Founders of color face more difficulties accessing venture capital for digital health startups: survey

boardroom with woman leading team meeting
One surprising finding from Rock Health's diversity in digital health survey is that having more diverse representation among the highest leaders of the organization—such as among the founders—doesn't necessarily cascade to the rest of the organization. (fizkes/Shutterstock)

Digital health companies led by male entrepreneurs are more likely to be venture-backed than those led by women—and these differences become much starker when you look at the intersection of race and ethnicity, according to a new diversity survey.

Black, Hispanic and Middle Eastern entrepreneurs are more likely to bootstrap their digital health startups or build their businesses without access to venture capital.

Among white and Asian founder respondents, over half are backed by venture investment. Among Black founder respondents, less than a third are venture-backed. Black female founder respondents are the most likely group to have bootstrapped their company (57%), while white men are the least likely (10%), according to investment firm Rock Health's diversity in digital health report.

According to the survey, 42% of digital health startups had female founders, but the data suggest women digital health founders are less likely to be venture-backed (40% of female founders compared to 62% of male founders).

Access to capital can be a critical success lever for founders looking to grow and scale their companies.  Black leaders rate access to capital and investors as more significant barriers to building their companies relative to their white and Asian counterparts, the survey found.

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"One factor is that without representation within venture firms, investors may lack the context to see potential in companies built by founders of color to serve communities of color.

Bias may also be at play," according to report authors Megan Zweig, Rock Health's chief operating officer, Payal Parikh, a Rock Health fellow, and Ivor Horn, M.D., a pediatrician and former startup executive.

One study suggests differences in how investors assess and question male and female entrepreneurs lead to funding disparities.

"We hope this new survey data motivates investors to reflect on their own practices—what practices or assumptions may be biased against certain groups of founders?" the authors said.

What the survey looked at

Rock Health partnered with Horn on an initiative to understand what diversity looks like right now among U.S. digital health startups. The survey is based on responses from 678 digital health startup leaders, including managers, directors, vice presidents, C-suite executives and founders.

According to the authors, it's the first data-driven baseline of the state of diversity in digital health.

In an email interview, the three report authors dug into the details of the survey findings.

The results make it clear that the sector still lacks diversity among its leadership roles and that identity plays a role in the degree to which different groups of founders access capital, they said.

Of the 678 survey participants, 59% were white, compared to 20% who were Asian. Black and Hispanic leaders comprise 8% and 6% of digital health startup leadership, respectively, compared to these groups' representation among the U.S. Census (13% and 19%, respectively). 

The survey findings indicate significant differences in where underrepresented founders are located, the report authors said. Black and Hispanic founder respondents are most heavily represented in the South and Midwest. But venture capital tends to be concentrated in the West and Northeast.

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"So geography seems to be an access barrier—and one that disproportionately impacts founders of color," Horn, Zweig and Parikh said.

Is digital health becoming more diverse?

Another key component of the survey was understanding how digital health leaders feel about inclusion. Do they think digital health is a more inclusive place than when they started working?

"More than half of white respondents said yes, it is more inclusive—but they were the only ones. The majority of respondents in other groups felt that the sector was 'the same' or 'worse' in terms of inclusivity. Black men, followed by Black women, were the likeliest to report that digital health has become less inclusive," the report authors told Fierce Healthcare.

About a quarter of Black respondents (27%) report the sector has become less inclusive. 

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"We too often heard from founders of color who felt like the value of their interactions with investors boiled down to the investor making a public signal about their commitment to diversity, without directly benefiting the founder. Firms should consider what real investment would look like to help advance a founder and their company—whether capital, time, or network connections," the report authors said.

By establishing a data-driven baseline about diversity in digital health, the survey will help the industry hold itself accountable for progress, the authors said.

"Data makes it hard to ignore some of these disparities in who is at the table and who gets funded. We hope the concreteness of the data—showing how underrepresentation and disparities show up in digital health leadership—will elevate our collective consciousness and spur conversation and further action," they said. 

The intention of the survey was not to serve as a solution, but rather a vehicle to launch conversations, the report authors said.

Successful strategies are emerging on how investors can best support diversity, equity and inclusion among digital health startups. Tactics and resources include supporting investors of color; tracking diversity metrics across venture teams, portfolio companies and deal flow companies; rethinking sourcing to build relationships with new communities; reexamining current practices to understand who is included (and excluded); and, perhaps most importantly, staying humble and continuing the learning journey, according to the report.