In nine enterprises spearheaded by women or individuals of color, Sara Choi, a partner and investor in biotechnology at Wing Venture Capital, has made financial commitments. However, her motivation is not rooted in philanthropy. Choi’s primary aim is to generate revenue.
“I provided these entrepreneurs with an opportunity, and they are contributing significantly to the success of both me and my organization,” Choi explains. The focus is not solely on charitable acts, she emphasizes.
Market data reveals a persistent disparity in the allocation of venture capital funding to businesses founded by women or individuals of color. As per a report issued by the Alan Turing Institute last year, female-founded artificial intelligence enterprises represented just under 3% of UK venture capital transactions over a decade leading up to 2022.
Similarly, Black founders often receive a disproportionately small portion of venture capital investments. Amid a legal dispute involving Atlanta-based Fearless Fund, which supports businesses led by women of color but is facing allegations of bias due to its mission, a more optimistic outlook on investing in diverse founders has emerged.
Choi asserts that mentorship plays a crucial role in assisting new entrepreneurs, highlighting the distinction between establishing a company and securing funding. “The question is, who possesses the insider knowledge?” Choi inquires. Individuals from these backgrounds and privileges, she suggests, should guide the next generation on effectively navigating processes like fundraising.
The 98, an early-stage venture capital firm that raised nearly $10 million to exclusively back women and technology ventures, was co-founded by Joy Marcus, who serves as the company’s director. There exists a deficiency in the practices of supporting entrepreneurs and securing funding from venture capital entities. Venture firms are overlooking the accomplishments of women excelling in business leadership roles.
Personal AI and Stratyfy are among the female-owned AI enterprises in which the 98 fund has invested. Marcus notes that businesses founded by women are often undervalued compared to those established by men, citing consistent data illustrating the superior operational performance of companies led by women.
Breaking away from the current trend poses a significant challenge since venture capitalists predominantly fund individuals resembling themselves, Marcus remarks. “While it is a high-risk venture,” she acknowledges, “they are disregarding empirical evidence.”
In recent months, venture capital investments have shown a more equitable distribution. Excluding the substantial $10 billion influx from Microsoft into OpenAI, female-founded businesses accounted for a significant share of total venture capital funding last year, according to PitchBook data. Additionally, a record number of women and minority-owned private equity firms raised capital in 2023.
Chris Cunningham, the managing partner at C2 Ventures, asserts that the primary objective of a venture firm is wealth creation. By limiting the pool of individuals engaged in discussions, one may inadvertently restrict access to the most lucrative opportunities.
C2 Ventures focuses on investing in early-stage companies operating in challenging sectors. The firm has invested in manufacturers of industrial sanitation equipment and medical supply software. Despite half of the founders of companies in C2’s portfolio being women or individuals of color, diversity was not an explicitly targeted outcome.
These entrepreneurs are tackling critical issues and leveraging AI technology to enhance efficiency, accelerate processes, drive profits, and reduce costs, according to Cunningham.
Kanjun Qiu, a leader and investor, offers a unique perspective. As the CEO of Imbue, an AI laboratory based in San Francisco that has secured over $230 million in funding from investors including former Google CEO Eric Schmidt, Qiu emphasizes that the technology developed reflects the values of its creators. She envisions a more inclusive approach to technology development that empowers individuals.
Qiu, who founded her first venture in 2015, notes a positive shift in investor dialogues towards greater social awareness of diversity. She acknowledges that represented founders may face challenges in articulating their visions convincingly, drawing from her own experience of feeling the need to prove herself before seeking substantial investments.
“If all the capital flows in a singular direction, primarily benefiting white males, female entrepreneurs question who stands to gain from AI advancements,” Yassaei, the founder and CEO of Tali AI, points out. Tali AI, a virtual assistant for medical record transcription available in multiple languages, aims to enhance diversity by expanding language support and providing more sophisticated versions for various dialects.
Yassaei highlights the potential of AI to empower a broader user base by understanding nuances and addressing specific needs within systems and services.
Ellie Cunningham, the COO of Canoa’s interior design and furnishings division, shares a similar perspective. She believes that AI enables employees to streamline labor-intensive tasks, freeing up time for more engaging activities. However, she notes that certain groups may be excluded from these benefits if investment opportunities are not diversified across various sectors.
While acknowledging the dominance of women in fields like building and architecture, Cunningham emphasizes the value of increasing financial support within the design industry. She argues that there is no active discrimination in investment allocation but rather a systemic limitation in opportunities that may favor certain demographics.
Lorenzo Thione, a managing director at Gaingels, a New York-based VC firm with a strong commitment to investing in diverse businesses, including those led by LGBT+ individuals, emphasizes the importance of diversity in leadership, governance, and capital allocation within their investment portfolio.
Thione notes that diverse founders often gravitate towards Gaingels due to its reputation for providing a platform where their voices are heard and valued. However, he underscores that this approach does not compromise the rigorous evaluation of business prospects and investment opportunities.
