The important role that Angel and seed investors play in bringing new ventures and technologies from concept to market cannot be understated.
The role that the Angel investment community can play in also bringing about real and lasting change to many lower income people, neighborhoods and cities in the US is both real and significant. My hope is that social and impact investors will consider another perspective as they analyze future deals and in that process fuel a new wave of community entrepreneurial growth that will change lives and generate impressive and measurable returns – both financial and social.
INTEL Makes a Move to Close the Venture Capital Access Gap
A scan of recent blogs and news sites on the internet indicate that the issue of diversity in new venture funding has gained the attention of venture financiers. On June 9th, Intel announced:
Intel Capital, Intel Corporation’s global investment organization, today announced the Intel Capital Diversity Fund, which will invest in technology start-ups run by women and underrepresented minorities… The largest of its kind, the fund totals approximately $125 million, and investments will cover a broad spectrum of innovative industries.
“We believe a diverse and inclusive workplace is fundamental to delivering business results,” said Intel CEO Brian Krzanich. “Our goal with this new fund is to meaningfully support a technology start-up workforce more reflective of society, and ultimately to benefit Intel and the broader economy through its success.”
The National Venture Capital Association (NCVA) has also recently announced its growing awareness for the need to expand the pool of entrepreneurs to be more inclusive of those that have been traditionally left out – without either exposure or access.
The NCVA is: the venture community’s flagship trade association. The NVCA serves as the definitive resource for venture capital data and unites its nearly 400 members through a full range of professional services. NVCA is committed to expanding opportunities for women and men of all backgrounds to thrive in the entrepreneurial ecosystem and has a long history of working to increase diversity through public policy, research, events and collaboration. As part of that commitment, we launched the NVCA Diversity Task Force to develop a clear and measurable path to increase opportunities for women and men of diverse backgrounds to thrive in venture capital and entrepreneurship.
Impact Investing: Deal Analysts Need to Prioritize Social Change
Given the small number of Black and Latino entrepreneurs on any list of funded ventures, we can assume that few have had to hunt for the “money” for scaling a venture and fewer have succeeded in that hunt. Luckily, I have been successful in the hunt twice, funding two ventures. The first, a digital content development company, “bootstrapped” with generous incentives, including investment from a Caribbean government looking to create high tech jobs for its young students. The second, a genomics research firm, generously funded by an Angel interested in kick starting a new direction in biotech research.
As stated in prior blogs, most entrepreneurs will find it hard to get financial backing. Investors know they are in the power seat. And there are way more sellers of ideas and venture visions out there then there are investors with ready portfolios and check books. So investors are “pitched” frequently with concepts and business plans, some good but most probably unrealistic.
I have often heard VCs tell me that they would prefer to invest in a bad idea with a good experienced launch team then a great idea with an inexperienced team. For many VCs and Angels, good ideas are a dime a dozen. But a team that can move a concept through the full venture cycle, from seed to scale to stable return and then to exit, is much harder to find.
So the caution that Angel investors’ analysts have when scanning possible deals, especially those at seed stage, is very valid if their focus is solely on risk minimization and return maximization – the goals for most investments and investors.
Closing the Venture Capital Access Gap
But the multi-generational disparity in capital market access for many social groups and communities across the US is well known but seldom discussed. Lack of access to the needed funding to fuel local entrepreneurial development has left many communities without an economic infrastructure or sources of employment beyond large retail corporations looking for low wage – low skill employees.
Without an “intervention” of some type, this “access to capital market gap” will only increase. Perhaps the INTEL initiative, described above, and the growth of “Impact Investing” will bring needed change to both the attitudes and screening process employed by Socially Conscious Angel Investors.
Impact Investors desperately need to recruit, train nurture and fund community focused social entrepreneurs to bring about real change.
On May 19, 2015, the Boston-based publisher Bibliomotion released Investing with Impact: Why Finance is a Force for Good. The book debuted as an Amazon Best Seller and received praise from luminaries including Lynn Schusterman, Frances Hesselbein, Marshall Goldsmith, Antonio Pedro dos Santos Simoes, Antony Bugg-Levine, Arianna Huffington and Pope Francis.
The Thrill of Tech
Many socially focused investors believe that extending their deal criteria beyond the need for a healthy financial return, adding some social benefit, no matter how vague, is enough. For many portfolio managers – a non-financial benefit of any kind is all that is needed to claim a venture is “social.” The mere fact that social impact is now considered a metric of deal success is great progress from the way it used to be.
But what is needed is a more aggressive and intentional focus on using capital and capitalism to bring about social change and social improvement. This is not VC funding as it is normally practiced and this is not social venturing that waits for deals to materialize and then rigorously screens them for financial return first and social impact a far off second.
Many venture firms’ new diversity initiatives are primarily focused on bringing more “diverse” entrepreneurs into the hot world of tech start-ups. Many investors, social or otherwise, want to find the “new tech” or great new proprietary Intellectual Property (IP) or new tech tool that supposedly can become a disruptive innovation in fields like education or personal finance.
Many Socially Conscious Investors believe that we need to find more diverse candidates to compete for funding for ventures to serve well established tech markets. But what they fail to see is that the sole focus on “tech” investing probably does not provide either the products/services or jobs that many lower income communities need. The social impact of investments in tech maybe much less than the social impact of investments in human services companies. But investors still love “tech.”
Please don’t get me wrong – I love tech too. I have been a technology product developer many times, with more than 5 tech products of note in my career and working with tech since the late 80s. I admit that the thrill of a new technology start-up is a great and sometimes lucrative experience.
Impact Investors Tip: 21st Century Community Services
But moving from what is hot to what is needed to bring about social change and improvement is the jump I would like our Angels to make. Will Socially Conscious Angel Investors embrace the concept of Impact Investing? – Fueling entrepreneurs that are living in (and serving) lower income communities across the country (urban and rural). Helping these pioneers get access to the funding needed to create their ventures; create jobs for local workers and create new sustainable sources of wealth for local entrepreneurial families.
When Angels solely focus on “Tech” they are projecting their market perspective and their cultural perspective. In lower income communities, the service industry is often more important, both as a source of steady top line revenue for local business and as a job creator for the community. Creating local supermarkets in food deserts; creating safe, healthy and professional childcare facilities for teachers and workers; creating tech servicing companies for schools or creating much needed training centers – all deliver a social impact that improves the community while also delivering a healthy financial return, if designed and managed by qualified entrepreneurs.
Too many community entrepreneurs searching for seed investments needed to bring a service firm to scale are screened out of consideration because their venture is low tech or no tech. What young deal analysts working for Socially Conscious Angel Investors maybe overlooking is the fact that community entrepreneurs are offering the services that are needed for social improvement; that will generate both stable top line revenue for a young firm and jobs for the people in the community. Maybe low tech but High Impact – Good Return.
Local service companies also create local entrepreneurs that become models for the community – especially needed for young students. These community based companies are often more focused on training rather than requiring the already highly trained, best and brightest employees from the best schools – desired by most tech start-ups.
Skilled entrepreneurs, talented modelers, savvy financial analysts focused on maximizing impact first – can make a significant and lasting difference to so many communities across the nation and deliver a healthy but longer term return for IMPACT Investors .
Impact Investors – look beyond tech and provide the fuel for community entrepreneurs to create a new 21st century, service industry in lower income communities.