Is the VC model perpetuating the racial wealth gap?

Is the VC model perpetuating the racial wealth gap?

You may have heard the shocking statistics about venture capital investments in businesses founded by Blacks and Latinos.  “Less than 1% [of venture-backed companies] have a black founder; same for Latinx. A mere 0.2 percent of venture deals go to black female founders; in fact, only 26 black female founders have raised over $1 million in outside capital…ever. The average amount of venture capital to black female founders is only $36,000 compared to the overall average of $1.3 million invested.” (Herrling, S., “Women-Led Startups Aren’t Getting Funded, and There’s a Very Simple Reason WhyInc. Magazine, June 2018)

Undercapitalization of businesses owned by people of color exacerbates the racial wealth gap.  While a small group of venture capitalists and venture-backed founders—a huge percentage of whom are white, male, and privileged—become increasingly wealthy, the vast majority of small business owners struggle to keep their doors open and deplete their personal savings (if any) in the process.  Some will make it, but many will fail due to the lack of sufficient capital.

The median net worth of Black and Latino families stands at just $11,000 and $14,000, respectively—a fraction of the $134,000 owned by the median White family.  Even more disturbing is that when consumer durable goods such as automobiles, electronics and furniture are subtracted, median wealth for Black and Latino families drops to $1,700 and $2,000, respectively, compared to $116,800 for White households. (Asante-Muhammad, Collins, Hoxie, & Nieves, “The Road to Zero WealthProsperity Now, September 2017)

What is the best way to solve this problem?  Many suggest that we just need to diversify the venture capital industry.  Add people of color, stir, and somehow inequality will start to disappear.

But what if the venture capital model itself is all about perpetuating inequality, regardless of the race of the participants in it?  The venture capital model provides investment opportunities only to the very wealthy.  Once a company receives venture investment, it is expected to grow as fast as possible so that it can have an “exit” (i.e. get bought by a larger company).  The vast majority of venture-backed companies don’t make it to an exit and they go out of business, often leaving employees and suppliers in the lurch.  (Estrada, L, “Munchery:  How a venture-backed startup swindled a group of women and minority owned companies out of over $50,000 and is getting away with itMedium, January 2019)

If there is a “successful” exit, it makes the wealthy investors even wealthier, and the benefits don’t trickle down to the lower paid employees, much less to the customers or communities that supported the business in its early days.

Rather than try to diversify a system that by its very design concentrates wealth in fewer and fewer hands, why not focus our energy on alternatives that have the potential to bring greater wealth to the many and not just the few?

Let’s focus on strategies that make it possible for EVERYONE to invest in the businesses they believe in and care about.  And let’s design those investments so that investors can get paid without there having to be a unicorn-style exit.

If you would like to join the movement to democratize small business investing, please join us at www.AngelsofMainStreet.com.  If you’re an entrepreneur who would like to raise capital outside of the venture capital model, please sign up for a strategy session to learn about how this type of funding could fit your business.

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Will it turn investors off if you tell them about your mission?

Will it turn investors off if you tell them about your mission?

I’ve talked to many entrepreneurs who have told me they deemphasize the mission of their business when talking to investors.  They assume that investors care most about financial returns, and they worry that talking about their mission could get in the way of getting funding.

This is a terrible idea!  Most investors actually want very much to invest in mission-driven businesses that are values-aligned.  If your mission is important to you, you need to say it loud and proud. Furthermore, any investor who does not like the fact that your company is mission-driven is not a good fit for you, and you should not waste time with them.

More and more investors are coming to understand that, in the long run, mission-driven businesses are likely to be more profitable and successful.  When talking to potential investors, if you sense a lack of values alignment, it’s best to move on. Always seek out investors who are focused on your business’ long-term success, not on making a quick buck.

If you stay true to what matters most, you can and will find investors who share your vision and want to support you on your terms.

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Do you have to give up control of your company if you raise capital?

Do you have to give up control of your company if you raise capital?

So many of us have heard horror stories of founders giving up control to investors and then being pushed to do things with their business they didn’t want to do or even getting fired from their own company!  

The good news is that it is absolutely possible to raise money AND maintain control of your business.  I’ve been helping clients raise money for over 10 years, and I have never had a client who gave up control to investors!

Every business and business owner is unique — ideally, investment terms should be tailored to each situation. Unfortunately, most lawyers and finance professionals are unwilling or unable to be creative.  

You live and breathe your business, and you have a vision of what the business will look like when it has reached its ideal size and level of impact. This vision is what should inform the terms on which you accept investment. If you accept terms that are dictated by an investor, you risk sacrificing your vision, goals, and values in the name of complying with whatever the legal documents dictate.

If you structure the investment offering in a way that reflects what you value most, you will attract investors who support you, believe in your vision, and trust you to lead the business in a healthy and sustainable direction—all while YOU maintain control of YOUR business.

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Video: The Death of Venture Capitalism & rise of the #WeEconomy

Video: The Death of Venture Capitalism & rise of the #WeEconomy

Attorney & Creative Capital Queen Jenny Kassan talks about why Venture Capital models are not the right way for 99% of businesses to grow. Join the #WeEconomy and find investors for your business who love you, believe in what you give to your community, and want to see you be successful!

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Bull market may be nearing its end

Bull market may be nearing its end

Stock market investors are rewarding companies that are able to show high growth, while fleeing from companies that are not able to meet ambitious growth projections.  This preference for growth stock results from lower earnings and narrower profit margins.  Stocks are hitting records and valuations are at 15-year highs.  But how much longer can companies like Amazon, Apple, Alphabet, and Facebook continue to sustain high levels of growth?  This is exactly the situation that preceded the last two recessions.  As the Wall Street Journal puts it, “the rally in growth stocks will probably end badly.”  (For complete article click here.)

Now may be a great time to sell some of your publicly traded stocks and invest in a small private business you love!

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What are investors looking for?  It’s not what you think!

What are investors looking for? It’s not what you think!

I’ve been helping entrepreneurs raise capital for about ten years and have raised money for my own business three times.  I also talk a lot to investors.  I have learned that investors are looking for a lot more than a good financial return.  Here is a list of some of the main things investors consider when trying to decide where to park their money:

    • Trustworthy, high-integrity leadership – generally, investors feel a lot more comfortable investing when they sense that the entrepreneurs or fund managers they are entrusting their money with will be responsible stewards
    • Reasonable level of risk – this is very much related to the first one – if investors trust an entrepreneur, they will perceive the risk of the investment to be lower; perceived risk may also be lower when the investor has a direct relationship with the business e.g. as a customer or supplier
    • Transparency – many investors are frustrated with the complexity and opacity of Wall Street investing – they value being able to understand where there money is going and what it is being used for
    • Being part of a community or tribe – when companies treat their investors as more than just a source of funding, but as a supportive, cohesive community, this can create a lot of investor value (I invested in a fund recently that actually provides zero financial return on investment, but gives me access to a community that I love)
    • Being able to tell their friends and acquaintances about the cool thing they invested in – studies have shown that this is a big driver of investor decisions!
    • Values alignment – a majority of investors state in surveys that it is important to them that their investments align with their values
    • Cool perks – invitations to special VIP events, trips, discounts, sample boxes, etc. can add a lot of value for investors – I recently read an article about how much Estee Lauder’s shareholders love to be pampered and get goody bags at the annual shareholder meeting!
    • Low to no fees – many investments involve middlemen and fees – opportunities to invest directly in a company allow investors to avoid those nasty fees

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