Diversity Startups Venture

Practical Steps To Combat Discrimination In VC: A Q&A With DivInc’s Preston James

DivInc is on a mission to improve diversity in the tech ecosystem by providing black, brown and women founders with the critical resources they need to grow and scale their tech startups.

Co-founded by former Dell executive Preston James, the Austin-based nonprofit pre-accelerator holds 12-week programs for underrepresented tech founders. The group’s first cohort kicked off in September 2016 with a group of founders that included three black men, two Latinos, one Caucasian female, and four Asian women.

By June 25, DivInc will have finished its sixth cohort, having worked with 70 companies and 64 founders total.

On June 5, it launched its Social Justice Innovation accelerator that will be focused on solutions that address social disparities caused by racism. You can also check out DivInc’s most recent impact report here.

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We caught up with James to discuss the challenges facing underrepresented founders today and what he thinks can be done to help change things for the better. The interview has been edited for brevity and clarity.

CB News: When we’ve talked in the past, you’ve been open about the challenges that underrepresented founders face. What are some unique challenges they have to deal with that other founders do not?   

PJ: At the very basic level, a key challenge is that founders of color/women typically do not travel in the same circles/networks as white venture capitalists or even angel investors. This is especially true for new/first-time founders of color. As a result, it is going to take us longer to get the network connections and build relationships within those networks. These network connections are key to getting those “high valued” warm introductions. Almost all VCs take warm introductions over cold introductions 9 out of 10 times. So, if we don’t have those warm introductions, we have a real tough time getting meetings with investors. If we are not getting meetings with investors, then we are not securing investment funding nor are we getting access to referral opportunities. So, it is a major hustle to make the connections and build relationships with the investor community for any founder, but even more so for people of color. Most would say fundraising is a full-time job.

The other thing I would say about these networks is that only a low percentage of white VCs will intentionally seek out entrepreneurs of color to make investments. Some will tell you that they don’t even know where to find founders of color to invest in. So we can’t connect with them and they can’t find us, which can be frustrating for a lot of founders of color.

Then when we finally get those meetings, gender and racial bias, oftentimes, will be right there with us in the room. For a person of color, an investor’s biases can kick in before they even get started. The same can be said for a woman. This is very critical because investor meetings will go very differently because in many cases the questions that are asked of a person of color and women will be different than the questions white founders would get. Bias is a beast.

CB News: We know that the percentage of black founders receiving venture funding is shockingly low. What are your thoughts on why that is? And what needs to be done to change that?  

PJ: When I first started working in the startup ecosystem I was really disappointed to see the investment data points. As I got deeper into the community my disappointment didn’t go away, but I began to understand the why. I mean, you go back just six years and there weren’t very many black VCs–probably less than 1 percent. There were not as many black startup founders back then as there are today. So the “startup life” was not very prevalent in the black communities like it is today. For most, it was an “after” afterthought. Six years ago you would be hard-pressed to find a robust startup entrepreneurship program at Historically Black Colleges and Universities (HBCU). Meanwhile, you had several major universities with programs that were pumping out startup entrepreneurs for decades. So, in many respects, we are behind the eight ball as it pertains to tech startup entrepreneurship.

I didn’t like it at all that we were not making up 10-15 percent of the startup founders getting funded. As I mentioned earlier, the vast majority of VCs were not intentionally seeking out black founders and black founders were having a hard time getting to the VCs due to lack of networks. I would imagine that many black founders would have gotten some level of investment had they been white, so bias/racism clearly played a role in the low investment numbers.

My thought is that investors would say they were not yet “comfortable or confident” with that founder/company. From my perspective, that was bias in disguise. It is my belief that as an investor you have to have a sense of confidence in the founding team’s ability and capability to execute key milestones that drive business growth. Investors also have to be or feel comfortable with the founders. There is a “likeability” factor that is associated with the founder or the business itself, but I tend to think it’s mostly with the founder. Long story short, black founders have a steeper hill to climb and a lot less wiggle room than our white counterparts when it comes to making investors comfortable and confident enough to invest in us.

CB News: What needs to be done? 

PJ: A few things. For one, we need to get more people of color investors. We also need alternative funding vehicles that possess no/less bias within the decision-making process. And, we need to get black founders and white investors together more often so the investors get a better understanding of the high value of the companies founded by underrepresented entrepreneurs. The more we bring them together, the more deal flow the investors get exposed to, the higher the likelihood that the investors will see, experience and recognize the value. As a result, investors will do more deals with founders of color to maximize their portfolio value. They have begun to realize that if they don’t make the investments, they will not remain competitive as next-gen VCs make the investments instead.

White male investors need to acknowledge their biases and get a grip on them, because if they don’t they will find themselves at a competitive disadvantage. Traditional white VCs need to commit to making more investments in black founders. To do that they must commit to being intentional about their deal flow. There are several accelerators throughout the U.S. that cater exclusively to underrepresented founders–including DivInc–that would be great deal flow partners. There are many investment funds that focus exclusively on women or people of color (Backstage Capital, for example) that provide major deal flow to co-invest for VCs. Likewise there are several key events held throughout the year that VCs can attend to gain access to that deal flow, AfroTech, SXSW, Essence Festival, Black Enterprise Summit and Demo Days. So, in reality there is absolutely no excuse for investors not to increase their investments in people of color and women. In a nutshell, to commit to it and hold themselves accountable internally and externally. I also believe that the LPs can hold the GPs accountable for diversifying the portfolio investments.

CB News: How does it feel to be a black man in tech in an industry largely dominated by white males? 

PJ: To be honest, it feels the same as it does as being a black man in America. What I mean by that is, I’ve been in it for so long it is my part of my black experience in America. If you are asking if it’s lonely/tiring sometimes because I am the only person of color in the room, if I have experienced bias, if I have experienced subtle or explicit racism, if I’ve been passed over for a promotion or didn’t get a raise because of the color of my skin, if I didn’t gain access to opportunities because I didn’t have network connections or sponsorship or if it was harder for me to fundraise and so on. The answer is absolutely yes, sure.

However tough it is for a black man, it’s even tougher for black women. All said and done, none of these negative experiences have ever been a reason for me or any of my brothers or sisters in the industry to stop moving forward. We have to be the change we want every day. In the tech industry, just like in America, we must always be working together to create cultures that are authentically inclusive, equitable and diverse at work and at home.

CB News: What can we learn from the murder of George Floyd and its tragic aftermath? 

PJ: This is such a loaded and emotional question. People are so damn tired of the abuse, it’s been going on too damn long. I know there has been abuse to LatinX brothers and sisters as well. I know the women are unfairly treated and abused as well. But as a black man, people must learn and know that black people are sick and tired of being denied the very basic rights of being a human in America, just because of the color of our skin. I would like people to learn, if they have not already, that this has to stop now if we don’t want to be in this situation six months from now.

We must change things now by doing the hard work of addressing issues at the core. No more of these “comfort zone” solutions. We have to radically change the policies and laws that we have in place across the board in order for us to achieve socio-economic prosperity equitably. We have seen people from all backgrounds and races come together to protest. We need to take that momentum and together make these changes and overcome the “leaders” who resist and want to maintain the status quo. Those leaders are scared and they are scared because of their ignorance to the issue of how racism and bias are at the core of all of the problems we have seen today. We have to change mindsets. We have to take action together, all races all genders at the table together to effect real change.

CB News: What would you say to founders and investors who want to take action to combat discrimination? 

PJ: I’m going to focus on the investors because the founders are out there hustling and making it happen despite what’s going on. Yes, all founders need help through the journey, but our black, brown and woman founders are doing the work. On the investor side, I’m seeing quite a few new funds being stood up and investors redirecting or carving out funding targeted to black founders. That is a great start.

Here are my suggestions for investors.

  1. Open your heart, your mind and listen to what black and brown people are saying. Listen to what women are saying. What they are experiencing is real. Investors need to leverage their networks, tap into the innovative side and figure out how to invest in more black, brown and women founders.
  2. Within their current funds, investors must commit to diversifying and focusing a larger portion of their investment funding in black, brown and women founders.
  3. They must also hold themselves accountable. LPs can hold the GPs more accountable by making it part of the investment thesis or a requisite of the investment firm. I’d say the same for angel investment groups as well.
  4. Many, if not most, VCs and angel groups may not know how to “connect” with founders of color. My guidance to them is to spend time reaching out to programs like DivInc, Founder Gym, Founders of Color, or Digital UnDivided, Backstage Capital, Black and Brown Founders, Hello Alice, New Voices Fund, Harlem CapitalMaC Venture Capital, Camelback Ventures, Precursor Ventures and Change Catalyst and a whole host of others that you can partner with to find awesome deal flow.

There are several key events that they can attend, AfroTech, Black Women Talk Tech, SXSW and so on, where they can find some of the best and brightest among women and people of color entrepreneurs. In a nutshell, there is no excuse to not be able to effect the change.

Another thing that other major VC firms can do is create new funds specifically targeted to these demographics and hire black, brown, women to run them and let them be the apprentices, pipeline of VCs to the future. You can work with venture scholar programs to identify candidates and organizations like HBCU.VC. Alternatively, you can build a venture scholar program within your firm. Bottom line, open your minds, hearts, listen and innovate. There is going to be a higher ROI than you imagined. Those who don’t will be left behind.

Blogroll Illustration: Dom Guzman

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