Over the past few years, there’s been a paradigm shift in the way venture capital (VC) is dispersed globally. The “big city allure” of traditional tech hubs seems to be diffusing, paving the way for emerging ecosystems like Dubai, Berlin, Raleigh, and, most notably, Detroit. As per the latest PitchBook data, between Q3 2017 and Q2 2023, these cities showcased substantial growth in their venture capital landscapes. Such developments are not mere statistics; they reflect changing global economic dynamics and paint a promising picture for aspiring entrepreneurs and discerning investors alike.
Detroit has remarkably positioned itself as a global leader in the venture capital landscape, securing the second rank, just behind Dubai, in the prestigious list of Best Venture Capital Ecosystems Worldwide. This achievement underscores the city’s incredible transformation and its burgeoning potential as a vibrant hub for innovation and entrepreneurship.
“Here in Detroit, we have been intentional in growing an ecosystem of support for founders and small businesses. Access to capital for Black entrepreneurs is more than just money, it’s also access to a community of peers, resources, and partners,” shared Christianne Malone, Chief Program Officer at TechTown and Assistant Vice President for Economic Development at Wayne State University.
TechTown is a physical gateway to opportunities that fortify the city’s urban landscape, local communities, and the overall economy. From 2007 to 2023, TechTown’s Midtown hub and its outreach in areas like Detroit, Hamtramck, and Highland Park have backed more than 6,000 businesses. These ventures have collectively generated over 2,200 jobs and amassed more than $406 million in startup and growth funds.
“At TechTown, we understand our founders can successfully reach their milestones with capital assistance paired with one-on-one coaching, that meets them where they are at in their journey,” said Malone. “Sixty-eight percent of the entrepreneurs we serve are Black; we are intentional about infusing capital into their ventures that will seed their success and prosperity into the future and prime them for larger investments.”
Detroit’s success is a testament to its resilient spirit, strategic initiatives, and the collaborative efforts of local governments, educational institutions, and the private sector. Together, they have cultivated a nurturing environment that attracts and supports startups, propelling the city to new heights on the international stage. Once synonymous with the automobile industry’s golden age, today, Detroit is reviving itself as a tech and venture capital oasis. And what’s driving this metamorphosis? There’s a convergence of lower operational costs, a rich pool of talent, and the city’s intrinsic resilience and drive for innovation. But while we celebrate the rejuvenation of Detroit, there’s a sub-narrative that needs the spotlight: The role of Black people in venture capital.
Detroit’s renowned couple, Johnnie and Alexa Turnage, trailblazers behind Black Tech Saturdays, have set a benchmark in championing startups and enlightening enthusiasts in the tech realm. Founded by the duo, Black Tech Saturdays strives to champion diversity and inclusivity in the tech sector, particularly emphasizing uplifting Black professionals and entrepreneurs. Their organization offers a stage for skill enhancement, networking, and active community involvement within the tech domain. Through their hands-on expertise, the recent PitchBook study stands out to them most.
“Our perspective on ranking second behind Dubai is two-fold. On one hand, it’s truly remarkable to see Detroit receive recognition and the credit it deserves. Detroit is a hub of innovation and creativity, reminding the world of its potential to become number one. However, we also acknowledge the reality that we still have work to do in narrowing the gap for Black, Brown, and women entrepreneurs, enabling them to scale their businesses as needed.”
Historically, Black entrepreneurs and investors have faced systemic challenges in the VC space. While only 4% of VCs are Black, according to the VC Human Capital Survey, a mere 3% hold key decision-making roles. This underrepresentation is not just about numbers; it’s a manifestation of a larger, deep-seated issue in the world of venture capital.
Yet, there’s a silver lining. The rise in first-time Black fund managers is a beacon of progress. An encouraging 28.6% of Black fund managers made their debut in the last year. Additionally, a commendable 29.9% of Black investors are associated with funds that have assets under management (AUM) exceeding $1 billion. Such statistics point towards an optimistic trajectory, where Black investors are not just participating but are increasingly influencing larger funds.
However, the mentorship landscape within this community is both heartening and revealing. About 72.4% of Black junior-level investors are fortunate to have a Black mentor in the industry. While this underscores the importance of community mentorship, it also highlights disproportionality. Too many Black investors are confined to junior or mid-level roles, especially at larger funds.
“Access to capital for Black or underrepresented entrepreneurs can be quite challenging. We’re aware that less than 1% of venture capital funding goes to Black and Brown founders and entrepreneurs. Navigating the world of venture capital and effectively conveying our visions and ideas to make them tangible is crucial,” said Johnnie Turnage. “As Black founders and entrepreneurs, we must vividly paint a picture and tell our stories in a way that allows venture capitalists to see the world through our eyes and recognize that we are solving problems that deeply matter to our communities. However, it’s essential to remember that VC funding is not the sole path to success,” he continued. “There are numerous non-dilutive funding opportunities that Black founders should explore. We should place greater emphasis on grants and initiatives that support early-stage growth, like Venture 313 here in Detroit, which provides funding ranging from several thousand to $250,000 to support entrepreneurs from idea to their first round.”
A particularly concerning trend is the challenges faced by Black fund managers in reaching their target fund sizes. Despite the growing numbers, Black fund managers typically raise funds that are 35% smaller than their target. This speaks volumes about the barriers that still exist, hindering equitable access to resources.
Black women, the double minorities of this sector, face even greater challenges. Predominantly in non-partner level roles, Black women also tend to write smaller checks, with a median amount of $350,000, starkly contrasting the $625,000 median check written by their male counterparts. “Black women in the VC sector face a double-minority status, which comes with a set of significant challenges. As Black investors and Black women founders, we understand these hardships intimately. Raising capital as Black women can be particularly challenging,” shared Alexa Turnage. “The intersection of race and gender can limit access to networks and opportunities traditionally dominated by white men. Stereotypes and biases often hinder securing funding, as we may not fit the conventional investor mold. Furthermore, breaking through the ‘glass ceiling’ in VC firms is an additional challenge. The lack of representation in leadership positions within VC firms exacerbates the hurdles we face.”
Such disparities aren’t just figures; they narrate tales of persisting bias and underline the need for change. “In essence, Black women in the VC sector encounter a complex set of challenges, stemming from systemic biases, underrepresentation, limited access to resources, and networking opportunities. Overcoming these barriers necessitates industry-wide efforts to promote inclusivity and diversity, recognizing the unique struggles faced by double minorities.”
So, as Detroit becomes a poster child for VC growth, it’s imperative to use this momentum to advocate for change within the industry. For Black investors to truly shape the venture industry, they need seats at the decision-making table, especially with significant funds.
“When we envision thriving for Black investors who aim to shape the venture industry, it entails having access to deal flow and networks,” said Johnnie Turnage. “Thriving means being able to take calculated risks and invest in companies that align with your convictions, all while recognizing the availability of alternative funding sources. Additionally, thriving also means having the ability to see your investments receive the genuine valuations they deserve and being well-supported in later stages of growth. We understand that thriving in this context involves not only financial success but also an inclusive and equitable ecosystem that supports and empowers Black investors and entrepreneurs throughout their journey in the venture industry.”
Our ecosystem’s dynamism lies not just in the cities that house them but in the diversity and inclusivity they foster.