From Bias to Barriers: The Struggles of Underrepresented Startups in Raising Funds

Raising venture capital is challenging for any entrepreneur, but underrepresented founders—those from minority backgrounds, women, or immigrants—face additional, unique hurdles. Despite growing conversations around diversity, these founders still confront systemic biases, limited networks, and restricted access to resources. Let’s explore why this happens and how we can work towards greater equity.

Why Is It Hard for Underrepresented Founders to Raise Funds?

1. Bias in the Investment Process

   • Investors often look for founders who resemble successful past entrepreneurs, leading to "pattern matching" and reinforcing a lack of diversity.

   • Questions asked during pitches can reflect bias. Female founders, for example, are often asked about risk, while male founders are asked about growth.

2. Limited Access to Networks

   • Connections to investors, mentors, and industry insiders are crucial for fundraising success. Underrepresented founders often lack these networks.

3. Funding Disparities

   • Data shows that underrepresented  founders receive less than 2% of venture capital in the U.S and despite awareness of the problem,  statistics have shown little improvement over the past decade.

Steps Towards Change

1. Increase Awareness and Education: Investors must recognize and address their biases through diversity, equity, and inclusion workshops.

2. Diversify Mindset: It’s NOT about convincing underrepresented founders to back one another, they already do! The key is to get more people that look like me (middle aged white dudes) to actually be open to backing them.

3. Build Stronger Networks: Creating opportunities for underrepresented founders to connect with investors, mentors, and peers can expand opportunities. Host an event or make an intro for them. Access is EVERYTHING

In Summary

The challenges underrepresented founders face in raising venture capital stem from deep-rooted biases, limited networks, and funding disparities. By taking deliberate steps to address these issues, the venture capital community can foster an inclusive ecosystem that supports diverse entrepreneurs. Breaking down these barriers will not only lead to more equitable funding but will also unlock untapped potential for innovation and growth.

Oh and this is how it’s done. I co-hosted a “Founders & Funders” event for  205 underrepresented attendees at LA Tech Week! 

Until next time—keep building!

Cheers,

Steve Walsh
Founder, Hands On Angel