Project OaklandTech, Culture and Change in Oakland, CA

Original article by Devin Dixon – People of Color in Tech

One of my favorite movies is Ratatouille because of it parallels to what it’s like being a minorty entrepreneur. One of the quotes from the film describes Anton Ego’s epiphany:

“Not everyone can become a great artist, but a great artist *can* come from *anywhere*.”

The quote is empowering because it puts everyone on an equal playing field. It doesn’t matter if you didn’t go to a top school, came from a poor background or what gender you are, anyone can have a great idea for business. Running a startup is hard and trying to raise capital is even harder. Below we are going to discuss the structural challenges when raising capital as a minority and then go into solutions [such as joining an accelerator and improving your networking].

The Challenges As A Minority Entrepreneur

The problem with being a minority entrepreneur comes down to one simple reason: you do not align with the pattern matching systems that investors use. (Beyond Race or Gender as a pattern)
Patterns that are often used are:

1. Your professional network and who you know
2. The school you attended and education you received
3. The market your idea serves and the problem that it solves
4. Your location

1) Your professional network and who you know accounts for a lot when getting funding. Personally, I’ve been part of several startups that raised a lot of money with no MVP and just idea. Dig deeper into how they acquired that money and you will find a very successful relative or family friend. As a minority, can you relate to situations like being a first-generation college graduate and the breadwinner in a family? Or maybe you are an immigrant from a 3rd world country. That can make having an initial strong network and raising funds from friends and family tough, even if your idea is stellar.

2) If you went to an Ivy League or one of the top schools such as Stanford or MIT, you are more likely to get funded. When looking at startups that get funded, did you go to one of these schools? Articles like this one which are titled “Which Universities Produce The Most Successful Startup Founders” arguably creates the perception that “if you don’t go to one of these school, you are unlikely to be a successful founder” – which is not true.

3) The market your idea serves is also important. Investors are ordinary people and like to invest in what’s “hot” or what they know. Right now Virtual Reality is hot and can easily get an investor’s attention. If you have a potential billion dollar idea that solve a problem such as not being able to buy fresh vegetables in black urban areas like the Bronx, you will likely not get funded. Remember your idea can still be amazing, but do you think investors can easily relate to not being able to buy fresh food and vegetables which may have been a major plight for you? Or if you are a  female-led company solving a female-focused problem, can you make male VCs easily understand?

4) Your location is important. Most investments occur in the main cities that support entrepreneurship. Do you live close to one of these cities listed in the article?

Although none of the problems are necessarily about race or gender, they still lead to a skewed representation of who gets funded by a VC. But because they are not related to race or gender, that means we can take steps that will allow you to solve the problem of raising capital for your venture. We are going to discuss solutions below.

Join An Incubator or Accelerator

The best route for developing your startup is to join an incubator and accelerator. These kinds of programs have two very distinct advantages:

1. They will help hone how you think about your idea and how it can grow
2. They make introductions for you and help you raise money

In a program, you will have the problem solved by the ‘people you know’ in your network and the education you will receive. For minorities, the most well-known Accelerators is NewME run byAngela Benton. An upcoming accelerator that will be support minority Entrepreneurs isGroundwork by Jason Towns. Recently Monique Woodard with 500 Startups has created a micro-fund that will invest in Black and Latinx markets and founders.

There are plenty of accelerators that you can join besides minority-focused ones. When considering an accelerator, you want to apply strategically to the ones that best fit your business. There are accelerators that are industry focused such as Dreamit on education or The Alchemiston Enterprise startups. Many of them will invest money in your company, sometimes up to 100k. Also, look at the success rate of the accelerator. Do companies afterward go on to raise money and how many exits has that accelerator had? The last and important piece of advice about getting into an accelerator is to find connections and network your way in.

Networking With The Right Crowd

The difference between cold calling an investor and a warm introduction is astronomical. Many investors won’t even look at your idea unless they were introduced to you by someone they trust.

I had the pleasure of speaking with Jorge Mendez at Kapor Capital. Some of the advice he gave about networking is “grow your network by going to startup and networking events that investors attend. That can include industry-specific events where you can find investors also interested in the sector your company works in.”

Networking is not only who you know but where you are. Being in a major city that encourages entrepreneurship helps a lot. Such cities include San Francisco, New York, Los Angeles, Boston, Portland, and others. If you are dedicated to your start-up and you are not in a good location, you should probably move to an area that will increase your chances of meeting the right people.

Also, find out if there is a concentration of start-ups in your industry in a particular location. For example, Westchester County in New York is known for having a high level of HealthCare start-ups.

Networking also involves bringing the right people onto your team that will increase your network. As an example, if you bring on an advisor (give them some equity) who is well known in your industry or who has run several successful companies related to your startup, you gain not only credibility but also the ability to tap into their network.

Cold Calling Investors

If you have chosen the route of just cold calling investors, you have chosen a path that is comparable to climbing a mountain. Be prepared for lots of emails, phone calls, and even more rejections. If this is the route you are choosing to go, here are some suggestions.

1) Research Your Investors

Research investors in your industry, what kind of start-ups they typically invest in, and at what round. As an example, if you are a new pre-revenue biotech start-up, start by using Angellist to search for all investors that have invested in biotechnology in the past 3-5 years. If you need between 100k and 500k, you need to narrow your search to investors that are angel or seed investors; you are too early for a Series A investor.

When an investor understands your industry and the problem you are solving, there are two key advantages. The first is you will have to educate the investor less about the problem you are solving for your industry which takes away some of the risks for the investor. Put yourself in their shoes and ask yourself how likely are you to invest in something you don’t understand? The second advantage of having an investor that understands your industry is if they do invest in you, they can help guide you and provide valuable input, especially in troubled times.

2) Research Companies

Another route is researching companies in your space, especially those that acquire companies like yours or those that have successfully exited. The mindset of an investor is they want to make a 10x-50x return on their investment.

Research a former company that has had that level of success. Look at who were their investors in each round and also look at their founders. If your business can take a similar path or has the same potential, you have a good chance at the very least peaking the interest of a former investor or founder.

3) Learn From The Rejections and Feedback

Cold calling investors will get you a lot of rejections, but rejections can be a great learning experience. Every no should be followed up with a why for more information and then logged. If you begin to see patterns, you have a problem you need to address. For example, if you get three rejections in which they say the market size is not large enough, then that should signal you to pivot and go after a broader market.

Be An Expert In Your Domain

A final piece of advice and arguably the most important is to be an expert in your field and to politely make investors realize your knowledge and capabilities. Investors are smart people, but they don’t know everything. You might get rejected on what an investor believes versus what you know as fact. You have to be an expert in your domain and present the facts in a way that opens the investors eyes.

This can be tricky because you do not want to come across as rude, arrogant or just confrontational. For example, you produce product XYZ, and your customers rave about your product. You pitch an investor, but the investor says something like “I don’t *feel* like product ‘xyz’ adds much value” yet regardless of how the investor feels you know your customers way better than your investor does. You have to present your case in a way that challenges and changes their perception without offending them. If an investor is not willing to listen to the key points, you have to make, in a long term relationship they are not good investor partners.

Conclusion

As a minority entrepreneur trying to raise capital, you are up against significant challenges. How big? Well, only 1% of companies get venture capital funding and of that 1%, only 1% of minority male entrepreneurs get funding; it’s even harder for women. So your chances of raising funding as a minority or a woman are around .0001%. Does the challenge excite you or scare you?

But the caveat of being a .0001% founder means you are an extraordinary individual and the lessons you will learn along the way are irreplaceable. Also, as a minority entrepreneur, times will be changing if you are dedicated and stay the course. Working with Angela Benton, Jason Towns or Monique Woodard and their programs can catapult you into success. The big picture is that we have to show investors that just because we don’t match the pattern does not mean we will not be successful. Strive to break the trend and prove that great entrepreneur, ideas and companies can come from anywhere.

 

picture courtesy of #WOCinTechChat

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