The Bad Advice Diverse Founders are Given Around Fundraising

I can't think of a single time when a white man came to pitch me and I told him his fundraising plans weren't aggressive enough.

Yet this is a message I'm giving to women and people of color all the time.  

It's not that this latter group isn't aggressive enough--after all, they're ditching everything else they could to to start companies.  

Something else is at play.  

Yesterday, I met with a founder with an interesting model who was raising $400k to bring the finishing touches to her product to make it customer-ready.  There was no reason to think that her technical team couldn't accomplish this--and, in fact, customers had already been using various hacked together versions of it previously.  Yet, for some reason, the goals for her pitch were incremental--despite being in an extremely hot space.  I couldn't figure out why she wasn't raising $2 million.

Today, same thing--same rinky dink $300k type pitch--to take a company with a handful of paying customers and get, wait for it, some more paying customers.  

These aren't gamechanging leaps of value creation.  This is nickle and diming it.  

So why are so many diverse entrepreneurs shortchanging themselves?  

This is a complex issue and I think there are probably a few different overlapping issues at work here.  Pulling them apart and shedding light on them is an extremely delicate operation for a white male investor, and probably not a good idea, but I'm going to go ahead with it anyway.

First off, the vast majority of venture dollars goes to white men.  That is a fact.  

That does not mean, however, that anyone else outside that category is unable to raise.  In fact, the only founder I've ever seen completely run the table for a multi-million dollar seed round based off of a Powerpoint is Chantel Waterbury of chloe + isabel.  Seriously, not a single investor turned her down.

Right this very minute, I'm also working hard to secure my spot in an oversubscribed round for a pre-product company led by a female entrepreneur, while simultaneously wrapping up a seed round in a founder of color who didn't have a problem raising at all. 

This blog post is not about debating if "enough" diverse founders get funding--whatever that might mean .  What is factual is that they do not raise as often as white men--and that undoubtedly sends a signal to diverse founders that it is going to be harder for them, regardless of whether that is true.

And what happens when any founder thinks that fundraising is going to be unnecessarily tough?  They ask for *less* money, which might actually exacerbate the problem.  

If I told you I had the best idea since sliced bread, and I was raising $10k, you would assume a few things.  Maybe the product needs to be tested?  Maybe I'm not sure if it really is that good, so I don't want to commit the next two years of my career to it?  Maybe we're not sure if customers would pay for it.  Either way, you're signalling to others that whatever you've got, it doesn't measure up to the other stuff that's in market.

And the other stuff in the market?  It's mostly crap, to be honest.  So, when you say you're just raising a tiny amount, most investors are assuming it's not as polished, tested, or certain as the thing that knucklehead just e-mailed me asking for $2 million.  The assumption being that you wouldn't ask for that much unless you really knew you had something.

You know what?  It's not a terribly bad assumption either.  There's so much transparency in the market around fundraising and entrepreneurs are so connected to each other, that it seems unlikely someone wouldn't get the encouragement to go after a $1mm or more round without having something real.  

When Chantel asked investors for $3mm for her seed round back in 2010, people stood up and took notice.

Advisors are hurting these companies as well, too--undoubtedly feeding into their own implicit biases.  I can't tell you how many times even insiders--people already invested in some of these companies--are telling diverse founders to go for incremental fundraises and not for bigger rounds.  It's probably because the founders aren't blowing the same kind of smoke as their other founders are.

Language around confidence dictates a lot about what other people will tell you your next steps should be.  

The other thing that happens to diverse founders is that they wind up talking to a lot of less experienced or later stage investors who seem to specialize in diversity from the outside--many of whom may not take the same amounts of risk as others.

So if you're a super early stage with just a prototype, you might not think that a VC fund is the right fit for you--so you wind up at an angel group.

The founder I just spoke to pitched Golden Seeds, for example, a group of experienced professionals that specializes in female founders.  From their website, you can find the following phrase:

"Almost all of the companies in which we invest meet these criteria:

Product is in beta (versus alpha) stage of development and has been created with input from clients or potential clients"

They're literally telling you that most of the deals they fund have revenue--because someone isn't your client until they pay you something.

Here's what the Brooklyn Bridge Ventures site says:

"Brooklyn Bridge Ventures manages $23 million across two funds, leading or co-leading investments of around $350,000 in New York City companies that have yet to raise $750,000 in prior rounds...  Conversations often start pre-product and pre-deck. "

So, while BBV is a *VC fund*, there's very little question that I'm backing founders earlier than an angel group like Golden Seeds, regardless of who the founder is.  VCs don't go later and angels don't go earlier.  It's not that straightforward.

When you walk away from an angel group who tells you to come back when you have customers, you're either going to feel one of two things.

1) Either no one ever fundraises before X stage of revenue or traction...

or 2) The deck is stacked against me.

White men never feel the latter, because the deck is rarely if ever stacked against us.  So, while 98% of entrepreneurs never get funded, white guys generally feel like the problem is with the investor, and female founders or founders of color feel like the problem is with them.  They feel like either their company wasn't good enough, not further enough along, or that, unfortunately, people like them just don't get funded.

Statistically, most white men don't get funded either, but that doesn't hold them back from trying with ever bolder asks and assumptions.  Anecdotally, there's a very strong correlation with the size of the plan and the vision and the interest of investors--so if you think it's not going to work out for you, paring back your ask is counterintuitively going to sink your raise altogether.  

The last issue at work is the biggest lie in the fundraising world--the relationship.  Everyone says they fund people in their network.  They ask for warm intros and create this impression that unless you, too, went to Harvard for your MBA, you're not going to get funded.


Sure, people fund their Harvard buddies.  It happens.

But, if you actually drill down to how people knew their early backers, the connections were much looser than you think.  Sometimes, all it takes is to grab coffee with an advisor you've been following on Twitter to get that much needed first intro.  The founder of color than I'm backing now cold e-mailed both me and Joanne Wilson.  

The community is so connected now, that you'd be surprised how tenuous the connections are that people fundraise off of.  Met someone at a conference once two years ago?  Ask them for an intro to a VC.  Go ahead.  They'll do it and the VC will probably accept it.  

At least, that's what a white guy would do.

Venture investing is hard.  You're going off of very little in the way of predictive data--so if you're not telling a big story, it's hard for us to imagine one if we don't hear it from you first.  

We're out looking for exceptional companies that can achieve *outsized* returns.  If you don't own that in your ask and your plans, you're going to get crushed in the fundraising process.  

I'm here to make money.  You think you have a big idea.  So just say it, own it, and be proud of it--and don't be afraid to make an ask that you know you can handle.  If you know exactly what you'd do with a million dollars and you're confident in your ability to put that to work responsibly then don't ask for half that.  

And no, that doesn't mean pitch like a man.  It means pitch for what you need and understand that an investor is there to hear about what's possible, not what's probable.

Because, we all know this company is probably going out of business--but that shouldn't be in your pitch.  

I have no doubt that bias plays a significant role in any kind of business transaction, fundraising included--but the overriding issue I see, particularly around diverse founders, is investors' bias away from small, incremental asks, not away from women or minorities specifically.  

Don't ask anyone to fund you just to get off the ground.  Tell them they're crazy for not funding you to go to Mars.