RESEARCH TRISANGLE PARK – You’ve probably heard the phrase “It takes money to make money.” It also helps to have a revolutionary concept with clear market appeal.
In 2019, the founders of The Diversity Movement acted on one of those disruptive notions and breathed new life into old-school corporate diversity, equity, and inclusion (DEI) training. These experts recognized a business imperative for effective diversity and inclusion education that would help organizations build thriving and sustainable workplace cultures.
The Diversity Movement now offers an employee-experience product suite that personalizes DEI instruction through data, technology, and expert-curated content. Its microlearning platform, Microvideos by The Diversity Movement, was named one of Fast Company’s “2022 World Changing Ideas.”
“We’re going to productize diversity, equity, inclusion so that companies can grow at scale. Who’s doing that exactly? Answer: nobody. It was a story that hadn’t been told before,” says Donald Thompson, CEO and co-founder. “Now we’re taking that vision and creating velocity around making it true.”
But to keep growing the business, to maintain its velocity, Thompson and his team needed additional capital – the money to make money.
Black founders and the scarcity of capital
It helps to understand that Thompson is a Black founder: part of a community of entrepreneurs who have traditionally struggled to attract the kind of financial investment that leads to business success. According to the 2018 Small Business Credit Survey, large banks approved just 29% of loans sought by Black business owners, compared to 60% of White entrepreneurs and 50% of Latine or Hispanic small business owners. In 2020, venture capital firms funneled roughly $150 billion to startups, according to Accenture, but only 1% of those funds were invested in Black-owned businesses.
These statistics and their real-world consequences have informed Thompson’s entrepreneurial journey. At his previous business ventures, he primarily invested his own money and grew the businesses deliberately, relying on sales to fuel growth. Along the way, he learned to value efficiency and to pay close attention to the bottom line.
“The thing that is important about a bootstrap business is I think it makes you tougher, because we have to have happy customers to survive,” he says. “We don’t get to theorize about how to market our products and services. We have to build them, market them, sell them, and deliver them in order to make our payroll. That means that we are faster; that means we’re more agile.
“As an African American in tech, understanding the struggles that we have with getting money, I don’t get the opportunity to lose money on purpose. I have to make money now, so you will believe in my future goals.”
However, The Diversity Movement was different from Thompson’s previous enterprises. The potential for growth was bigger, and due to surging demand for corporate diversity training in the wake of George Floyd’s murder, the timetable was shorter.
“Most of the businesses I’ve run in the past that we’ve grown and exited, have been almost completely bootstrapped with no outside money,” he says. “This is really the first venture where my goals and the goals of the company are so large, that we need outside capital so that we don’t miss the moment.”
Partnering with the right venture capital firm
Resilient Ventures, founded by Dr. Keith M. Daniel and Thomas Droege, recently provided that timely injection of outside capital. The impact fund targets startups led by Black founders and aims to “close the existing wealth gap by expanding access to capital, networks, and opportunity,” according to the company website.
The racial wealth gap reflects disparities in access to resources and opportunities. For every dollar the average White American has, the average Black American has about 17 cents; that’s a wealth gap of 6 to 1. The figures are worse – about 10 to 1 – when looking at median incomes. But when comparing White and Black business owners, the numbers improve to 3 to 1.
“Building wealth through business is one of the primary ways you build wealth. If we have a wealth gap, let’s be intentional about this,” Droege says.
“We genuinely want to be a part of the solution to closing this wealth gap,” Daniel adds. “And in directions where wealth is acquired, it’s only available to a few through this kind of investing.”
The venture capital funding will allow The Diversity Movement to invest in its technology tools, which help companies scale DEI learning. Along with its award-winning MicroVideos platform, the company offers a conversational AI tool, eLearning courses, data-driven consulting, and a subscription service for small- to medium-sized businesses, called DEI Navigator.
“We’ve been very fortunate that we’ve bootstrapped our business from zero to our first 100 clients, from zero to our first couple million dollars in revenue, which allows the investment from Resilient Ventures to allow us to be a little bit more aggressive,” Thompson says.
The company will also be better equipped to build awareness of its innovative business model, its suite of tools and services, and its proven impact on clients.
“Nobody nationally knows that this DEI company that was started six months before the pandemic has gone from zero to 100 client companies and serves Fortune 1000 to startups,” Thompson says. “When people are aware of us, we are in the top consideration set for their DEI needs. If people don’t know about us, how can they choose us?”
Building relationships and a community of like-minded entrepreneurs
Along with their financial investment, Droege and Daniel provide expertise and advice to companies in their portfolio. These relationships provide tangible benefits, and when he was looking for investors, Thompson sought a firm that would be an ongoing business partner.
“We want people who are not just writing a check because we’re a good business, but who want to be active participants in helping us be successful in terms of financing, advice, and their networking connections,” he says.
“Even during the process of due diligence with Resilient Ventures, they made several key recommendations both in potential employees and other investment firms that might be excited about working with us.”
The current relationship between the two companies has developed over time. As well as an entrepreneur and CEO, Thompson has been an angel investor, committing his own money to other small businesses with big potential. He, Droege, and Daniel move in similar business circles and have watched each other’s businesses flourish.
“We didn’t invest in The Diversity Movement when they first came up, because we saw them as a consulting organization,” Droege says. “When they came back with us, and said, ‘We’re going to scale our educational materials with digital learning and MicroVideos,’ then it was a different story. Now, it’s a different opportunity, not to mention they have an amazing team.”
Droege and Daniel make clear that Resilient Ventures isn’t a philanthropic project. The co-founders want to shrink the racial wealth gap, but they expect to make a profit on their investments. They are careful who they support, and they know that entrepreneurs with diverse backgrounds have diverse world views that enable them to be more innovative.
“The biggest thing that I say about diversity is innovation, not diversity for diversity’s sake or diversity for the market. It’s innovation,” Droege says.
Investment, innovation, and a compelling story
While the partnership between Resilient Ventures and The Diversity Movement is a success story, it remains challenging for Black founders to get funding. A few best practices make the process easier, say the three veteran entrepreneurs.
Their top piece of advice for founders seeking VC money is to make sure the outside funding is needed to grow the business. Resilient Ventures looks for business partners who have had at least one year of revenue and have exhausted readily available sources of capital like personal networks, pitch competitions, and personal grit.
“There’s a lot of risks, so you put as much of your own time, energy, effort, and money at risk,” Daniel says. “We call it bootstrapping, but it’s being able to respond to opportunities for growth that don’t immediately put you in a place where you’re seeking traditional investor dollars or capital.”
Thompson agrees, saying The Diversity Movement had a couple of years of revenue before the company sought outside funding in order to grow.
“I’m very proud of the fact that we’ve built a self-sustaining business to prove our thesis with our own money, our own sweat equity,” he says. “Now we are starting to get the support of the angel investment community to help us accelerate.”
Thompson also notes that entrepreneurs need to be able to articulate their vision concisely and passionately, with a clear business case. This skill allows founders to enlist the right people to help them reach their goals.
“You have to get people to believe in your vision, because initially, the facts aren’t always there. You’re starting something new, so you have to create that compelling case for people to bet on you with their time and energy. For me, it’s all about adventure,” says Thompson, who honed his communication skills during years in sales.
“Selling the vision for how an employee can benefit by being part of a fast-growing, emerging startup, that is a communication style. That is a perspective. It helps you look for the right clients, the right employees, the right investments, who want to be a part of something that’s amazing.”