Founders looking to raise venture funds for their companies will go through several stages before looking at a potential liquidity event (i.e., an exit). Here are what the various stages of venture capital fundraising typically looks like from the perspective of a black entrepreneur.
Friends and Family/Pre-Seed
This is the first round you raise after you’ve bootstrapped; spent all your hard-earned cash on your company. The amount of money raised usually falls in between the $100K to $250K range but can vary depending on multiple factors including the product you’re building and your investor relationships.
This round is also termed the friends and family’round, meaning the entrepreneur will look to friends and family to help raise the round. Due to the lack of financial resources in the black community, most entrepreneurs won’t have a ‘friends and family’ round per se that is actually made up of friends and family. This round will likely be made up of non-institutional, angel investors.
This round usually consists of a raise between $500K to $1.5 million. The goal of this funding is to hold your company over for approximately the next 10-12 months, depending on what you are building. We’ve seen quite a few minority-owned businesses close this round including Blavity, Squire, Win-Win, and a host of others. The money from this round should be used to help grow and scale the company while you simultaneously focus on raising the next round of funding.
Series A (B, C)
This is where it gets interesting. This round is entirely raised from institutional funds and goes by a completely different set of rules. Companies who have gotten here include Mavyenn, Unchartered Play, and LISNR. The numbers start to slim out by the time entrepreneurs of color reach this round. Many times you will see companies die out or get acquired at this stage in the game.
Due to this fact, many black founders are turning to alternative funding methods such as equity crowdfunding.