U.S. Funding for black entrepreneurs in the first half of 2021 reached about 1. 1.8 billion – a fourfold increase over the previous year. But according to a study conducted by RateMyInvestor and Diversity VC, most venture-backed startups are “still overwhelmingly white, male, ivy-league-educated and based in Silicon Valley.”
With venture investors funding black and minority founders, with the increasing availability of government-backed proposals such as New Jersey allocating $ 10 million to seed funds for black and Latinx startups, can we expect a fundamental change? Or do we have to repeat the same conversation about representation failures in VC funds?
Crunchbase examined the reach of capital into the venture-backed startup ecosystem and proved that many industry leaders are still worried that nothing drastic will change. As the founder of Black Fintech, I believe that venture investors are making safe bets and investing in end-stage founders rather than early or pre-seed phases.
But what about those minority founders who don’t have family, friends or connections for the first 250,000? Venture funding remains elusive, but here are some tricks for startup installers to hack the system.
Understand that you are against the old system
Getting your foot in the door with new venture capitalist partners is challenging, and it’s often easier for minority founders to be naive in the beginning. I thought reading TechCrunch and analyzing other VC deals I saw in the news would help me get multiple responses and speak the language of those who managed to make a million dollar deal for their startups. However, I didn’t get a single response while other founders got VC investment for original ideas.
This is one thing I was strictly taught: what you hear in the media or read on a company blog post often simplifies the process, and sometimes covering the path that minority founders, in particular, should follow to secure funding Fails.
I experienced hundreds of rejections before raising $ 2 million to launch Blue, a mobile payment platform using beacon technology to facilitate easy and secure payments. It’s a huge mountain to climb and a full time job to constantly advance your vision and Yourself To reach the first meeting with the VC Fund – and it is still miles away from the funding discussion.
These discussions then bring more bias to the surface. If you’ve been sitting in a conference room or on those zoom calls and heard the types of deals proposed to minority founders, you’ll see how aggressive they can be. Often, these founders are given all the money they request – but don’t be fooled. It is usually not given all at once because of what I believe is a lack of trust. Essentially, interval funding is OK to be babysitting.
So, as a minority founder, you have to realize that it will be a long ride, and you will face rejection because you are at a disadvantage even before you open your mouth to raise your idea. It’s all possible, but patience is the key.
Consider the worst case scenario
Once I figured out how complicated the funding process was, then, my coping method was to figure out how to leverage business ideas.
Ideas: How can you make money without an institutional investor, friends, family or internal network? When you experience 100 rejections you will be amazed by your entrepreneurial thirst for success. That’s why minority businesses trapped in these test situations can quickly get the upper hand, whether it’s through affiliate and side business or through crowdfunding on GoFundMe and Kickstarter.
Although generally considered non-essential, subsidiaries provide a regular flow of revenue and services to support your core business idea. Most importantly, the flow of income coming out of your core business shows investors that you can create valuable products and gain loyal customers.
Be sure to find a niche market and survey with potential customers to find out their specific needs. Then, create a product based on their feedback and launch it to beta clients. When you sell a product publicly, look for resellers to keep the internal headcount low and generate recurring revenue.
Do not take trivial matters lightly; They are not Only One sided business. Payment issues can occur if you stick to them for revenue, customers or partners who want custom requests for interruptions and supply chain issues.
In my case, I created a point-of-sale (POS) software platform to sell to merchants, which gave me a distinct revenue stream that could be integrated with Blue’s payment technology. These ancillary businesses can help fund your core business unless you plan on launching in full or how to raise more funds.
In 2019, The New York Times published an article entitled “Unknown Message for More Start-Up Venture Capitalists: Get Lost”. It highlights how more and more entrepreneurs are moving away from the path of VC funding by turning to alternatives and counter-moving. There are always options to see if the fundraising process is proving to be very difficult.
Proceed seriously with acceleration
Acceleration allows enterprises to define their products or services, quickly build a network, and most importantly, sit at a table that they cannot do on their own. Applying Accelerators as a minority founder was a real turning point for me as I met a critical investor who allowed us to increase credibility and open up new networks to investors and customers.
I would suggest finding accelerators to clearly search for minority installers using platforms like F6S. They match you with accelerated and early growth programs committed to innovation in various global industries, such as financial technology. That’s how I got the VC Fintech Accelerator in 2016, where one third of the founders were from a minority background.
Since then, Blue has been ranked in the 2020 class of IBM HyperProtect Accelerators dedicated to supporting innovative startups in the fintech and health tech industries. These types of accelerators give startups access to workshops, technical and business mentorships, and a network of partners, customers, and stakeholders.
You can impress accelerators by creating a pitch deck and company video that is less than two minutes long that showcases your founder and product, and can connect with the fintech community to spread the news.
Another option for accelerators is government funding, but they have had little success investing in startups for a number of reasons. It has an excessive approach because government funding is not under significant pressure to be done by limited partners (LPs, either institutional or individual investors).
What you need as a minority founder is an investor who is an active partner but, with government-backed funds, has a low demand for capital return. We should ask ourselves whether governments are really looking for the best startups with minority ownership to get them adequate compensation.
Enter overseas markets
U.S. There are many unconscious social stigmas, stereotypes and invisible prejudices and you find that cultural dynamics radically different in other countries that do not have a similar history of discrimination, especially when looking at a team or evaluating founders.
I also found that, along with reducing bias, investors in Southeast Asia, the Nordic countries, and Australia are more likely to take risks on new contactless payment technologies as the use of cash in their regions decreases. Take Clarna and Afterpain as examples of fintech success stories.
First, I engaged in market research and got bored on the annual reports to decide if I should look abroad for funding instead of applying for funds near home. I looked at Nielsen reports, payment publications, payment sources and numerous government documents or white papers to find out the use of cash globally.
My investigation found that Fintech in Australia was well ahead of the curve, with four-fifths of the population using contactless payments. The financial services sector is also the largest contributor to the national economy, contributing 140 140 billion to annual GDP. So, I spoke to the Australian Department of Foreign Affairs and Trade in the US, and they recommended some regulatory payment groups.
I immediately went to Australia to meet the banking community, and I was able to find an Australian investor with a mouth full of demand for mobile payment solutions.
In contrast, the U.S. Investors in still use cash and cards, I had no interest in what I had to say. This highlights the importance of market research and exploring rather than waiting for investors to come to you. There is no science in it; Take advantage of your network and reach people on LinkedIn too.
The VC industry needs to be internally diversified
VC funds need to be more inclusive for women and minority groups by addressing the pipeline problem and addressing the level of diversity in VC funds. All the networks that VC reaches for the first time from university programs at Statford, MIT and Harvard. These more privileged and wealthy students can easily take advantage of the traditional and old networks created for their benefit.
Due to this difference in knowledge, the number of dollars flowing to Black and Latinx founders is partly low; Many women and minority founders don’t even know that VC funding is an option for them. So, if you get seed funding, spread the word about it in your networks to help others.
Inclusion starts at the academic level but, when the percentage of black and minority students in these elite colleges is still low, you can see why minority representation in VC ranks is necessary. Even if the representation percentage increases it will be a significant change.
There are a growing number of VC funds announcing investment initiatives and interests in minority industries, and I would recommend looking at this in-depth. But what about the demographics of VC companies? How many ethnicities are present in the administrative ranks?
To change the venture-backed startup ecosystem, we need to start from the top and diversify check signatories. Looking to the future, it is black-led funds, such as Sequoia, or others that focus on diversity, such as the Women’s Venture Fund, Backstage Capital, and Elevated Capital Inclusive Fund, which pave the way for solutions that reflect U.S. diversity. .
It is largely up to the investor community to remain intentional about building relationships with and ultimately funding more women and minority-led startups.
Despite the hurdles and obstacles faced by minority founders when seeking VC funding, more and more ways are emerging to raise funds as inequality is brought to the attention of the media.
As the older system adjusts, the key is to prepare yourself for rejection and continue to search for the right accelerators to build important networks. Then, if you have no luck, consider what you can do with your business idea without VC funding or turn to overseas markets, which may have different setups and different opportunities.