From Occupy Wall Street and Black Lives Matter to Me Too and Times Up, popular social justice movements have sprung up across America over the past decade. Once relegated to the political fringes, issues such as diversity, equity and inclusion became mainstream news, and for a while it seemed like technology and venture capital were finally about to experience an epochal change alongside most other sectors.
At least that was the theory. In reality, advances in the tech and VC industries have been mixed, slow, and piecemeal. For founders from non-traditional backgrounds, the opportunity gap remains a chasm. Consider just these few results and data points: Funding for black entrepreneurs in the US has almost been achieved $1.8 billion by the first half of 2021, a more than four-fold increase compared to the previous year. But only represent that 1.2% the record $147 billion poured into US startups during that period. And when it comes to the diversity of Black, Hispanic, and Hispanic investment partners — critical to improving founder diversity — there has essentially been progress stalled.
When it comes to gender diversity, women are considered fair 16% of partners in US venture firms, while the number of companies founded exclusively by women declined slightly 2% of global VC cash in 2020. Is Europe doing better? Barely. Recent research has shown that, for example, in European VC and private equity 80% of employees at all levels and functions are White, 11% Asian; only 3% are black.
How can we fix this? I won’t pretend Techstars has all the answers; However, as one of the most prolific pre-seed investors in the world, we have considerable experience at the forefront of trying to create a level playing field for under-represented founders. This week we announced one new partnership with JP Morgan Invest $80 million over three years to support more than 450 founders in nine major US cities: Atlanta, Chicago, Detroit, Miami and Washington, DC in 2022, with Los Angeles, New Orleans, New York and Oakland start next year.
This program, open to founders of all backgrounds, is specifically funded and designed to provide equitable access, capital and support to Black, Hispanic and Hispanic, Indigenous American and/or Pacific Islander people.
Our motivation is twofold. First, investing in diverse entrepreneurs, untapped talent and resulting new markets is a compelling business strategy; For investors, fishing in underfished waters just makes sense. Second, it helps break down barriers that limit opportunity, while reinforcing our belief that great ideas can and do come from anywhere and from anyone.
‘Pattern Recognition & Network’
It will also help address a very particular problem inherent in venture capital itself. While it’s true that VCs still aren’t doing a good job on diversity, it’s not because they’re not trying — I believe most investors are taking the hard steps it takes to change. But they are limited by their business model. One of the key things underrepresented founders lack is access to capital, especially in the earliest stages, and that’s largely due to how VCs and angel investors determine which checks to cut: a mix of pattern recognition and network.
A new academic opinion poll of many of the leading American VC firms found that “more than 30% of deals come from leads from former VC colleagues or work acquaintances. Other contacts also play a role: 20% of deals come from referrals from other investors and 8% from referrals from existing portfolio companies. In other words, nearly 60% of the founders backed by VCs today come from within their own network in one way or another.
Outside of the largest companies, VCs back very few companies per year and have an almost never-ending pipeline of founders looking to raise money. So they need efficient ways to reduce these applicants quickly, and warm introductions from their own network are the be-all and end-all of the most effective way to do that. When this approach is replicated across an entire industry, it creates a systemic problem.
One way to bridge the startup opportunities gap is to offer diverse business leaders, founders and innovators a tailored program that addresses the specific barriers they face – including a lack of access to mentoring and personalized support – as we do do in our partnership with JP Morgan. But there are other lessons we’ve gleaned from our accelerator programs and corporate partners – and these apply not only to investors at all stages, but to other programs, bootcamps, incubators, and startup community groups around the world. Here are five of them:
1. Cast a wide net while sending a consistent message of inclusivity
In practice, “casting a wide net” at our recent Techstars Future of Longevity Accelerator in DC, where we partnered with Melinda French Gates’ Pivotal Ventures, meant mass searches on all the different platforms that could find longevity entrepreneurs, from traditional sources like Crunchbase and Pitchbook to industry-specific associations, pitch competitions and networks. This helped us identify around 2,400 startups at the top of the funnel. We also held online open panels for investors and thought leaders hosted on Crowdcast and promoted on LinkedIn and Twitter, aimed at founders who are already exploring the topic. These panels were diverse, which helps send a signal to different technology founders that they belong.
The team shared a consistent message on social media channels and elsewhere that they were conducting a transparent, fair and inclusive process. This seemed to make a big difference in terms of applications received and indeed results: 50% of the founders in the program were led by female CEOs; 70% of CEOs came from traditionally underinvested groups, and 100% had at least one senior team member from an underrepresented background.
2. Judge each application or pitch solely on its merits
Since network endorsements and warm introductions clearly put many founders at a disadvantage, reading each application or pitch in full from start to finish will help ensure no one gets a head start. Prioritizing “friendly introductions” is not only unethical, but it also doesn’t make sense as an investment strategy because if you focus on the few and skim the rest, you’ll end up missing out on the unexpected and the outliers.
3. Help familiarize yourself with the unknown
Finding and reaching undervalued founders is crucial, but equally important is developing and empowering them once they are part of the program or part of your portfolio. Last year, UpSurge Baltimore-which was founded to build an open access innovation economy in the city – along with Techstars to launch the world’s first Equitech accelerator.
One lesson we learned was that founders lack not only a network of soundboards, mentors, investors and liaisons that many mainstream founders take for granted, but also a business lexicon, cultural affinity and awareness of how to that’s playing game’, especially for investors. Addressing this during your program or as part of your portfolio service offering is critical.
4. Promote “lateral network construction”.
The Techstars Equitech Accelerator has also proven to be very important as a “lateral network builder”. The peer network that develops in an accelerator program – or a similar program – is of particular value to those who often do not have one. This is your chance to build a community and a set of cultural touchpoints that are essential for young entrepreneurs. From sharing resources and launching joint promotional programs to introducing potential investors and customers to potential investors and customers, the founders of the 12 companies in each program built their own support network from the ground up. And it still works today.
5. Keep founders who may not make the cut initially busy
All too often, those entrepreneurs who are not included in your program are simply sidelined and/or forgotten. It is much better to include and engage them in your network, for example by inviting them to events or making them aware of opportunities. Some of these startups may have been promising but were “too early” to fund and will be worth a second look as we go along.
Closing the founder opportunity gap isn’t just about doing the right thing, although that’s certainly part of it. Removing barriers to entry to reach untapped talent will result in an influx of fresh ideas and innovations that have the potential to disrupt industry and industry, create new markets and solve some of our society’s most pressing problems. Unless we actively find ways to access the tens of thousands of would-be entrepreneurs stranded on the sidelines who never believed they even had a chance to raise early-stage capital, lasting change will be a long way off permit .
Maëlle Gavet, CEO of Techstars, has held senior positions at numerous large technology companies around the world, including Ozone, Priceline Group (OpenTable, Kayak, Booking.com) and Compass. She was also a director at the Boston Consulting Group for six years. She is the author of Trampled by Unicorns: Big Tech’s empathy problem and how to fix it.
https://www.fastcompany.com/90735621/five-ways-to-close-the-founder-opportunity-gap-according-to-techstars-ceo-maelle-gavet?partner=feedburner&utm_source=feedburner&utm_medium=feed&utm_campaign=feedburner+fastcompany&utm_content=feedburner According to Techstars, five ways to close the founder gap