A lot of people will blame the lack of diversity in tech on “the pipeline problem” — this idea that the reason investors don’t fund diverse early-stage entrepreneurs, or companies don’t hire them, is because the talent just isn’t out there. That’s been proven false time and again — there is a pipeline of talent, it’s just coming from places where people don’t look as often. Del Johnson is right — you can’t just rely on warm introductions if you care about finding a diverse set of founders.
However — as an early stage midwest investor, a big part of my job is to cultivate relationships with local accelerators, incubators, grantmakers, and other organizations on the ground in the cities in which I’m active who will see the talented founders before I will, just by nature of being there. I rely on them not just for warm introductions — which I value — but often to coach the nascent entrepreneurs through the early funding process when I find them myself via the demo days and pitch competitions in your city. Often these founders are raising capital for the first time — and especially for founders that don’t come from traditional venture-backed backgrounds — who didn’t go to a small set of schools or work in a small set of companies — they don’t know how these conversations go, what they should ask for, and the expectations that folks in my role have about their companies.
And therefore it was disheartening to me when, a few weeks ago, I had a standard introductory conversation with an entrepreneur in another midwestern city. I reached out to them after seeing they were pitching at a local event, which is the sort of thing I do daily. The founder is working on an interesting idea, in a big market, with a product launched and early traction — exactly the sorts of things I’m looking for. They had a background in the industry, knew the company and the numbers well, were smart and personable and I liked them — overall, the meeting was above average for an introduction. However, when I asked them the last question I had — the same question I ask every entrepreneur when I first speak to them — “How much are you raising?” — they floundered, told me they weren’t ready, and that one of their advisors had told them they shouldn’t even take the meeting with me.
Now, to be up front about the “right” answer here — when I ask this question of the earliest stage entrepreneurs I meet with, who often are still a bit away from being ready for our stage of investment, they most often tell me they’re raising “a $500k pre-seed round.” If I like them and their business otherwise, I accept it, and tell them they’re great, but too early for me, but to keep me updated on their progress. There’s never anything wrong with that. It’s definitely not a permanent “no”.
Returning to the entrepreneur in front of me — I told them there’s no way that advisor would have told them that if they weren’t a black woman, and I stand by it. I told her that she was the second black female founder in the same market who was clearly getting bad advice about when and how much to raise from the community, and that she had every right to ask me for the same $500k that her peers in the same position were asking for. (The first founder talked about needing a small amount of money to cover payroll, despite working on an idea that clearly needs and deserves institutional venture funding to scale rapidly). She wasn’t planning on bootstrapping the company, and wasn’t trying to build a lifestyle business — her goal was to build a big, nationwide enterprise, of the type that often needs institutional resources, and she didn’t have the kind of capital available to her personally to get there. That I had just left a meeting in the same incubator space with a white male entrepreneur, with a pre-launch product, who confidently told me he was raising $2M.
It’s rare when you see the “pipeline problem” being formed in real time. There’s no way she’s going to get the seed money she needs to scale her business if she’s being told by the “experts” in her community that she shouldn’t be asking for it, at the same time they’re coaching other founders to ask for more. If she doesn’t get the seed funding, she won’t get the series A, and she won’t grow into the model entrepreneur and role model others will point to as they pattern match to what a successful founder should be like. There she is — a talented entrepreneur, with a path to funding, taking the right steps to get in front of an institutional investor — and one of those connections standing in her path, telling her to stop.
Therefore, I stand here and say, to the startup communities — in the mid-continent cities where Hyde Park invests and elsewhere — don’t do this. Support and coach all of your entrepreneurs. Give the ones who don’t know what to do or say the extra support they deserve to put them onto equal footing with people who have previous exposure to venture funding. Enable them to ask for what they need to scale their business to match their vision.
And to all of the entrepreneurs — ask for what you need and deserve. If you’re not sure if you should have a meeting with a funder, have that meeting. If you’re a founder of a tech-enabled company in the mid-continent, reach out to me directly — I’m more than happy to meet with you.