Unlocking a $4.4 Trillion Opportunity

As a general partner of a startup academy focused on underrepresented tech founders,  I have often been asked how much of our returns we expect to sacrifice by investing in overlooked founders such as women and people of color. This question implies that tech companies led by diverse founders are certain to provide inferior returns when, in fact, investing in diversity is one of the biggest economic opportunities of our time. According to Morgan Stanley, overlooked founders could represent a $4.4 trillion opportunity each year in the U.S. alone, not to mention the social benefit that comes with wealth creation among more varied groups and the variety of innovations they will create. So what is next, and how can investors help ensure that the founders that they back will succeed?

Former Teach for America teacher, Amanda DoAmaral, is the perfect archetype of the next wave of startup founders. Fiveable was voted as a top-ten startup in Wisconsin.

Kapor Capital, a leading venture capital firm focusing on investing in diverse founders, recently released a report on the returns of their portfolio. The numbers are jaw-dropping. To date, Kapor Capital has achieved an internal rate of return (IRR) of 29.09% which is substantially above PitchBook’s 75th quartile (25.96% IRR) for other venture capital funds. Additionally, a recent spate of blockbuster successes such as Canva, Rent the Runway, StitchFix and Away have demonstrated more anecdotally that diverse founders are perfectly capable of building global, multi-billion dollar companies. 

Despite a steady chorus of success stories such as those mentioned above, investors have been slow to deploy capital toward high-growth enterprises led by women and founders from diverse backgrounds and geographies. This inertia stems from investors mitigating risk by pattern-matching against past investment success. Unfortunately, with the imbalance of access to capital, historical investment data has created a self-fulfilling cycle around an archetype that is a white, male founder who attended an elite university, studied engineering or business administration and is based in a mature tech hub such as Silicon Valley. 

In 2018, only 12 percent of venture capital went to startups with at least one female founder, one percent went to those led by black founders and one percent went to Latinx founders. This lack of diversity in allocation is dwarfed only by the lack of diversity in the allocators with 40 percent of partners in VC firms coming from just two universities (Harvard and Stanford) and women accounting for only eight percent of investment partners at the top 100 venture firms in 2018.

It’s not just anecdotal stories that point toward the potential of investing in a greater variety of founders and startups. Research has suggested that investing in groups that do not fit the classic Silicon Valley pattern results in superior economic outcomes. A study by Boston Consulting Group and MassChallenge showed that for every dollar invested in female-run companies, $0.78 were returned versus just $0.30 otherwise. Another study by McKinsey, found that companies with diverse leadership are 35 percent more likely to outperform those without such diversity. This is likely because a great majority of founders innovate for what and who they know. As such, overlooked founders are often uncovering markets that have been neglected by others. 

Investing in a greater diversity of founders and startups also includes breaking geographic bounds. According to a Pitchbook/NVCA report, 79 percent of venture capital is allocated to just three states in the U.S. in 2018: California, New York and Massachusetts, with the first of these accounting for over 48 percent. At the same time, Jason Rowley from Crunchbase reported that investments in startups based in regions such as the Midwest and South outperform those based on the coasts, where traditional tech hubs are located. For example, the median multiple on investment for Midwest-based startups is 5.17x compared to the Northeast where the median is only 3.89x.

The movement to deploy capital to a greater variety of innovators might be still inchoate, but the tide is likely to change rapidly as venture capital and private equity investors realize the economic potential that is knocking on their doors. While opportunity abounds, unlocking the economic opportunities from a group of founders that have been underserved is not without unique challenges, which we must recognize to deploy capital and human resources efficiently. Here’s how: 

First, if we invest in tech entrepreneurs that do not fit the old Silicon Valley pattern, we might need to complement these founders’ unique experience and skills with a different set of knowledge and resources. At Beta Boom, we provide our startups with product and marketing coaches that work alongside them daily to improve their product and grow their customer base. We know that product design, marketing and growth hacking skill sets can be developed over time, but grit and outstanding domain expertise–the two qualities we prize in our founders–are irreplaceable.

Second, a startup has a long journey before it provides a return for the founders, employees and investors through an acquisition or initial public offering. It’s very likely that everywhere along the journey underrepresented founders will face biases, including from later-stage investors and strategic partners and acquirers. Investors cannot rest on their laurels and instead, need to work hard to make connections for and champion their portfolio companies. 

Third, beyond implicit (or explicit) biases, there are networking hurdles that underrepresented founders often face. The next generation of superstar tech founders might no run in the same social and professional circles as many investors and are thus less likely to find their way to the investors’ doorstep through warm introductions. Likewise, if we seek to broaden our geographic focus beyond traditional tech hubs such as Silicon Valley, New York and Boston, investors can’t require startup founders to fly for in-person meetings at the drop of a hat or move their entire team.

Venture capital firms such as Village Capital and Indie.VC are trying different investment and operational models to better unlock the opportunity that diverse founders present, and they are not alone. The number of firms, family offices and angel networks innovating and focusing on startups led by diverse founders is growing rapidly. The question is increasingly not whether diverse founders will produce market-rate returns but rather who will catalyze and capitalize on this growing movement and who will be late to the game.


New Pattern Spotlight: Amanda DoAmaral, Founder of Fiveable

Amanda started out as a Teach for America teacher in Skyline High School in Oakland, where she taught Advanced Placement U.S. and World History. After leaving the classroom, she still wanted to help all students do well on their AP exams and started tutoring students online.

Amanda didn’t know it at the time, but she stumbled upon a model that really resonated with students and helped students pass their AP exams at twice the national average. She kept growing and evolving her model and went on to build one of the leading online social learning platforms–Fiveable.

In this episode of New Pattern Spotlight, we learn about the highs and lows of running a startup as well as the advantages that underrepresented founders like Amanda have. This candid interview with the founder of Fiveable is a must-watch!

Read More

Treat Your Startup’s Fundraise Like Sales – Startup Basics Podcast

When you are raising capital for your startup, you have to sell your investors on your business. By treating your fundraise as a sales cycle, you can help add structure and efficiency to this effort.

In this episode of Startup Basics, Kimmy and Sergio discuss how to work backward from your goal, keep track of your effort, and stay motivated when you’re hearing a lot of no’s.

iTunes
Spotify
Stitcher


New Pattern Spotlight: Jude Chiy, Founder of Flamingo

In this first episode of the New Pattern Spotlight series, Kimmy speaks with Jude Chiy, the founder and CEO of Flamingo, which lets property managers offer residents a plethora of services ranging from housekeeping to cooking classes. Kimmy and Jude discuss building a quickly-growing tech startup in Chicago, the advantage of being an underrepresented founder, and Jude’s founder journey.

Full transcript:

Kimmy: Hi Kimmy here, and I’m here at Wicker Park in Chicago with Jude Chiy, founder of Flamingo. So Jude why don’t you tell me about Flamingo and who you are.

Jude: Yeah so Flamingo is a resident engagement platform, we basically provide a platform for apartment buildings that includes a white-labeled app that residents can use for everything from rent payment to booking a house cleaner.

Kimmy: So tell me about how you, why you started working on this and how long you’ve been working on it.

Jude: Yeah so I’ve been working on this for about four years, it’s changed a lot from the initial vision. When we first started it was focused on wellness. So looking at bringing wellness where people live, work and play, my passion for wellness came from my background in health care. So I always wanted to become a doctor but in college realized I could have a bigger impact on more the prevention side of health care. So I decided to start this company to make it much easier for people to get healthy, so when I started the goal was bringing wellness where people live work and play. So apartment buildings were part of our target market. But after I’d been exposed to that market, and realizing that there’s a lot more opportunity for what you could do, we decided to become a full engagement platform so not just fitness, but making life easier for residents from all parts of what they need. For example, if you don’t have to spend a lot of time cleaning your apartment it means you have more time to go actually work out. So we decided a full engagement platform is the best approach to actually impacting wellness.

Kimmy: Amazing, so moving from doctor to startup founder is kind of a big jump, what’s been the most surprising thing about being a founder and running your own startup?

Jude: The most surprising thing which I think it shouldn’t really be a surprise, is just how all consuming it is. So you go in knowing that starting a company’s a lot of work but it’s hard to account for how all consuming it is. Like at 11 am or 11 pm you’re thinking work, work, work, work it doesn’t matter what time of the day. So that to me was actually a surprise, yeah.

Kimmy: How do you work through that are there things that you do to get away from it and to kinda give yourself a break?

Jude: Yeah so what is actually nice about being a founder of a company is that you have a lot of different parts of the company so at one time you’re focused on sales, at another part you’re focused on actual operations, another part is focused on something completely different. So while you are doing a lot you’re doing a lot of different things where it doesn’t feel as bad and for me part of that is just balancing everything while still trying to do all the things that I do that I enjoy like running, biking, swimming the regular things.

Kimmy: What for you has been the hardest part about this journey?

Jude: I would say the hardest part has been trying to figure out what direction to take. You know where you wanna take the company, but there are always so many different things you could do that you have to be like no, that’s important but it’s not as immediate or as important as this. So that’s always a challenge is there are always things to do, a lot of directions you can take the company, a lot of things you could focus on but you just have to kind of pick and choose and that becomes really challenging because, you have a lot of great ideas. A lot of things that you wanna implement but you really have to pick and choose really specifically.

Kimmy: Are there people that have been very instrumental in your journey that maybe have helped you with that, picking the priorities or have gotten you this far?

Jude: Yeah absolutely. So luckily our customers are pretty vocal and we are pretty proactive with getting feedback from them and that has made it much easier where you are like, what’s actually going to benefit you? Is it this feature, or this feature, or this feature? And a lot of people are very vocal with that they like. So they immediately go okay I really think that’s cool, but from the customer side of things this is way more important and way more impactful.

Kimmy: So you’re staying very close to your customers. Are they all here in Chicago? Or how do you stay connected to them if they’re distributed?

Jude: Yeah so we have customers all over the U.S. They’re from DC to San Fran, so part of what we do, is we do regular quarterly check ins with each of our customers, and then we have a couple sets of customers. We have the property managers, and then we have the residents in the building, and then we have our providers. So for each of those sets we have regular check-ins. For the residents it’s a resident after every event or after every action they take. So if they attend a fitness class or if they book a house cleaner they get a survey so we know how things are going.

Jude: For the property managers we do quarterly check ins, whether that’s a survey or that’s just calling them, and then we send out regular emails just to make sure that things are going well, usually we say what things should we keep doing? What things should we stop doing, and what things should we start doing? So that really helps us get really honest, and great feedback.

Kimmy: That’s great that you’re continuing to hear from them. What could you point out maybe as your proudest achievement so far? Especially since you’ve been so close to the customer, is there something that you really point to, like I’m really proud of, that we’ve done this?

Jude: I think one of the proudest moments for us, was deciding that it made more sense to focus on our customers brand versus our brand. So one of the things that we provide to our customers is a white-labeled app, so the app itself is completely white-labeled from our perspective, it’s not that good because it doesn’t really promote our brand but from the customer side it’s a great thing. Because they get to stand out essentially, and that’s why the name of the company’s Flamingo, because we help them stand out.

Kimmy: Awesome, I like that. So shifting gears a little bit, I’ve mentioned Chicago a couple times, you are based here, and building your company here. How has it been running a startup here, versus somewhere else like Silicon Valley or anywhere else? What are the advantages or disadvantages from being in Chicago?

Jude: Yeah so it’s hard to kinda say what the disadvantages would be because I haven’t had a chance to actually build a company in those different places. So I can speak more on Chicago. So far it’s been a great city to be based out of, one of it is geography, it’s really easy to go to different cities from Chicago. So to get to the Bay Area or to get to the East Coast, everything’s less than a three hour flight, and that makes it really easy because our customers are pretty spread out, so to go to those visits it’s much easier travel-wise, and then Chicago itself is just a really great city, it’s the third largest city in the U.S. But it’s really affordable, so we have all the different neighborhoods, but everything is still pretty close to the downtown area. So it makes the city itself really really affordable, as opposed to the Bay Area where it’s a challenge to live there for anyone. So that makes Chicago just great in all those aspects, but obviously compared to the Bay Area you don’t have as many people in the tech scene meaning the whole ecosystem isn’t as developed as you might have in New York or the Bay Area.

Kimmy: Fair enough, yeah. So what have you done with that then? Do you have a group that you turn to here, or how do you find solidarity when this can be a lonely journey?

Jude: Yeah so Chicago isn’t, while Chicago is not as developed as the bay area there’s still a pretty nice ecosystem so you have 1871, you have Mather, you have a few different universities that do different programs around entrepreneurship. So that still provides you with a pretty decent ecosystem to turn to, and like anything else, if you’re proactive you are going to find your people.

Kimmy: For sure, for sure, and so where do you want to take the company? Where do you see yourself in a year, or really far down the line, 20 years from now?

Jude: It’s hard to say 20 years from now, but for us a year from now is continuing to really develop our product, to make it even better for our customers, like I was saying there are a lot of features that you wanna add. But you don’t necessarily have the time or priority to.

So we have a lot of those things to add, to really make it a lot more customer-friendly and then just continue to grow our customer base.

20 years from now, we have thought about 20 years from now. So one thing that we see in the apartment industry is that the data in the industry’s really important. But right now it’s not really well developed, so one of my predictions is that 20 years from now, the data is actually going to be more important than the monthly rent that the property managers are charging. Because in the building, residents are doing so many different things being able to capture that and understand how that impacts what development looks like what the things you provide in the apartment looks like. That’s really tremendous, everything from do we actually need a fitness center or should we focus on having a pool? Or should we have this? Because right now all the buildings have an amazing amount of amenities but they don’t really know which of those are more important to a resident.

So being able to really capture that data is something that we are starting to build into our platform.

Kimmy: So also along this journey you tend to get many people throwing advice at you. You get it everywhere, I’m wondering from your perspective what’s the best advice you’ve received? And what’s the worst advice you’ve received?

Jude: I would say the best advice I’ve had is just be really close to your customers, and that came from the old company I used to work for, the Cancer Treatment Center of America. One of the most amazing parts of the company is just how much time they spend on customer development, so really understanding everything about a cancer patient. What do they care about? What are all the things that impact their life, not just the cancer, just for example one of the things that really blew my mind when I first started working there was how much time they spent to decide what carpeting to use at one of the hospitals. Something that small they spent a lot of time on, to know how is this going to impact patients? Is this something that actually makes a difference to them? So I learned a lot from that just knowing that you have to constantly pay attention and get feedback from your customers. In terms of worst advice, I don’t think I’ve gotten any bad advice, it’s like anything else. Everything has some nuggets there are things that you learn to ignore but mostly it’s figuring out what’s going to help and what’s not, and then kinda just trying things out.

Kimmy: The journey for a founder can be challenging and it’s sometimes more challenging for underrepresented founders. I’m wondering from your perspective, what advantages have you found from being an underrepresented founder?

Jude: So I think one of the big advantages, it’s like anything else you stand out. So I say stand out a lot because that’s really our company brand is how do you stand out? So being an underrepresented founder you always stand out, so if it’s presenting to an investor, if it’s talking to a customer, you always stand out because it’s something that they haven’t really seen a lot before. So I actually use that to my advantage because it gives you that opportunity to leave them with this impression like, oh wow. That’s not something I might have expected, so you end up just standing out more in their mind.

Kimmy: So what advice would you give somebody whose in your shoes? Underrepresented or not, that’s thinking about starting up a customer or is early in their journey?

Jude: Yeah so one thing I always say is go in knowing that it is a lot of work, so you do have to spend a lot of time on a lot of things that you might not necessarily enjoy. But if you are doing something you truly believe in, it really helps so it makes things much easier and then the other thing is just really pay attention to your customers, this is a cliche advice. But at the end of the day that’s actually what matters, is this something your customers are going to use or care about? ‘Cause if it’s not then your pretty much just lying to yourself.

Kimmy: So final question if I had a genie and a bottle for you today, what would you wish for?

Jude: Infinite customers! No, but in seriousness, I think for Chicago, it is definitely having a more connected tech ecosystem, so just making it easier which is what you guys are already doing, making it easier to find investors. Making it easier for investors to know this company exists, so I think that process still isn’t as optimized as it needs to be.

Kimmy: Well that’s great, well I like that wish and thank you all for joining today, again this is Jude from Flamingo.


Introducing the New Pattern Spotlight Video Series

After speaking with countless founders throughout the U.S. from underrepresented groups, we kept hearing a common lament, “I never see founders like me in tech media.” By failing to give founders that don’t fit the standard Silicon Valley mold, media organizations are furthering the narrative that women, people of color, immigrants and other overlooked groups cannot build successful startups.

This leads capable innovators to further question their potential and makes the often lonely startup journey even tougher for entrepreneurs. Moreover, a lack of representation in the media also undermines investors’ and ecosystem leaders’ conviction to support more diverse founders despite their involvement being critical in ensuring that such entrepreneurs succeed.

We grew frustrated at the status quo and set out on a project to highlight, via video, some amazing founders from diverse backgrounds. Each founder brings a unique perspective and story, and this variety is important because it shows that there is no playbook in tech entrepreneurship. Hopefully, seeing and hearing the founders’ stories will inspire and educate the next generation of tech tycoons.

At the same time, the old adage that it takes a village could not ring truer in startups. That is why we are also featuring investors and other supporters of diversity and inclusion in tech. We hope that this will both shine the spotlight on these dedicated individuals and organizations as well as demonstrate to entrepreneurs that they do have resources to help them on their journey.


Footer Signup Form

Join us in the new pattern movement as we seek to diversify tech entrepreneurship!
Privacy Settings
We use cookies to enhance your experience while using our website. If you are using our Services via a browser you can restrict, block or remove cookies through your web browser settings. We also use content and scripts from third parties that may use tracking technologies. You can selectively provide your consent below to allow such third party embeds. For complete information about the cookies we use, data we collect and how we process them, please check our Privacy Policy
Youtube
Consent to display content from Youtube
Vimeo
Consent to display content from Vimeo
Google Maps
Consent to display content from Google