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Black tech entrepreneurs struggle to find funding in Britain. Now they’re looking abroad




“Clearly, the UK is not the place to try to get financing for your startup,” says Rich Serunjogi, founder of Business Score, which combines e-commerce companies with working capital financing. “Only the best [UK] VCs are interested. Second-tier funds often ignore black founders and make excuses such as that the size of the business market is not large enough or that the idea is “too niche.”

Britain also had its first black-owned unicorns this year. Zepz (before WorldRemit) raised 218 million pounds ($ 292 million) and Marshmallow 62 million pounds ($ 85 million), bringing them to valuations of $ 5 billion and $ 1.25 billion respectively.

But in the critical stage at the beginning of a startup’s life cycle, black founders face a much more difficult time. They say there is not enough funding from the UK.

“It’s a mixed bag,” says Izzy Obeng, managing director of Foundervine, a social enterprise that helps underrepresented entrepreneurs who want to set up a business.

“The challenge is that there are a lot of performative gestures, but not enough investors studying the data on investing in black-owned startups, as well as the funds that black fund managers create and the amount that goes to various founders. “, he said. add.

The British Venture Capital and Venture Capital Association told CNN Business that it is “very aware of the challenges facing founders of black and other ethnic backgrounds,” and added that it had held talks with Extend. Ventures and venture capital companies to discuss actions that can be taken. dam.

“Our most recent report shows that some progress has been made on gender since 2019, but it is clear that more needs to be done to ensure adequate representation for all, including ethnicity,” it said in a statement.

Entrepreneurs like Benedict Odoom, the founder of an agricultural startup called Kilimo IOT, they have given up venture capital and are self-financing their businesses through side projects or family and friends waiting for the appearance of an angel investor – a wealthy person or family that supports small businesses with start-up financing.

“It’s been a little hard trying to break up,” Odoom says. He remembers encounters with venture capitalists where he was told it was “too early” or too ambitious. His lack of experience in the sector was also repeatedly raised.

In this context, foreign investors contribute to a much needed unexpected. U.S. and, more recently, Japanese venture capital, targeting ethnic and social minorities across Europe, is helping some black British tech entrepreneurs.

In October 2020, Google (GOOGL) Ventures brought its Black Founders Fund to Europe. It is a The $ 2 million version of the US accelerator launched after the protests sparked by the assassination of George Floyd in May 2020. The European program selected 12 startups from among 800 applicants, offering $ 330,000 (£ 249,527) each in cash and Google Ad grants, as well as credit for using it on the Google Cloud Platform.
This year, Japanese investment giant SoftBank also transplanted a version of its U.S. Emerge Accelerator to Europe, providing early-stage financing to ethnic and other minorities across the region. SoftBank (SFTBF) has partnered with five European venture capitalists who shortlisted nine under-represented founders from 600 applicants from 30 countries. Of the nine selected, three are British blacks. They were scheduled to be presented to several investors on December 9th.

As encouraging as these programs are, black British business owners say they face long-standing obstacles far beyond the lack of capital.

“If you’re a minority, you’re treated differently. That’s not anecdote,” said Gary Stewart, a UK-based African-American founder of two startups in the United Kingdom and one in Spain.

A former venture capitalist and visiting professor at Yale Law School, Stewart was part of a British Business Bank task force commissioned by the government after the 2020 protests to investigate the discrimination faced by black businessmen. He tells CNN Business that the government eventually rejected the group’s recommendations, which included “How Ethnic Minority Entrepreneurs / Entrepreneurs Are Represented in the National Political Debate and Financial Services” and “Increasing the Availability of Data on Ethnic Minority Entrepreneurs”.

When asked why the proposals were rejected, a spokesman for the Cabinet Office told the UK The government was “absolutely committed to building an economy where everyone, regardless of their background or income, can access the financial services and products they need.”

Stewart says British investors’ reluctance to associate with black founders after last summer’s riots was in line with Denial by the UK government itself of the existence of institutional racism and its effect on blacks of color in a report released in March this year. The report received widespread conviction, included from United Nations.

“The vast majority don’t even see why these talks need to be held. And the government is in line with national perception,” Stewart says.

The UK government spokesman said he would set out his proposals to create “a change of pace in attitudes towards race” in due course.

A story of two founders

This leaves entrepreneurs looking across the Atlantic.

“Try to get as much US funding as possible and [experience with] accelerators as a seal of approval, ”Serunjogi advises others starting the funding route.

After an unsuccessful two-month seed investment search in the UK, Serunjogi secured a place in 2019 in the highly competitive Y Combinator acceleration program in San Francisco. an experience he describes as “amazing.”

“A really brilliant network and a lot of advice. I felt very lucky at the time,” he says.

Jacky Wright of Microsoft had to leave the UK to become its most influential black person
Serunjogi’s experience in America echoes that of other frustrated black British talents who have been forced to seek opportunities in the United States in order to make frustrated ambitions come true at home.

Back in London, Serunjogi raised £ 1.4 million ($ 1.9 million) in pre-seed capital from four investors: Y Combinator and, privately, its British founder Paul Graham, LocalGlobe based in London and Impact X Capital, a black-run company. background. Two years later, Business Score is looking for £ 5 million ($ 6.74 million) in a second round of funding. This proves another challenge.

“They hope you have more traction right now. There’s definitely a higher bar for black founders at this stage,” Serunjogi says.

At Kilimo IoT, which is trying to enter the global vertical farming market, Odoom says that if it took rejections “at face value,” it would say they are because their company is in an early stage of development with no signed customers.

Benedict Odoom, founder of Kilomo IOT, Glasgow, UK.

But he says foreign investors are willing to give him more audience. At this year’s Web Summit in Lisbon, Portugal, he was surprised by the level of international interest, especially by a union of angel investors based in the United States and some Romanian, Polish and Latin American investors.

“It opened my eyes to the fact that we need to look beyond the UK,” says Odoom. “If you had told me two weeks before that there would be so much interest, I wouldn’t have thought so.”

Green shoots of black funding

A bright spot for black founders is the recent emergence of grassroots organizations working to bridge the gap between minority entrepreneurs and the funding environment that too often excludes them.

Some are so-called “impact” VCs or angel investors like 10X10 and Impact X Capital who are also looking to bring about social change. as they generate a financial return.

Others are social enterprise companies such as YSYS and Foundervine, which help Black and other excluded minority founders through training and familiarization with the world of venture capital, even in some cases connecting them with potential investors.

As they say, some of these bases are beginning to bear fruit.

“This is the first real year where it has been very encouraging and very positive. Many black founders are getting capital now,” says Andy Davis, co-founder and partner of 10×10, a group of Black VCs and angel founders and investors in minority-run startups.

Last year, Davis published The Black Report, the first research on the founders of black pre-seed initiatives in the UK.

“In the third quarter [of 2021], you had a founder who had taken 18 months to get £ 150,000 ($ 198,000) for his first round and suddenly ended up with £ 2 million ($ 2.6 million) in the next round very quickly. There is [VC] confidence in markets where grains are achieved, especially in software. The venture capital market respects ambition, ”he says.

Foundervine’s Obeng says he has recently seen “positive growth elements” among black founders. Foundervine developed an accelerator program for minority founders with Barclays (BCS), now in its second year.

“I think we’re starting to see founders get the skills and the investment. We’re definitely seeing more companies participating in investment readiness programs,” which he says has translated into more funding in some cases.

Both Davis and Obeng are testing AudioMob, a startup that offers non-disruptive audio ads in video games, as a recent beneficiary. AudioMob raised $ 10.6 million ($ 14 million)) in November.

Three of the four investors were American.