Indeed, 2020 has been an emotional rollercoaster of a year. We’ve dealt with the untimely death of Kobe, the Coronavirus pandemic, an economic collapse, and social unrest over the police murder of George Floyd. Nascar threw a curveball by banning the Confederate flag in their arenas and protesting racism at Talladega -- by far one of the most positive pieces of news year-to-date.
Given all the negative noise, entrepreneurs need to stay positive in 2020 as the business environment is almost always difficult and challenging. To a great extent, any good news in 2020 is valued at a premium.
So, when minority entrepreneurs saw an onslaught of news reports on major companies and investment organizations starting initiatives to support Black businesses, we welcomed it as positive news. It is reassuring that Corporate America is coming to terms with the impact of institutional racism, and police brutality. However, as we researched some of the corporate funding packages we realized we still have a long way to go when it comes to funding equity. A good portion of the funding from these programs would not be going to Black entrepreneurs, but to organizations that support Black entrepreneurs. Besides, much of the funding directly intended for Black entrepreneurs is not being managed by traditional business lines, instead, they are being managed out of a new separate “but unequal” business segment focused on Black issues.
We do appreciate the resources being directed to people of color, but what we ask for is to be better integrated into Corporate America’s traditional business processes. If for-profit organizations want to help minorities, then they should make investments in minority companies from their traditional funds. On the whole, these funding programs haven’t demonstrated a paradigm shift. A paradigm shift, in this case, means that venture capital needs to change the entire process of how they discover, assess, and invest in underrepresented founders. Actions investment organizations should take to set the tone of change is to hire, groom, and promote Black employees. And, support them in their efforts to originate business from the Black community. Moreover, fund managers may seek out and fund minority investors who may be better experienced at deploying early-stage capital to minority entrepreneurs.
Still, these ideas aren’t big enough to take on 400 years of institutional racism that drives the inequity we see in early-stage investing, where Blacks and Hispanics receive less than 3% of the $80+ billion investment funds that are invested in early-stage companies each year. We need to take on the investment process itself. At Fundr we have a good solution.
Here is how we’re tackling institutional racism in investing at Fundr. We embrace technology and use algorithms to find startup investment prospects. Key to our algorithmic analysis is honing in on traditional investment factors like traction, growth, margins, profitability, competitiveness, experience, ect., and coupling it with non-traditional factors that highlight a certain type of grit as demonstrated by an entrepreneur’s success despite life’s hardships, challenges, and struggles. We look at the socioeconomic status and immigration status of entrepreneurs and their parents. We also explore the psychological fit among co-founders. Key to solving the inclusive investment problem is embracing empirical data that has proven to identify successful entrepreneurs and is typically overlooked by traditional investors.
At this early point in the investment stage, focusing on the entrepreneur is very important. Empirical data shows that a good portion of our country's best entrepreneurs is not from the Ivy League and country club stock, which is similar to the backgrounds of top investors and the entrepreneurs they typically back. Depending on how failure is defined, venture capital investors generally post a failure rate of 75% - 90%. So, having world-changing ideas and the ability to execute them isn’t exclusive to the typical venture-backed entrepreneur. To make real change, Fundr isolates certain factors that traditional investors look for and replaces them with other factors that are less obvious to, or undervalued by, the typical early-stage investor.
Key to the success of our investment strategy at Fundr is using an algorithmic, or programmatic investment approach to remove the human element which drives much of the investment bias we see in early-stage investing today. At Fundr we believe that technology will play a huge role in equalizing the investment process.
This radical approach to early-stage investing at scale is what we need to move the needle toward economic justice. If you’re a portfolio manager or an accredited investor looking to approach investing in a more ethical and just manner then join our waitlist at fundr.ai to learn more about how we help investors build more inclusive early-stage investment portfolios.