By Forest Richter, Co-Founder of Uncrowd
There is a bright and important spotlight on investing in founders that have been previously overlooked, particularly founders of color. The problem I saw when I entered this space was the reliance on the “Pipeline Problem” narrative. Almost daily I would hear from a white, male investor who said something along the lines of, “I’m founder agnostic. All I care about is making money. I just don’t see enough diverse founders. It's a pipeline problem”. This led to uncrowd.io. We built a tool that, at scale, can kill the pipeline problem. What now?
Now that there is more awareness of this issue, I hear a lot less comfort from investors parroting the “pipeline problem” and frankly my network has shifted to include a lot more investors who sincerely want to improve the ecosystem. What I’m hearing from investors today is, “How do I actually make an impact?” The short answer is really easy. Give money to black and brown founders. Despite being the truth, I do understand that may feel oversimplified. With that in mind, I present an actionable plan to make a sizable impact, or What I Would do with Three Million Dollars.
The short answer is really easy. Give money to black and brown founders.
The US Census shows household income in the United States for a black family in 2018 was $41k compared to $71k for white families. This is only part of the story, the bigger issue is net worth. According to Brookings, the median net worth for a white household is ten times higher than that of a black household. A higher net worth creates a safety net for starting a venture. It also means that there is more discretionary income in a founder’s immediate network. Systemic racism has decimated generational wealth within our black communities. All of this means that friends and family rounds are substantially harder to raise for founders of color. If I had three million dollars, I would fund the gap in friends and family rounds. If you have three million dollars, you should do this.
Jeff Bezos was given an estimated $300k from his parents to start Amazon. Steve Jobs needed a loan from the father of a high school friend to build Apple. This is common, but is often a neglected part of the founder narrative. Most VC’s don’t want to get involved that early because of the risk. Due to capital limitations for founders of color, we need to reach earlier and pull more founders into the ecosystem. The answer is to write a lot more checks for smaller amounts. There is both ROI and impact here.
Let’s get into the details of how I would make this work. The fund should be nimble and founder friendly. The diligence process needs to be efficient, so founders can get their money fast. Set standard terms, investing $25k for 5% equity. Make funding decisions within one week and distribute checks every other week. Make the goal to write 100 checks in the first year, and then hold the remaining money for follow-on funding. Congratulations, you just made entrepreneurship more accessible for 100 founders of color. Similar models have already been proven effective, most notably by Backstage Capital.
The median venture fund size was $78.5 million in 2019. This initiative would require less than 4% of that. I just laid out the roadmap. I’m aware of why a fund like this might not make sense to traditional venture capitalists, but that’s exactly the point. Traditional venture capital does not work for people of color (or womxn, or LGBTQ+ for that matter). To actually make a difference, you have to do new things. Please do it.