A Billionaire Investor Steps Up As VC Dollars For Black Founders Disappear

Like many Americans, Clara Wu Tsai, the Brooklyn philanthropist and founder of the Social Justice Fund, was profoundly disturbed by George Floyd’s murder. Unlike many Americans – especially the really wealthy ones – she is putting her money where her mouth is. Wu Tsai is starting what may be the first major accelerator for businesses led by people of color, with capital and terms on par with other elite accelerators, like Y Combinator.

BK-XL will select 12 startups founded by BIPOC leaders, who will receive up to $500,000, including an investment of $125,000 (in return for 7% equity) and a potential additional investment of $375,000. The terms of the follow-on investment are designed to help founders keep more of their equity.

Wu Tsai is married to Joseph Tsai, a co-founder of Alibaba, and co-owns the Brooklyn Nets, New York Liberty and Barclays Center. In an interview, she told me she has long been interested in economic mobility.

As the Black Lives Matter movement built, she recognized this was an opportunity to elevate the question of economics. In the United States, there are only two great levers for wealth building: education and business ownership. This is especially true as ownership in the public stock market has shifted toward elites. And wealth building is particularly important for the Black population. After hundreds of years of slavery and systemic racism, the average Black family in the United States has 10 times less wealth than the average white family.

She and her husband announced a $50 million fund focused on supporting Black, Brown and Indigenous people in Brooklyn. The accelerator is part of that commitment.

Collapse of VC Funding for Black Founders

Though there was a tremendous surge of interest in the idea of equal access to capital after George Floyd’s murder, when the headlines faded, so did the commitment. I heard from Sandra Moore of Advantage Capital which recently stood up a fund focused on Black and Brown owned small businesses, that raising capital has been slow. The $200 million fund had its first close in March.

Meanwhile, VC funding for Black founders has collapsed faster than an Antarctic ice shelf. In the second quarter of this year, Black-founded companies raised $324 million, according to Crunchbase data, a 63% decline from the same period in 2021. Bloomberg News noted the overall drop in VC funding was just 23% in the same time period.

This drop looks a lot like what sociologists call a backlash, as the people in power (white people, who dominate the venture capital world) move consciously or subconsciously to re-establish the norms that have favored them for hundreds of years.

Dollars invested and deal count have fallen to near the bottom of the range in the past five years. Since 2017, deal counts for companies with one or more Black founder have ranged between 1.8% and 2.6%; dollars invested ranged from 0.8% and 1.3%, Gene Tearé of Crunchbase News noted.

BK-XL, which is a pilot – more on that below — will operate in partnership with Boston-based Visible Hands, another accelerator for overlooked founders. Its success, like that of any accelerator, will depend on two things: the quality of the founders (the “pipeline”) and the other VCs that stand ready to invest when the program ends.

How did the program come about?

I’ve been interested in economic mobility for a long time, as the daughter of immigrants. Education is the most important lever for economic mobility. When George Floyd happened – that’s why we decided to focus on more levers. The first thing I did was talk to people, leaders in education, criminal justice reform, about where I could have the greatest impact. We decided to focus on access to capital. Access to capital has been a pretty significant barrier.

The first program was a loan program called EXCELerate. In part that was the pandemic. We saw that gains that had been made in terms of number of black-owned businesses could quickly be lost. We partnered with True Fund CDFI and the Brooklyn Chamber of Commerce. I know you’re interested in women founders as well … 70% of the loans we made through the EXCELerate program were to women. In general, the lending community does not find that Black women are bankable. We found the opposite.

A lot of the businesses we helped were very important to communities. We kept thinking about how do we impact the trajectory in a bigger way? The impacts to venture backable businesses would be greater. This could be the next Black-owned Google or Calendly. These businesses create incredible jobs. A lot of BIPOC founders will hire BIPOC people.

There was a flurry of interest in supporting BIPOC founders right after George Floyd. I’ve heard anecdotally from people working on the issue that raising the money has turned into a hard slog.

Increasingly, a large number of people are interested in supporting underfunded, overlooked founders. That is the world that I travel in. As the news suggests there was a flurry of interest right around George Floyd’s murder.

Look, people choose what’s important to them … based on their communities. Brooklyn is one of the most diverse places in the country. If we work here, and this is our community, it’s natural we should focus on this.

(Some of the falloff in interest) is confidence that the business talent is there and ready.

Our assumption is that the incredible talent is there. Big accelerators aren’t focusing on it, and the BIPOC accelerators out there are undercapitalized.

The BIPOC issue as we’re talking about it is America’s issue. Why the global cast for the accelerator?

The global cast is to spread awareness. We’d like as many people as possible to know about this as possible. It’s going to take time to build up the reputation of our accelerator. The key to this is pipeline, pipeline. I want to get to get the best businesses possible.

I am curious about how you got involved in the prison reform issue. I’ve been reading lately about the connection between the collapse of manufacturing in the inner cities and incarceration.

The criminal justice system disproportionately affects Black men, affects their ability to hold on to a job. But if you want the full context, I knew the story of Meek Mill. He also had a judge who was an outlier – really biased and unforgiving. That was such a good story that needed to be made into a movie. I called a friend, a filmmaker. He suggested we start an organization that would take on the issue. That’s how I became a founding member of the Reform Alliance.

Why weren’t people more focused on economic mobility? If you’re thinking about racial justice, it seems like such a baseline issue to me.

The entire country has fallen on hard times. Everybody is looking for economic mobility. Everybody is suffering and needs help – in the suburbs and the cities and the countryside. For everybody to have stable jobs and a better quality of life.

When you focus on BIPOC, it is exclusive. But we’ve given ourselves that narrow mandate, so people know what we’re focused on from the start.

Can you lay out for me why entrepreneurship and small business works for economic mobility. In the political sphere, there’s not much focus on it.

All of the benefits and wealth will accrue directly to business owners. We’re putting money directly into people’s pockets.

So, to you, it’s common sense.

It’s pretty logical. It was an area where I didn’t think many people were playing. In Brooklyn, there were people doing good work on a tremendous number of issues, public safety, homelessness, gun violence. And a large number of arts organizations.

BK-XL is a pilot. What will be the markers of success, so that you keep it going?

Follow on funding. There will be a chance for them to pitch to other venture capital firms.

There are other things, like the definition of the customer, how much revenue they’re producing. But it’s really their ability to raise follow-on funding.

How will you find the VC firms they pitch to?

We have a family office that’s active, to share deal flow, etc. We’re pretty connected.

What was it about George Floyd’s murder that moved you, particularly?

I had been thinking about these things for a long time. That moment was a moment I could talk about it in a way that resonated with the rest of the community, to have it be logical and make it make sense. It was a galvanizing moment.