The Rise of the Black VC

Entrepreneurship is the hot buzzword of this generation.

Corporate culture has faded into start-up culture and the new celebrity is undoubtedly the young, hot entrepreneur with the multi-million dollar valuation and affirming Instagram page. 

For the African-American business person, culture demands that entrepreneurship is our way of building community-wealth and ensuring a better future for our offspring; provided we’re able to secure funding to scale our companies. 

A long-standing complaint about Angel and VC investors is the lack of access given to entrepreneurs of color and women.

As a solution, we’ve noticed a rise in wealthy black investors forming VCs to stand in the gap of adversity between Black entrepreneurs and the capital they so desperately need to build a lasting business. While the increase of resources geared towards minority founders is a relief to the starry-eyed mogul, it is still worth exploring who gains access to this capital, how to secure funding, and if the new hot wave of the black VC is able to make deliberate and impactful change in the African American economy.

A founder’s perspective…

I spoke with Tonia Osby, founder of LUCYPOP, the first material science company aimed at engineering high quality and non-toxic products within the nail care industry. Tonia has funded the company from her own pocket and is now working hard to develop the right connections to raise capital for the brand; she even moved to Detroit to be among a pool of founders and investors of color in hopes of bettering her chances. 

Tonia Osby

Instead, what she found was an environment that felt eerily similar to what existed before minority-focused investors began to make their mark. “I’ve been out here believing in my black girl magic but to be honest my stick feels broken,” she exhaled before relaying a disheartening tale about meeting a VC she admired at an event. When Tonia approached her, asking if she minded a connection on LinkedIn, the VC in question replied with a scowl followed by an unwelcoming, “for what?” Our shaken founder knew immediately that even with those pledging to make changes in our community at the heads of investment firms, more would be required to connect than a great business model and a shared experience of black girl magic. Instead of an “all for one and one for all” mentality, Tonia believes many fellow founders and VCs are responding in their superiority from a space of “I can’t let you in that easy, you need to earn it like I earned it.” 

Soon after Tonia began working on LUCYPOP, she caught the attention of a black female investor who was, for once, interested in offering an equity-investment deal with Tonia. After a brunch and several talks back and forth, the founder and the VC agreed-upon terms. However, in the 11th hour the VC pulled back, citing that she was no longer retiring (an integral reason for her investment) and if she was going to go through with the deal, she would need to receive a significant amount more equity that their mutual agreement dictated. The VC baited Ms. Osby into a vulnerable position by taking up her time and focused energy and switched her offer at the final hour. Fortunately, Tonia turned the deal down and is still seeking the right investors to scale the company, until then she is self-funding and relying on revenue to grow where she can. 

After running her company and seeking funding for a year, Tonia found four keys to success that she feels any founder should know to follow in their journey. 

Who you know – When it comes to investing money, investors are more comfortable investing in businesses that aren’t too far removed from their own business and social networks. Knowing the right people can get you in front of more of the right people and this nepotistic value is one as old as society. 

Gain traction and have a half-decent product – When observing the founders winning investment deals, Tonia noticed the products themselves were sometimes not ready or sub-par (subjectively, of course), however, what they all had in common was traction and buzz within their industry. The product can continue to be improved upon with capital and direction, but investors want to know you can market yourself and your product successfully. 

Attraction – Being presentable and attractive is key. We are more likely to want to work with people we like and are attracted to. While there is no specific physical type to aspire to, putting your best foot forward and showing-up stylish and put together can help you attract the right finance partner. 

Perceived Intelligence – A founder that understands their business and knows how to talk effortlessly about it is an attractive founder to many investors. Never underestimate the power of sounding well researched and knowledgeable about your product and the overall market. 

Tonia Osby

After checking-in with Ms. Mosby months after our first conversation, we were pleased to find that she has been accepted into the Tech Catalyst 3-6 month program which provides $100,000 in funding. Tonia had this to say about the program:

“Ultimately the mission of the program that Tech Catalysts are putting together is what became attractive. They put their money where their mission is; founders first, not ideas, revenue, or pedigree. They really look at the founder and place funding around the founder’s growth. 

They want to take amazing founders that have a difficult time for one reason or another in accessing funding (female-founded, minority founded, unable to quit working, difficult markets like consumer product goods/hardware, and provide the capital to help us really get to the next level. I’m part of the first cohort. 

The program takes equity if a founder continues on with the program after the first 3-months of the 6-month program. I prefer that Tech Catalyst have a vested stake in my company; it means that they’re also committed to helping me reach the next level and everyone has skin in the game. 

Access to capital is incredibly difficult to begin with, and there is much to prove in today’s startup ecosystem. Everyone is striving to be a rockstar, change the world, be the next unicorn. There’s one common trait that every great entrepreneur has–we eat what we kill and we’re not afraid to get our hands dirty. 

Post-program, the goal is to place our portfolio companies in front of investors in the million-dollar range. 

It is of note that a six-figure investment gives legitimacy to what you’re building. For every founder, that first dollar is a crucial first step!”

The Investor’s Perspective…

Everything has pitfalls and negative aspects. When a trend is afoot, I for one am usually looking for the pitfalls. While Tonia’s experience with investors seemed to validate my concerns with the significant rise of black VC firm’s PR statements, I knew there had to be a considerable amount of purity and good within the space as well. 

Kapor Capital’s Uriridiakoghene Onovakpuri and Kim Bardakian took some time to speak with me about their approach to investing. Kapor is industry agnostic and instead focuses on tech companies that also cater to underserved communities, effectively creating a pay-it-forward funding system that roots down and sprouts solutions on multi-levels. 

Uriridiakoghene (Ulili) Onovakpuri

Kapor Capital is accessible through workshops, incubators, and initiatives that not only help people of color and black founders gain access to the capital they need, but also inspires the community to move towards STEM-related entrepreneurship. Uriridiakoghene and Kim provided great advice for founders seeking a capital partner. “Remember, finding an equity partner means you’re giving someone a piece of your business. This is a person you will have a long and lasting relationship with, so you should be just as discerning as the investor themselves.” 

This is important advice considering the excitement around the idea of more investor capital floating around for underserved demographics. Their money should equal the value of the percentage of your company to be assigned to the equity partner, and depending upon how much of your business they own, they may be decision-makers, or you could find yourself with a partner that’s absent and cannot provide you with any additional resources or network to help expand your company. 

With expansion being the most important piece of taking investor capital, Uriridiakoghene says, “We seek to fund companies that we can see scaling to a $1bn evaluation.” This is also very important. We have to remember that career investors want to make a profit and also want to ensure that once they are ready to move on, your company will be thriving. 

Early Stage Fundraising

If you’re not ready for growth or late-stage capital, you may want to participate in incubators, exercise your network to raise friends and family start-up capital, or utilize crowdfunding and networking apps like Kickstarter, Patreon or Convoz to find early-stage funding that will put you in a better position to monetize and grow your company to a stage in which you will be ready to take on larger equity partners.

Entrepreneur and former hip-hop artist Chamillionaire started Convoz as a way to educate aspiring entrepreneurs on fundraising, while providing a platform for networking between entrepreneurs, investors, and the general public. Multiple times a year, Convoz sponsors seed-funding contests to hopeful entrepreneurs that have a range of companies from the idea stage to the start-up stage. The contests create an environment in which everyone is accessible and able to communicate with one another, critique each other’s ideas and offer resources to founders and ideas of interest. The artist himself begins “convoz” often to teach the hopefuls on the platform everything they need to know to be prepared to raise funding for their company. 

In 2020 and beyond, I’d like to see more incubators, workshops, and funds that cater to ideas and businesses in the early start-up phase so that we can truly begin to see the difference and changes we all wish to see. 

Written by Cheryl Dearborne

Cheryl Dearborne is the Director of Marketing and Financial Services for credit-investment firm, Lilogy in New York City. Her time at Lilogy has seeded a deep passion for educating borrowers in an effort to increase borrower eligibility and credit-worthiness throughout the American community of small business owners, especially so in the African American community as we are collectively striving for a more equitable future and Cheryl believes that utilizing debt and investment capital wisely is a step in the right direction.