out directly to Black-owned startups.

Set an outreach goal for a given time frame. Connect early and share your investment criteria in simple, clear communications such as: “I’m reaching out because I saw you on [source] and would like to connect. I’m an investor and here are some of my portfolio companies … I typically spend ~6 months getting to know a company before I write a check, so I’m reaching out now in hopes of learning more about your company.”

Write the Check for Real Impact

Black-owned startups are notoriously over-mentored and under-funded. As you approach your discussions with companies, remember that the context is that of a company seeking funding speaking with an investor who is able to deploy capital.

Be transparent with the startup from the beginning so the founders can adjust expectations accordingly. Be clear about things like:

  • Readiness to deploy capital: if you simply don’t have an allocation available at the moment for venture investments, make that clear;

  • Investment criteria fit: if the company is too early or mature, not an industry fit, or if the round is not the right size — share that early.

  • Timing: many founders who haven’t raised capital before don’t realize the time required to develop the investor-startup relationship before an investment is made; share with founders your typical timeframe, whether it’s two months or two years.

Lastly, and obviously, this article focused on optimizing your sourcing strategy to yield investment-grade startups from Black founders and other underserved groups. Good sourcing is only the start of the process, but capital creates the real impact. We know that Black founders are over-mentored and under-funded, so if you’re able: write the check.

List of Resources for Engaging Black-Owned Startups and Talent articles, videos and resources to support Black tech workers.

Kapor Capital: an Oakland based fund that champions a diverse team and investment in underrepresented entrepreneurs.

NewME Accelerator: An early-stage accelerator and week-long bootcamp for founders from underrepresented demographics.

Digitalundivided: supports Black and Latinx women entrepreneurs with incubator initiatives designed to empower women.

Black Girls Code: Through workshops and classes, Black Girls Code provides preteen and teenage girls of color with exposure to coding, computer science, and technology.

UrbanGeekz: a digital news platform that reports on technology, business, science and startups with a focus on people of color; it also offers events and newsletters to keep followers up to date.

Backstage Capital: Backstage invests in women, people of color, and LGBT+ founders and supports them on their journey to success.

Startup Runway: Startup Runway is a competition for underrepresented founders that awards grants to promising companies from top VCs.

AngelList’s Black-Owned Startup List: A list of Black-owned startups across the US.

The Plug: a media platform that curates the top tech news for and about Black founders and innovators.

Black Tech Nation: Based in Pittsburgh, the Black Tech Nation is dedicated to growing a Black tech ecosystem of professionals and enthusiasts alike.

Zebras Unite: Zebras Unite is an inclusive and ethical movement to develop alternative business models that challenge the startup status quo.

Black Founders: Black Founders aims to increase the number of successful Black entrepreneurs in technology.

BLCK VC: a focused community for Black venture investors that aims to double the number of Black VCs by 2024.

The Black Founder List: A comprehensive list of US-based venture-backed Black founders.

POCIT: People of Color in Tech (POCIT) is an online publication and newsletter for the latest in PoC tech news.

University Associations:

Stanford Black Business Student Association

Greenprint Growth Partners offers growth strategy and financial consulting to startups and venture capital portfolios.


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