Editor’s note: Three significant conferences focusing on black entrepreneurs are taking place in the Triangle this week and next. And each includes startups bidding for success as well as a variety of speakers and programs offering advice on how to succeed. WRAL TechWire assigned writer Chantal Allam the task of putting together an overview concerning the state of entrepreneurship in the minority community. Here is the second of two stories.
RALEIGH – David Gardner, one of the Triangle’s most visible venture capitalists, says he’d like to invest in more African-American entrepreneurs.
“We invest in what we see,” the managing partner of Cofounders Capital says. “They’ve got to come to us and ask for money.”
If only it was that simple.
Talk to most African-American entrepreneurs, and you’ll hear a common refrain: it’s tough to raise capital as a person of color.
“There’s an added level of skepticism when a young, black entrepreneur walks into a room full of older, white male investors,” black founder Jalen Hatton recently told WRAL TechWire. “That can be kind of frustrating.”
So why the disconnect?
This week, it is among the questions getting tackled at two events running simultaneously in Durham. Both are focused on the unique challenges black founders face, particularly in the early stages of business.
The first is Black Founders Exchange, a week-long immersive accelerator program hosted by American Underground (AU) in partnership with Google for Startups. The second is Black Wall Street, a three-day conference celebrating multicultural entrepreneurs.
If the statistics are anything to go by, they’ve got their work cut out for them.
According to the oft-cited 2015 report by venture capital research firm CB Insights, black founders received a mere one percent of venture capital (VC) dollars, even though blacks make up 12 percent of the US population.
That figure shrinks event further when it comes to black women founders – with just 0.2 percent of all VC funding going to this group, cited a 2016 report titled Project Jane.
More recent data based on ethnicity or race isn’t readily available, which is another “huge problem,” another local entrepreneur points out.
When asked what needs to be done to close this wide funding gap, Gardner appeared stumped. “I wish I knew a better answer. For us, we just need to see more opportunities to invest in those kinds of companies.”
Scot Wingo, co-founder of ecommerce services provider ChannelAdvisor and now investor, echoed this sentiment. “I haven’t met a ton of black tech entrepreneurs, maybe three to four in the Triangle over the last year,” he said, adding that he’d be open to funding more black-led startups. “It feels like we need to work back a step and nurture more black students to be entrepreneurs and go into STEM fields [like science, technology, engineering and math].”
‘Investing proportional to deal flow’
As it stands now, Gardner said, Cofounders Capital’s investing is “in direct proportion to our deal flow.”
Launched in 2015, the Cary-based firm is an early-stage seed fund and startup accelerator focused on B2B software ventures, predominantly in the Triangle area.
It has already deployed its first $12 million fund, and is now investing out of its second $50 million fund.
“We meet with just about anyone who meets our basic criteria of B2B software, early stage, in North Carolina. But unfortunately, less than five percent of those meetings are with African Americans,” says Gardner.
He could only speculate on the reasons for why that is — population per capita, access to education, systemic economic disparity: “Unfortunately, blacks are underrepresented in lots of the metrics. All the traditional numbers that have been against African Americans is reflected in entrepreneurship.”
Even so, two of the firm’s most promising entrepreneurs from its fund one are minority founders, he says.
Cofounders invested around $600,000 in Jonathan Hayes, the African-American founder of RewardsStock, and around $900,000 in Monica Wood, the female founder of Myxx.
“Those are big investments for us. Both of those companies have had acquisition offers, so we feel good about those prospects.”
For Walk West’s Donald Thompson, who runs one of the fastest growing digital marketing agencies in the Triangle, it boils down to one basic principle: access.
As both an African-American serial entrepreneur and an angel investor, he has a unique perspective. He says it’s not so much “systemic factors” that hold back people of color and women in Raleigh, as it is “awareness and connectivity.”
“Ultimately in the investment community, it’s still who you know, who you spend time with, who your recommendation is, who gets you in that door.”
There are a “handful of VCs” open to investing in African American-led companies, he said, but they just don’t have the relationships or the comfort level to where these startups are seeking them out.
Bottom line: “We’ve got to do a better job of making those connections,” he says.
At present, Thompson says he has around “seven figures of investment” in companies based here in the Triangle.
However, he’s quick to emphasize that he doesn’t exclusively invest in black-led startups.
“It’s probably 50/50,” he says of the breakdown.
“I’m looking for great ideas, great businesses; people I think I can work with. I certainly have, I don’t want to say soft spot, but an openness to looking at those opportunities differently. Because of that, I do get a look from a lot of companies with African American leaders.”
SpokeHub, a catalyst?
Among Thompson’s most recent investments is the black-led SpokeHub, a Durham-based social media startup that made headlines last year after raising $2 million from black angel investors in 2018. They were also part of the inaugural class of AU’s Black Founders Exchange program back in 2016.
Thompson was not part of that initial round, but has since contributed to an ongoing fundraise and now serves on the board as its executive chairman. The group recently had an executive shakeup, replacing its chief executive officer with Pamela Bishop — an African-American woman and former Cisco executive.
Thompson says there’s a lot more in store for the startup, and believes SpokeHub is not the exception, but rather a catalyst for better things to come.
Its co-founder and head of business development, Richard Berryman III, agrees.
“To a fault, we’re optimistic people. It doesn’t matter the situation. We’re going to continue to press forward, build the companies as we see fit,” he says.
Still, there’s still much work to be done.
“I like how intentional American Underground was in seeking out Google for Startups and creating a Black Founders program. The question is, can that be done with another large organization? I think so.”