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The Struggle of Minority-Backed Companies

August 19th, 2020

Diversity is a hot topic these days. Especially within the VC community. The long-standing struggles of minority entrepreneurs persist, even as the call for heterogeneity and inclusivity everywhere has grown louder in light of current events.

In our recent DiffuseTap event, we sat with Nora Peterson, co-founder of Halo Incubator (an accelerator for women-backed early stage companies) and Mackeever (Mac) Conwell, Deal Team Coordinator at Tedco (the investment arm for the State of Maryland). Both staunch advocates of diversity in entrepreneurship, they shared with the session participants the steps that they’ve taken to promote it in VC.

DiffuseTap is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high calibre startup players) and part purposeful (you’ll DiffuseTap new ideas). Feel free to ask for an invite, using the form at the end of this page or simply email us at contact@diffuse.vc.

How do you define diversity?

All of us by now might be familiar with the word “diversity”. More than a mere metric or checkbox that founders are obliged to tick, it is beyond just having a target number of minority people within a group. Mac Conwell shared his take on diversity:

“‘Diversity’ itself means everybody. Very often, people like to use the term when they’re just talking about their own affinity group, on the one group that they’re trumpeting for. But when we talk about diversity, it’s not just people of colour. It’s not just women. It’s not just indigenous founders. It’s not immigrants or international founders or people disabled, or white. It’s everybody,” Mac explained.

Nora Peterson added that inclusion is the other half of the equation that makes a well-diversified team. “I’ve read this somewhere, which I’ve written down. Diversity is being invited to the party, and inclusion is being glad you’re there. And I think just as in everything, whether VCs, whether an accelerator or corporations, diversity matters,” she said.

Founders not only need to have a culturally diverse organization; they also have to make sure everyone feels welcome. “Just because you’re meeting these quotas or these numbers, it doesn’t really mean anything unless people feel welcome and that they’re glad that they’re part of something and not just a metric,” Nora argued.

What are the advantages of having a diverse organization? 

The benefits of a diversified organization might not seem obvious at first, but recent studies show that organizations actively seeking diversity are producing better outcomes than the ones that do not.

Nora weighed in on this revelation, highlighting that, on the companies’ side, hiring people from different backgrounds forces founders to think differently. It allows them to tap into a lot of talent that they wouldn’t have otherwise discovered.

“Recruitment and retention are key. Startups, for example, if you have an all-white male on a team – which is a lot of companies especially in certain industries – it’s understandable. But early on, if they’re not able to hire and build a diverse team, it becomes really difficult to attract minorities and women to join the company, and they’re just missing out on so much talent.”

Another reason for founders to build a diverse team is that investors are more likely to become attracted to companies that have a diversified team. Mac, having helped the State of Maryland make investment decisions with startups, recalled from his own experience:

“As an investor, we are all intellectually curious, and we’re always looking for a competitive edge and learning about new markets. The amount of wealth you can learn from an entrepreneur who’s from Portugal, or Germany, or rural Middle America is immense. You will learn about new markets and about elements that you’ve never considered […] Founders are paying attention to that, and that’s going to become a thing,” said Mac.

What challenges are there for minority entrepreneurs?

Minority entrepreneurs have to hurdle a lot of barriers to raise capital. Mac remembered an extraordinary story of how a Black woman he knew funded her business by becoming a surrogate mother. “She’s a single Black mother here in Baltimore. She’s got an engineering degree from Oregon State, my alma mater, and a Master’s from Johns Hopkins. Really smart woman.

“When I met her three years ago, she told me she had an idea for an all-new beauty product. It’s a physical product in the beauty space [that was] really innovative. I thought it was really unique, I had never heard an idea like that. When I looked into the market, it was a $5 billion market that has not had that innovation in 60 years. Something amazing.

“I made every introduction I could for the woman and nobody cared because she was too early. So she came up with a small prototype of an off-the-shelf product and reconfigured it to show that her idea could work. Still, nobody cared. So what did she do? She called me a year ago and told me she became a surrogate mother so she could get the money to build her prototype.

“That’s the life that she had to go through, just to get to the point to start building a prototype. And the amount of money she got from her surrogacy, it’s not enough to get the full prototype done; it’s just enough to get started.”

Coming from a disadvantaged background, they typically don’t have family or friends with that kind of money to invest, and it may take years to get a decent-sized capital to start with. And so sometimes they have to resort to rather creative means to raise funds, as this case clearly illustrates.

How do you promote diversity?

When asked how they factor diversity into their investments, Mac and Nora had different takes. Back at his own minority-focused fund, RareBreed VC, Mac said he doesn’t look for people from any specific ethnicity or cultural background. Rather, he looks for entrepreneurs who have great products but are “under-network”, or those that have access only to limited investment connections.

According to Mac, they do not necessarily look for people from different racial or cultural backgrounds. “I’m finding these hidden gem entrepreneurs that are typically overlooked, and give them access to that larger investment network – to a larger pool of customers and partners and such. I don’t have any designations for my funds or anything like that. But inherently, when you talk about entrepreneurs who are under-network, you’re going to go into communities that typically don’t get venture capital.”

This approach has led him to create a diverse pool of entrepreneurs without focusing on any specific demographic, thus, creating real diversity. “For our fund, we were about to deploy our first eight investments: three Black men, a Black woman, a Latin-mix gentleman, a young Asian man, two men from the Dominican Republic, and a white guy in New York. That’s how that worked out,” Mac recounted.

Nora’s incubator, on the other hand, focuses on creating equity in different industries by specifically seeking innovative women entrepreneurs. Halo Incubator wants early stage women founders to have the right resources, including access to knowledge on funding.

“Our core focus is just helping this minority group within the entrepreneurship ecosystem. Our requirement is one woman on the founding team, in order to be considered into our accelerator program. But we also look at diversity within industries. We’re industry-agnostic, but we like to have a diverse portfolio of companies. We like to see Black and Latina founders, for example, represented. So we do look at that, but women are definitely in a niche spot where we’re focused on.”

 

Mckeever Conwell is the Deal Team Coordinator at Tedco, where his primary role is to help the state of Maryland decide which startups to invest in. Nora Peterson is the Co-Founder of Halo Incubator, which focuses on building women-led early stage companies.

Are you an under-network or minority entrepreneur? Maybe we can help! Leave us a note below and let’s have a chat soon!

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