Peter Beasley was excited when he received an email in 2006 inviting him to a pitch meeting with millionaire Mort Meyerson, a Texas investor with close ties to Ross Perot.
Beasley, who is Black, was just launching his software company, Net Watch Solutions, and he was looking for investors. "As I said in our last meeting, [Meyerson] will want to know about your business, but mostly about you," Steve Leeke, who worked with Meyerson's investment firm, 2M, wrote in an email to Beasley.
At the meeting, Meyerson asked a few preliminary questions. And then, Beasley says, he asked him something that he's never forgotten: "Were your grandparents slaves?"
Beasley said no. "He then asked, were my great-grandparents slaves. I was confused. I didn't know the answer and was trying to do the math in my head on when slavery ended and when my great-grandparents might have been born. So, I simply answered, 'I don't know, but I'm sure some relatives of mine were.'"
Later, Beasley says Leeke told him that Meyerson personally knew one of the plaintiffs in Brown v. Board of Education, "and if I was a more recent descendent of slavery, Mort was more inclined to fund my company," Beasley said.
Neither Leeke, Meyerson nor 2M responded to multiple requests for comment. Ultimately, 2M did not invest in Beasley's company.
"With me being the CEO speaking, while being Black, I immediately had different rules to go by," Beasley said. "The situation was rigged."
Beasley's story is one that Black founders seeking capital know too well. Six Black founders and CEOs, most based outside of Silicon Valley, told Protocol that they have faced biased assumptions, racism and harassment as they've tried to pitch their companies to investors.
Roshawnna Novellus, the founder and CEO of woman-focused financial technology platform EnrichHER, said she was routinely overlooked and denigrated as she took more than 100 meetings with investors in 2019.
"The one [comment] that is most shocking is when investors tell me, 'Maybe if you find someone technical, you could be successful,'" Novellus said. Novellus holds three degrees, including a doctorate, in engineering. "They assume just because I'm a Black woman that I have no capabilities, even after I rattle off my experience, my resume, everything that I've accomplished."
Multiple times, she says, investors offered capital if she agreed to go on dates with them.
"The way you're talked to is so condescending and so disrespectful," said Erin Horne McKinney, the founder and CEO of Black Female Founders and a serial tech entrepreneur. She said an investor once told her she needed to be able to speak "intelligently" about her product. "It's this hard space, especially as a Black female founder, because you don't know where the bias is coming from; is it because of race, or gender, or is it both?"
Lauren Maillian, the CEO of tech development startup Digital Undivided, said women of color often have to pour in "more work, more labor [and] more preparation" ahead of pitch meetings in order to be taken as "seriously as non-minorities."
"There is greater scrutiny and heightened interest around the credentials of women of color," she said.
It's hard enough for Black founders to get a meeting with investors in the first place, especially outside of key tech hubs. It's more difficult for Black founders to raise a "friends and family" round, considering the net worth of the average white family is nearly 10 times greater than that of a Black family.
And the mostly white world of venture capitalists relies often on "warm" introductions, or referrals from their own social networks, leading mostly white investors to meet with mostly white founders. More than 75% of investment rounds go to all-white teams, according to Kauffman Fellows research, and very few of the top venture capital firms have any Black partners, leaving open significant room for unchecked intentional and unintentional bias.
Right now, only about 1% of venture-funded startup founders are Black, leaving Black entrepreneurs excluded from the powerful venture industry, which invested $136.5 billion in U.S.-based companies last year alone.
"The entire process of approaching a VC for funding is fraught with barriers and challenges for underrepresented founders, particularly Black founders," said Check Warner, the co-founder of nonprofit Diversity VC.
Working to create change
There are hundreds of Black founders in the U.S. trying to create a more equitable system, working around the clock to raise money for their companies from firms that historically invest very little in Black-owned businesses. And, amid the reinvigorated civil rights movement ushered in by the police killing of George Floyd, they are sharing the stories of pitch meetings that were rife with unchecked biases and assumptions — and ultimately, did not result in any investments.
Candice Matthews Brackeen, a general partner at venture firm Lightship Capital, said she still remembers a 2015 pitch meeting in which an investor asked what her parents did for a living and whether they went to college. At the time, Brackeen was looking for investors to back her first tech company, parenting website Hello Parent.
"I really feel as if it's OK to ask questions about my own work history, but when we're starting to figure out the work history of my parents, I don't feel as if that's their goal," Brackeen said. She said it seemed like an example of bias about Black families and parents.
Now, Brackeen is in a position to do something to change the VC industry from the inside. Lightship Capital is the largest-ever venture capital fund dedicated to growing Midwest, minority-led startups. Lightship raised $50 million in commitments over the course of several months this year, aided in part by a surge in interest around the Black Lives Matter protests.
In order to reduce bias, Lightship is not currently allowing "warm intros," a policy that is gaining steam in Silicon Valley.
Warner from Diversity VC recommends that investment firms use the same framework for assessing every single company in order to level the playing field. "A lot of the investing process comes down to gut feeling and an emotional response to a founder, like, 'Is this someone who I really think is back-able?'" she said. "It's not precise and it's not scientific."
Multiple advocates and founders said they even recommend that entrepreneurs consider alternative kinds of funding, like crowdfunding. McKinney said there's a better market for Black founders outside of the U.S.
"There's a lot happening right now that is creating new opportunity where we don't have to rely on VCs," said Maillan from Digital Undivided.
Not all Black founders have had negative experiences while pitching investors. Dawn Dickson, the founder and CEO of PopCom, said she has heard "horror stories" but never experienced racism from VCs in meetings directly. "I really want us to focus on a new narrative when it comes to Black women and other founder groups outside of white male, to highlight the positive side," Dickson said. "Many more of us are gaining access to capital."
Amid the Black Lives Matter movement, there are an increasing number of founders and investors launching initiatives and funds geared toward investing in companies from underrepresented groups. The Black Innovation Alliance, formed in the wake of the protests, aims to unify the organizations working to help Black entrepreneurs.
And earlier this year, the National Venture Capital Association launched a diversity task force to develop a plan to increase diversity and equality in the venture capital industry.
"The future of innovation in the U.S. depends on supporting diverse groups of current and aspiring venture capitalists and entrepreneurs," Bobby Franklin, the president and CEO of NVCA, said in a statement.
Reckoning with the status quo
Right now, venture capitalists and angel investors act as gatekeepers, deciding which companies to propel into success and which to pass over. So when those gatekeepers exhibit bias or misunderstanding around minority-owned businesses, the stakes are high for those whose livelihoods depend on their backing.
Beasley, the Texas software company founder, met in 2009 with Tom Montgomery, a Dallas-based angel investor. During his pitch, he emphasized his customers and existing revenue. "It was Tom's first or second question: 'How many of your customers did you get because you are a minority company?'" Beasley said.
He answered none. (Montgomery did not respond to a request for comment.) Ultimately, neither Montgomery's firm nor the angel group invested in Beasley's company.
Beasley ultimately did receive investments, and his company is still operating today after recovering from financial troubles. Alongside running his company, Beasley leads Blacks in Technology International, a nonprofit professional organization dedicated to increasing the representation and participation of Black people in technology.
Beasley said that the key to moving forward will be an honest reckoning with the racism that he says runs rampant in investing and how it has disadvantaged Black founders over decades. Instead, diversity consultants say marginalized founders facing discrimination and racism have been urged to remain silent in order to maintain relationships in the clubby VC world.
"The lack of investments in Black people and the communities where they live, in the long run, affects the education and business opportunities available to Black people," Beasley said. "Withholding investments indirectly leads to 'pipeline problems' and supports the myth that Black people are not qualified or available with viable business ideas. Instead, that incredible wealth stays predominately with white people, in their families, and in the venture funds they lead."