Omaha World-Herald Op-Ed: Entrepreneurial success knows no gender or color, but startup money isn’t equal

I started my first business just more than eight years ago. And among my first customers was a powerful and formidable force on my evolution as an entrepreneur, Mark Hasebroock, founder of Dundee Venture Capital. Over our years, first as agency and client and then as cofounders, Mark taught me a great deal about thinking bigger, hitting the curveballs and pitching to win.

 In the venture industry, having such a strong male ally and mentor is rare for a female founder.

An economic impact study of our region showed that entrepreneurs are more successful here than elsewhere … unless you're a woman or minority. 

·         According to a CrunchBase report examining the Mighty Middle, a term that describes the 25 states constituting America's Heartland, only 3% of venture capital raised from 2010-19 was invested in female-only teams, 7% in female-male teams, and 90% in male-only teams.

·         The numbers are even more glaring for minority founders. Just 1% of venture-backed founders were black. Latinx founders made up 1.8% of those receiving funding. And founders of Middle Eastern ancestry totaled just 2.8%, according to a 2019 PitchBook study.

Gallup has scientifically proven that entrepreneurial talent knows no gender or race. So why does funding seem to be so out of whack? 

The gigantic gap in venture funding for women and people of color is a bigger, systemic problem. Pointing fingers at existing capital providers won't solve it. 

 The traditional point of an investment decision may already be too late.

Nathan Preheim and I, on our first business as cofounders, wanted to create more, better startups worthy of investment with The Startup Collaborative. 

We hit the road and talked with nearly 150 Midwest investors to understand what a "good deal" was to them. Of course, they wanted to see a great product, a strong team and early market traction that would give them confidence. And for many funds and investment groups, a new company needed to show $10,000 in monthly recurring revenue.

We heard several other expectations, including three that stand out as we consider more inclusive investing.

Founders must have "skin in the game," putting several thousand dollars into the business before seeking outside investment.

 Consider this: According to the Omaha Women's Fund, on average, Nebraska women earn 73% of what men earn. According to the Institute for Women's Policy Research, that’s $530,000 over a typical working woman’s lifetime. Further, the Urban Institute showed that white family wealth in 2016 was seven times greater than black family wealth and five times greater than Hispanic family wealth. 

Founders should be "all in," working full-time on the company, regardless of commitments like child care or health insurance coverage.

Re-read the paragraph above on pay gaps, then keep reading. A new All Raise report shows that, due to the pandemic, female founders have reported a surge in caregiving responsibilities. Now, 52% must 7-plus hours a day on caregiving, up from 11%. Since the coronavirus hit, that figure is 26% for men – up from 0%.

 Still, women’s startups show no notable differences in revenue. 

Investors place significant priority on a founders' network. 

But research shows that men and women network differently. Men tend to have broad, larger networks, whereas women tend to have smaller, deeper connections with a few key contacts. Women don't have the same locker room, golf cart or duck blind men in our state do. We squeeze networking into the nooks and crannies of our days.

These seemingly harmless expectations create barriers even before a start-up gets to the investment pitch. 

In the pitch, it gets worse. 

A 2017 study based on data gathered from 140 venture capitalists (40% women) and 189 entrepreneurs found that men and women are asked inherently different questions in a pitch for funding. 

In the words of the study's authors, "Men are asked to win whereas women asked not to fail." 

 We need more options for earlier stage capital to enable more diverse deal flow downstream.

In our state, the earliest equity checks - most frequently written in the past few years by The Startup Collaborative, Invest Nebraska and NMotion - are showing far better demographic statistics than the rest of the Heartland.

But these companies struggle to raise subsequent venture capital. 

 Over the past 15 years, it's become clear that Nebraska founders and funders are inclined to build revenue-generating, sustainable and profitable businesses. But these businesses with strong unit economics and smaller markets don't always make sense for traditional venture.

So what if we added more capital options that supported this type of growth? I have a hunch it would change the diversity of entrepreneurs and subsequently improve the output of entrepreneurs.

 Diversity in venture is possible. It requires a more holistic view of company development, investment options and thoughtfully designed public-private partnerships.