Sunday, August 23, 2015

Black People, Venture Capital and Crowdfunding

I recently gave a talk at the 2015 National Black MBA Association, INC. Washington DC Chapter (NBMBAA-DC) Entrepreneurship Expo. My talk, titled “Black People and Venture Capital: Why You May Never Get Funded,” available below.


I started with a discussion of the key financial institution in the country, the Federal Reserve Board, which controls the allocation of capital via monetary policy, the tools used to control the supply of money.  The Fed is located at 20th Street and Constitution Avenue N.W. and I encouraged DC entrepreneurs to visit the institution, since the Fed directly impacts the ability of small businesses to get capital.

I also encouraged Black businesses in DC to use the recently established Offices of Minority and Women Inclusion as a powerful potential source of capital and contracts. Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act contains a provision creating an Office of Minority and Women Inclusion (OMWI) responsible for monitoring diversity efforts at the agencies, regulated entities and agency contractors. (For those unfamiliar with these Offices, we offer a seminar describing in detail the duties and performance of the 29 OMWI Offices. http://www.eventbrite.com/e/office-of-minority-and-women-inclusion-omwi-performance-opportunities-for-minority-and-women-firms-tickets-4633212062)

In the video, I cite my belief that crowdfunding, or raising money online for people, projects and products, is one of the only viable ways Black companies can get funded. I referenced my books on the subject: Top 50 Crowdfunding Campaigns: Fifty Most Successful Crowdfunding Campaigns at: http://www.amazon.com/dp/B00RKK4NL0 and The JOBS Act: Crowdfunding for Small Businesses and Startups at: http://www.amazon.com/JOBS-Act-Crowdfunding-Businesses-Startups/dp/143024755X/ 

Key trends in crowdfunding include the following:
•             Kickstarter and Indiegogo continue to dominate crowdfunding.
•             Corporate America is into crowdfunding..major brands, including Kia and Kimberly-Clark, have launched campaigns to test the market for new products.
•             Startups raised $204 million through equity models in 2013; that number was expected to top $700 million—7 percent of the overall crowdfunding market—in 2014.

I also discuss my belief that the key to getting angel or venture capital funding lies in being referred to investors by another investor or entrepreneur. I identify Keiretsu Forum, a global angel investor network, as a good resource, but noted they have not funded a single African American firm, however.

I referenced “Dunbar’s Number”, named for psychologist Robin Dunbar, who found that “humans are able to maintain relationships with no more than roughly 150 people at a time.” Dunbar’s research shows that “when it comes to meeting people who can help you professionally, three degrees of separation..is the magic number because when you’re introduced to a second- or third-degree connection, at least one person in an introduction chain personally knows the origin or target person.” 

As I said on Mashable, http://mashable.com/2014/07/21/startup-racism/  1% of VC funding goes to Black people. This is no accident. Other studies http://elitedaily.com/money/venture-capitalists-still-overwhelmingly-fund-white-male-entrepreneurs-minorities-women/ have confirmed that “venture capital funding overwhelmingly goes to white men.” Given this, it makes no sense to solicit funding from a group you know is not going to fund you. Viable alternatives include crowdfunding, angels, bootstrapping and possibly bank financing (but not really).

At one point, I outlined a strategy of buying real estate in Black communities to use as an asset for a startup franchise location. Further, I referenced my Blank Crowdfunding Business Slides https://drive.google.com/file/d/0Bx3S91AlzNJ4Uk1qc3czckpKRWRIcC1RX0dVcWlkUjJsZ2M0/view?usp=sharing as one way to begin to outline your startup capital needs and strategy.

I discussed using credit cards, personal loans and other resources to accumulate enough capital to start a business and about how “an increasing number of VCs want startups to engage in crowdfunding before requesting backing” but how VCs are still too racist and greedy to allow Black companies the room they need to serendipitously discover and uncover market value. I pointed out how this was exactly how Google uncovered the strategy that eventually led them to a $200 billion market value.

Finally, for those foolish  enough or determined to pursue VC funding, I discuss the main reasons why people don’t get funded:

·  Your character, integrity or leadership is questionable
·  You failed to spot issues with your team because you’re too trusting, too polite, or too focused on yourself
·   Not referred to investors by another investor or entrepreneur
·  Hard-headed to the point of being unable to listen to input from an experienced, reasonable and knowledgeable investor
·  Not deeply embedded in your niche or area of expertise
·  An inability to stop, and think, and finally, 
·   99% of VCs are racist and/or sexist

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