RESEARCH TRIANGLE PARK – Here’s what leaders in the Triangle’s entrepreneurial community had to say when asked about the lack of minority-led firms on the recently published “Tweener” list of high-profile, emerging startups:
- Scot Wingo, founder and CEO of Spiffy and creator of “The Tweener List”:
The Triangle List was created and continues to exist with a focus on celebrating and accelerating entrepreneurship in the Triangle. Most of the companies are added to the list through public data sources such as Crunchbase, LinkedIn and PitchBook. We do also take referrals from the ecosystem including venture funds, lawyers, universities, accountants and companies themselves. If a company is missed in that process, we are happy to add them and do this frequently.
I fully denounce the completely unfounded allegations that there is a racist element to the tweener list and/or the process associated with it.
- Bill Spruill, co-founder and president of Global Data Consortium:
Unfortunately it’s not a surprise nor should it be surprising for anyone. It makes me sad but also validates the TAM of the problem to be solved. When you compare those statistics with the general population stats for the Triangle or the number of minorities enrolled in science/engineering/business at Triangle universities or even with the sad stats at my own company when it comes to wealth creation (of the 27 millionaires we created, only one was a minority and none were female. There is a great deal of work to be done. By everyone.
It says we have work to do when it comes to providing opportunity and access to all. We also need to find ways to motivate the cadre of product, sales and development leaders that we have here to explore starting up their own high-tech companies. Rather than talk about the problem ad nauseum let’s do something about it. One person, one team at a time.
To me this is about opportunity, access, education and collaboration. Find promising people; give them access to the networks, resources and education needed to take the step to decide to start something. Then do what we do for all of the other companies..nuture, educate, and coach them. Then let the stats yield the outcomes. It won’t change overnight but it will change over time if we are diligent about the effort.
Last week I had a conversation with the head of minority investment at a large enterprise Bay area company. She told me her story about being the only minority in the room during many of her meetings at her current and past places of employment. We commiserated around the fact that we are the true unicorns in the market when looking for people of color operating at senior levels in enterprise companies. When my prior company was acquired by Informatica, I was the most senior level black male at the company as a Senior Director. We recognized this is a nationwide issue and that lots of focused work was needed to eliminate the biases and perspectives around this issue. For me it was a great dialogue because I have rarely/if ever had the chance to talk with someone as a peer about this problem. It was also a sad conversation because it means there is a lot of work to be done to bring those stats anywhere close to an appropriate level for the Triangle or the country.
- Doug Speight, Triad Growth Partners CEO and American Underground’s former executive director:
Black and Brown founders are indeed being seed funded at a (slightly) higher rate nationally than pre-2020. However, whether they evolve from seed to growth involves a confluence of factors, not the least of which is “time.” Once funded, a founder needs time to execute. If Black founders were recently funded in the post-George Floyd era (i.e. less than twenty-four months ago), it’s reasonable to expect that they are just now or will soon be poised to breech “growth stage.” I add that they are also competing with their peers for tech talent in the tightest, most competitive market in recent history. Whether Black and Brown-led ventures are growing at a pace that shows up on the Tweeners list is also a function of whether the rest of the capital stack (Series A, Series B, etc) is also aligned philosophically and organizationally with this market trend.
I haven’t spoken with Scot Wingo specifically regarding his selection criteria or process for Tweener companies, but in the past, there was a “call for referrals” across Scot’s network. I posit that the dearth of Black-led startups on the Tweeners list is partially due to a fairly homogenous founder and investor network from which referrals are sourced. There is a wealth of research indicating the critical importance of representation in venture. Heterosexual white males tend to invest in heterosexual white males. In Scot’s defense, I will say that he has reached out to me and other founders and investors of color, but there can and should be more channels mobilized in order to reach a more representative sample.
Unfortunately, North Carolina lags behind states like Florida, Ohio and Georgia in enabling and facilitating more lead investors in Black ventures. Lead investors set the terms for investment in the startup and facilitate/coordinate co-investment among their VC peers. Firms like Resilient Ventures are leading rounds and are shifting the culture in NC.
Practical example of this dynamic at work: in NC, if a Black founder pitches a white male VC, the VC may begin to question “why haven’t I heard of you” from their network of mostly white, male peers. In practical terms, “unfamiliarity” is subconsciously treated as “risk,” which can make a VC tentative and adopt a “wait and see” posture. Thus, a Black founder may have a list of “interested” parties, yet no lead investor to activate the round. To be more competitive nationally, North Carolina needs more lead investors like Resilient Ventures within the state and/or relationships with more leads in other geographies.
- Sophia Lopez, co-founder and chief operating officer at Kaleido. Her company appeared on this year’s Tweener List
For early-stage investments (seed, Series A) where you’re betting on a team and vision with unproven product-market fit and financial traction, rather than ‘putting money into a proven money-making machine’ (where it’s more of a data driven/spreadsheet exercise), it’s a reflection of human nature that people more easily trust and invest in people who they can relate to through shared experiences/commonalities.
There is a well-known social psychologist Robert Cialdini (he did graduate work at UNC), who studied the principles of persuasion and influence. His fifth principle of persuasion is the ‘the principle of liking’ which states that people prefer to say yes to those that they like — and that we like people who are similar to us. So it’s not a surprise given the composition of the VCs (both nationally and in our local area) that black-led and women-led startups get less funding. We’re probably similar to national data points. As there is more diversity on VC teams and LPs, I’d expect better representation of minority groups in portfolio companies.
- Melissa Phillippi, co-founder and CEO of WorkDove, formerly Performance Culture:
It does not surprise me, though it saddens me. That typical and statistically representative of startups at large. There are many factors at play when it comes to opportunities in general. Societal ones we’ve known for years. It starts in the families with access to certain education and opportunities that are income dependent and continues through societal limitations that still exist because of racism and conscience and unconscious biases.
The Triangle as well as the startup ecosystem at large has to continue to be intentional about seeking out connections and relationships with minorities and investing in them in order to change the narrative. This won’t happen overnight, but it has to start somewhere. The best places to start is with VCs and other successful founders intentionally networking with non-traditional aspiring entrepreneurs. Don’t keep going to the same white City Club or golfing at the same prestigious golf course or going to the same, largely white, bar. Get some Black friends; make some female founder friends! Ask them to help educate you on their world and introduce you to more people like them. It won’t happen by sitting back and waiting for the minority founders to just find you.
- Durham-based Jurassic Capital general partner Joe Colopy:
The problem is not Scot counting right. The problem is, the lack of representation of female-led and minority-led startups, not only in the Triangle but also everywhere. But things are changing, particularly on the gender side when you look at percentage of women studying computers science who graduate and go into that field, if you look at percentage of women who were going into venture capital. It’s slowly changing and there’s a lot of support for that.
I don’t think anyone has the perfect answers because the problem is a combination of things. It’s absolutely true that people tend to hire, support, and invest in people with backgrounds similar to them. There’s a human nature aspect of it. The problem is that this perpetuates what we already have. It’s not just about race or gender. That also includes where they went to school and economic class. There are a lot of aspects to that, and it perpetuates what we have. Most folks, including me, would say that we are not consciously trying to exclude anyone, but because of our structure, we might be perpetuating things unknowingly. It would be naive for anyone to think that’s not happening.
The second part is that the reality is the African American household has 17% of the wealth, or 70 cents on the dollar, when compared to the traditional white American household. To do a startup, it takes money and that money often comes from very familiar [sources]. And whether that allows you the time to start something or fund a startup directly, it’s a challenge without it. If you look at the representation of women and underrepresented minorities in certain STEM fields, particularly computer science, it’s low. That adds to the problem.
At Jurassic, we’ve done a good job from the gender perspective. But from a race perspective, it’s been a tougher nut. We haven’t made great strides, and we will do what we can to push things.
- Tom Droege, Resilient Ventures co-founder and president of Droege Computing Services:
If the criteria is $1 million in revenue, there are Black founders at that point in NC. We have found them here and elsewhere, but that is a pretty high bar at this time for African American founders. There are many more high growth companies that have moved on from being the typical solo entrepreneur or sole proprietor business. A Tweener list for Black founders might start at the $200,000 level. That’s not a reflection of talent or potential. It’s a reflection of the racial wealth gap that has a median family net wealth at $10,000 and a white family at $170,000. So you can imagine, there’s no friends and family round for a black founder.
The numbers are not going to move quickly. While many companies made announcements after George Floyd, many of the commitments failed to be followed through on, and for the ones that did, the funds are just getting started. Our Fund I portfolio companies have demonstrated that the companies are out there, the problem is access to capital, and when capital is provided as needed, they do well. Our fund is in its fourth year, and of the 11 companies we have invested in, six are in subsequent “up” rounds, meaning they have new investors willing to put more money in at higher valuations.
As for us, we raised $3.5 million and have deployed $1.9 million of the roughly $2.2 million that is available to deploy after paying the expenses for a 10-year fund. We have found that our thesis was correct and early results show great promise and so we are in the planning stage of a second fund.
- Jason Caplain, co-founder and partner at Bull City Venture Partners:
Despite last year’s headlines proclaiming growth and progress, the funding gap for female and BIPOC-founded startups remains significant today. This year’s Tweener List shows a mirror image of the shortcomings present on the national stage. Massive amounts of work still remains to be done to close this gap.
I’m not surprised by this year’s data, given it will likely take multiple fund cycles to fix these issues. There is no overnight solution, nor can we simply slap a band-aid on this problem. The gender and racial gap in venture capital can lead to major disparities in the tech sector and beyond given that venture capitalists play a critical gatekeeping role in deciding whose ideas, products, and innovations get a chance to shape our modern economy and society. Advancing gender and racial equality in tech is not just the right thing to do, but it is also the smart thing to do because it is an evidence-based way to increase the prosperity of the whole industry.
We are actively putting in the work to foster an ecosystem in which current and future underrepresented entrepreneurs can thrive. There are very specific ways in which venture capital firms and other startup investors can help alleviate this problem and they’re centered around how we evaluate companies for investment and where we spend our time and energy. Here are some of the ways in which BCVP is trying to tackle this issue:
- Participate in more BIPOC and female-oriented VC events and groups.
- Increase measurement during due diligence.
- Measure key vectors like gender and racial diversity amongst leadership teams for every company that we conduct due diligence on.
- Diversity. A diverse leadership team is more likely to receive funding from BCVP because we fundamentally believe that diversity produces more unique and creative solutions, which in turn begets greater operational success.
- Standardize our evaluation process to prevent bias, bottlenecks and group-think
Nearly 20% of our companies over the last two decades have either been led or co-founded by a woman and/or a BIPOC. Our philosophy is simple: we invest in the best founders in our region regardless of race, gender, creed, or religious beliefs. Gender and race have zero impact on our decision-making process. It’s an even playing field here at Bull City Venture Partners. We are stringent on maintaining an open-door policy so that all founders in our target region and sectors seeking investment from BCVP is given the opportunity to be considered.
Through these efforts, we strive to knock down the barriers that persist in today’s funding environment by being all-inclusive and actively engaging with founders outside of our immediate networks, even if contacted via cold outreach.
We respectfully opt out of sharing our active deal pipeline, given it is proprietary to our firm and contributes to our competitive edge. However, the representation of underrepresented founders that we are currently considering an investment in is much greater than the national average.