Eighteen months ago, in collaboration with Living Cities, Rockefeller and Surdna Foundations, we launched Start Up, Stay Up, Scale Up (SU)3 — an initiative designed to address the challenges in access to capital, social networks, and expertise that entrepreneurs of color often encounter while growing their businesses.
Coaching Cities to Build Inclusive Ecosystems
In order to lead these cities in developing their ecosystems to create the new capital structures that they require, they needed an investor and ecosystem builder who understands the capital challenges faced by entrepreneurs of color in their earliest fundraising rounds and how to create new models to help remove structural bias.
I’m a San Francisco-based venture capital investor who invests in early stage companies and has built startup ecosystems in the US and internationally. More than 60% of my investments have been in companies with one or more underrepresented founders.
The same coaching I give to founders can be extended to cities, and for 18 months, I became ‘the VC in their corner’ who would advise the (SU)3 cities on the business models and capital structures that would create sustainable pathways to support the building of these entrepreneurial ecosystems.
I have invested in all types of founders, but without equitable participation in the innovation economy from people of color – this nation’s fastest growing demographic – we rob ourselves of the full spectrum of innovation and we create an inevitable future where America’s persistent wealth gap will become even wider.
For (SU)3, we focused exclusively on high-growth entrepreneurs building the companies that can deliver innovation and opportunity at scale. Main Street and small business entrepreneurship are still incredibly important to local economies, but high-growth entrepreneurship transforms cities, allows companies to hire dozens if not hundreds of employees, and creates anchor institutions from which new entrepreneurs and companies will be created. Activating the relationships that make it possible for these high-growth entrepreneurs to succeed will increase the capacity of each city to build the entrepreneurial ecosystems necessary to meet the needs of founders of color, from small to large businesses.
These cities were selected for their unique cultures, economies, and the position that they all sit relative to high-growth entrepreneurs of color. In each city, we identified an institutional lead and I provided them with my coaching on venture capital and ecosystem building to carry this work forward:
Three Cities Putting Inclusion in Focus
The strategies deployed locally by each (SU)3 team were focused on increasing investment, particularly private equity and venture capital, in entrepreneurs of color who want to scale their companies. “Key to this work,” as our team leads in New Orleans note, “is the identification of bias where it exists in capital allocation and eliminating the perception of race as representing risk.”
Not only is there an undersupply of capital that fits the needs of founders of high-growth businesses, but these founders are at best, largely ignored; and at worst, excluded from existing entrepreneurial support systems.
New Orleans represents a Southern city with a long tradition of entrepreneurship among people of color. Today, Black-owned businesses account for 40% of all businesses in the city, but these businesses receive less than 2% of all business receipts — a margin that has remained constant since 1997. New Orleans has a 60% majority Black population but where Black entrepreneurs have been underrepresented in the city’s emerging entrepreneur community of local accelerators, incubators, and angel investor networks. Of the $41 million of local angel investment in entrepreneurs, only $1.3 million was invested in entrepreneurs of color.
Team Lead: New Orleans Business Alliance
Albuquerque has a very nascent entrepreneurial ecosystem, but where frontier and space technology thrive around the region’s federal labs like Sandia and private space companies like Virgin Galactic. Despite a rich cultural landscape of Native and Latinx people, these sectors rarely see participation from entrepreneurs of color.
New Mexico is a state where there are more people of color than there are white people — a coming reality for the rest of the nation. Over 62% of New Mexico’s population is non-white and approximately 48% of the population is Latinx.
The rest of America is not far behind. If we can figure out how to support entrepreneurial growth in one of the first New Majority states, then we can begin to understand how to support inclusive entrepreneurial growth in an entire nation where people of color will soon be the majority.
Team Lead: Albuquerque Community Foundation
San Francisco Bay Area is the mature startup ecosystem that others model themselves after and look toward for innovation. It is the place that birthed Uber, Google, and Salesforce, but it still hasn’t grocked how to create an ecosystem where entrepreneurs of color – specifically Black and Latinx entrepreneurs – have the same access to networks and capital that others do.
Today, you can build a great company anywhere. Many cities like New Orleans and Albuquerque will benefit from the expansion of opportunity beyond the coastal hubs of San Francisco/Silicon Valley, Boston, and New York City, but they still face an undersupply of capital that fits the needs of the high growth businesses that want to start there.
Meanwhile, entrepreneurs of color are fleeing San Francisco and other Bay Area cities as a result of being priced out of both residential and commercial real estate markets and because the area often doesn’t meet their cultural needs.
Team Lead: 42Phi Ventures (San Francisco Bay Area)
Philanthropy Working Together: Living Cities, Rockefeller, Surdna Partnership
Philanthropy isn’t always thought of as having a seat at the table of capital innovation, but it has an important role to play in lowering the barriers to economic opportunity.
Foundations and their endowments fund the venture and private equity funds that serve as the growth engine for innovation and new company development. As limited partners, this seat of influence can be both the carrot and the stick in encouraging and requiring the funds in which they invest to actively create a more inclusive table in both their investment partnership and the founders they invest in.
The collaborative efforts of philanthropic organizations can catalyze the creation of inclusive ecosystems and ensure that everyone has access to the resources to start and scale businesses that drive our nation’s innovation engine.
For (SU)3, three national philanthropic organizations came together to support these cities in laying the groundwork to evolve their entrepreneurial ecosystem.
Living Cities is a 28-year old collaborative of 18 foundations and financial institutions. Together, they are working to ensure that all people in U.S. cities are economically secure and can build wealth. To achieve this result, it is imperative that they address racial gaps in income and wealth and work with urgency to close them. Their institutions are committed to marshalling their resources to put racial equity and inclusion at the center of our entrepreneurial ecosystem-building efforts in (SU)3 cities in order to achieve greater results in income and wealth creation than is possible through our organizations’ separate efforts in these cities. There isn’t a blueprint to follow to create an entrepreneurial ecosystem that puts founders of color at the center. But by leveraging existing relationships and networks, knowledge from grant programs and investments, communications platforms, and thought leadership from partners, they aim to provide a roadmap that leads to a national infrastructure that supports the start and growth people of color-founded businesses.
Rockefeller Foundation The Rockefeller Foundation’s mission — unchanged since 1913 — is to promote the well-being of humanity throughout the world. Today the Foundation advances new frontiers of science, data, policy, and innovation to solve global challenges related to health, food, power, and economic mobility. As a science-driven philanthropy focused on building collaborative relationships with partners and grantees, The Rockefeller Foundation seeks to inspire and foster large-scale human impact that promotes the well-being of humanity by identifying and accelerating breakthrough solutions, ideas and conversations.
Surdna Foundation seeks to foster the creation of an inclusive and equitable economy in which people of color can maximize their potential as leaders, creators and innovators across sectors. Surdna believes that everyone’s economic well-being improves when all communities are empowered to participate on equal footing, and seeks an economy that truly works the same for everyone. Through strategic grantmaking, program-related investments, partnerships and field building, Surdna hopes to elevate communities of color across income and class.
Where Do We Go From Here?
Many cities are failing to benefit from the success and exponential impact on local innovation and wealth creation that high-growth founders of color can stimulate. Activating the relationships that make it possible for these entrepreneurs to succeed will increase the capacity of each city to build the entrepreneurial ecosystems necessary to meet the needs of founders of color and the ecosystem at large.
While we’ve wrapped up the (SU)3 cohort period, the work started in these three cities continues. They will continue supporting entrepreneurs, creating new capital structures that stand in the friends and family gap, and widening the path to early capital that allows local and national investors like me to discover and back the best entrepreneurs of color from their cities.
(SU)3’s successes and lessons learned around breaking down the barriers to capital, strengthening public policy, and expanding networks and technical assistance by this cohort will provide cities around the country with tested and adaptable approaches they can adopt to increase business dynamism, inclusion, and innovation in their own ecosystems.
