Five ways to close the founder opportunity gap, according to Techstars

From Occupy Wall Street and Black Lives Matter to Me Too and Times Up, the past decade has seen popular social justice roll movements across America. Once confined to the political margins, issues such as diversity, equity, and inclusion became mainstream news, and for a while it seemed like technology and venture capital, among most other sectors, were finally set for epochal change.

That was the theory anyway. In reality, within the tech and VC industries, progress has been mixed, slow, and piecemeal. For founders from non-traditional backgrounds, the opportunity gap remains a chasm. Just consider these few findings and data-points: Funding to Black entrepreneurs in the US reached nearly $1.8 billion through the first half of 2021, a more than four-fold increase year-over-year. Yet that only represented 1.2% of the record $147 billion plowed into US startups over that period. And when it comes to diversity of Black, Hispanic, and Latino investment partners—crucial for improving founder diversity—progress has essentially stalled.

As for gender diversity, women are reckoned to make up just 16% of the partners at US venture firms, while the number of companies founded by women received just 2% of global VC cash in 2020. Are things any better in Europe? Hardly. Recent research found that in European VC and private equity, for example, 80% of staff at all levels and functions are white, 11% are Asian; just 3% are black.

Maylle Gavet [Photo: courtesy of Techstars]

So how do we fix this? I won’t pretend Techstars has all the answers; But as one of the world’s most prolific pre-seed investors, what we do have is significant frontline experience of attempting to level the playing field for underrepresented founders. This week we announced a new partnership with JP Morgan to invest $80M over three years to support more than 450 founders across nine US metro areas: Atlanta, Chicago, Detroit, Miami, and Washington, DC in 2022, with Los Angeles, New Orleans, New York and Oakland launching next year.

This program, which is open to founders of all backgrounds, has been specifically funded and designed to provide equitable access, capital, and support for Black, Hispanic and Latino, Indigenous American, and/or Pacific Islander entrepreneurs.

Our motivation is twofold. First, investing in diverse entrepreneurs, unapped talent, and consequent new markets is a persuasive business strategy; for investors, fishing in underfished waters simply makes sense. Second, doing so helps dismantle barriers that limit opportunities, while reinforcing our conviction that great ideas can, and do, come from anywhere and anyone.

‘Pattern recognition & network’

It will also help address a very particular problem inherent in venture capital itself. While it’s true that VCs are still not doing a great job on diversity, it’s not because they aren’t trying—I believe that most investors are doing the hard yards required to change. But they are constrained by their business model. One of the key things underrepresented founders lacks access to capital, particularly at the earliest stages, and that’s largely down to the way VCs and angel investors determine which checks to cut: a mixture of pattern recognition and network.

A recent academic survey of many of America’s leading VC firms found that “more than 30% of deals come from leads from VCs’ former colleagues or work acquaintances.Other contacts also play a role: 20% of deals come from referrals by other investors, and 8% from referrals by existing portfolio companies. In other words, almost 60% of founders backed by VCs today come, one way or another, from within their own network.

The biggest firms aside, VCs back very few companies a year, and have an almost open-ended pipeline of founders looking to raise money, so they need efficient ways to whittle down those applicants fast, and warm introductions from within their own network are the most effective way to achieve that. When that approach is replicated across an entire industry, it results in a systemic problem.

One way to narrow the founder opportunity gap is by offering diverse business leaders, creators, and innovators a bespoke program that addresses the specific obstacles they face—including lack of access to mentorship and personalized support—as we are doing in our partnership with JP Morgan . But there are other lessons we have garnered from our accelerator programs and corporate partners—and these are applicable not just to investors at all stages, but also to other programs, bootcamps, incubators and founder community groups around the world. Here are five of them:

1. Cast a wide net, while sending a consistent message of inclusivity

‘Casting a wide net’ on our recent Techstars Future of Longevity Accelerator in DC, where we partnered with Melinda French Gates’ Pivotal Ventures, in practice meant mass searches on all the different platforms longevity entrepreneurs might be found, ranging from traditional sources like Crunchbase and Pitchbook, to industry-specific associations, pitch competitions, and networks. That helped us identify around 2,400 startups at the top of the funnel. We also held open online investor and thought leader panels, hosted on Crowdcast, which we promoted on LinkedIn and Twitter, founders targeting already engaged with the theme. Those panels were diverse, which helps send a signal to diverse tech founders that they belong.

The team broadcasted a consistent message on social media channels, and elsewhere that they were going to run a transparent, equitable and inclusive process. That appeared to make a big difference in terms of the applications received and indeed to the results: 50% of founders on the program were led by female CEOs; 70% of CEOs came from groups that are traditionally underinvested, and 100% had at least one senior team member from underrepresented backgrounds.

2. Judge every application or pitch on its merits alone

As referrals from network and warm introductions put many founders at a clear disadvantage, reading every application or pitch in its entirety from beginning to end goes some way to ensuring that no one gets a head start. Not only is prioritizing ‘warm introductions’ unethical, but it also doesn’t make sense as an investment strategy, because when you focus on the few, and skim read the rest, you’ll end up missing the unexpected and the outliers.

3. Help make the unfamiliar, familiar

Sourcing and reaching undervalued founders is crucial, but of equal importance is developing and empowering them once they’re on the program, or part of your portfolio. last year, UpSurge Baltimore—whech was set up to build an open-access innovation economy in the city—teamed up with Techstars to launch the world’s first Equitech accelerator.

A lesson we learned was that as well as lacking a network of sounding-boards, mentors, investors, and connectors that many mainstream founders take for granted, founders may also lack the business lexicon, cultural affinity, and awareness of ‘how to play the game’, particularly with investors. Addressing that during your program, or as part of your portfolio services offering, is key.

4. Encourage ‘lateral network building’

The Techstars Equitech accelerator has also proven very important as a “lateral network builder.” The peer network that develops in an accelerator program—or equivalent—is of particular value to those who often don’t already have one. This is their chance to build a community and set of cultural touchpoints that are indispensable for early-stage entrepreneurs. From resource-sharing and launching joint promotion programs, to potential investor and customer introductions, the founders of the 12 companies in each program built their own support network from scratch. And it’s still going today.

5. Keep founders, who may not initially make the cut, engaged

All too often those entrepreneurs who weren’t accepted onto your program are simply sidelined and/or forgotten about. Far better to keep them involved and engaged in your network by, say, inviting them to events or alerting them to opportunities. Some of these startups may have been promising but ‘too early’ to fund, and will be worth a second look further down the line.

Closing the founder opportunity gap isn’t just about doing the right thing, although that’s certainly part of it. Removing barriers to entry to reach unapped talent will result in an influx of fresh ideas and innovation with the potential to shake up sector and sector, create new markets and solve some of our societies’ most pressing problems. Unless we actively find ways to access the tens of thousands of would-be entrepreneurs who are left stranded at the margins, and never believed they had a shot at raising early stage capital in the first place, then lasting change will be a long time coming .

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