Liz Giorgi was already a successful entrepreneur when she set out to start her second business. She bootstrapped her first company, but the second, Soona, which connects clients with professional studios, crews, and gear to produce photos and video for social media, required a lot more early investment. So Giorgi and her co-founder, Hayley Anderson, sought venture capital funding.
Giorgi and Anderson were enrolled in TechStars, an accelerator in Boulder, Colorado, which afforded them training on how to pitch their company to investors. But once they actually started those conversations, something was off.
“Some of the initial engagements felt like they might have had a gendered aspect to the conversation,” Giorgi said. “Mostly innocuous things … asking about my family planning, for instance, and if I had children.” While Giorgi acknowledges that the investors had every right to ask those kinds of questions — investment conversations aren’t like job interviews, in which asking a woman about family planning is illegal — she was pretty sure male entrepreneurs weren’t fielding the same inquiries.
Then things crossed boundaries. Some potential investors asked her on dates. One, she said, sent inappropriate photos. Disheartened, Giorgi told Anderson they needed to do something to legally protect themselves from any kind of harassment or potential punitive experiences with future investors. Their legal team didn’t have anything to recommend, so they wrote something themselves.
The result was the Candor Clause, a legal disclosure requiring any potential investors to disclose whether anyone at their firm had previous sexual harassment, assault, or discrimination claims against them. The Candor Clause, Giorgi said, “sends the message that we can do better, and that gender equality should be part of the ecosystem when working and growing our business.”
Soona raised $1.2 million in seed capital and opened studios in Denver and Minneapolis. Its founders have since offered up the Candor Clause as an open-source document that others are free to adopt. Around the West, equity-minded entrepreneurs like Giorgi and Anderson and certain investors are starting to change a culture that is not exactly known for diversity and inclusion.
Venture capital backing goes to a small minority of businesses, and they are remarkably similar in some respects. Last year, women-founded businesses received just 2.3 percent of the $130 billion U.S. venture capitalists invested, according to data analysis by PitchBook. And, according to a 2015 study, fewer than 1 percent of venture-backed founders are black. This despite the fact that 42 percent of businesses in the U.S. are now women-owned, with nearly half of those owned by women of color.
This is not wholly surprising: Venture capital itself has a diversity problem. According to one recent analysis, 60 percent of venture capitalists are white men. Women make up just 18 percent of the sphere.
That power imbalance, Giorgi said, and the discouragement she felt from those initial interactions with potential funders nearly ended her bid to seek funding. “So much about success in business is just surviving the process and getting through each conversation, pitch, and rejection, and learning from them,” she said. “That women are dealing with another layer in addition to every other thing founders deal with — this interpersonal layer — is very discouraging.”
And when businesses started by women and people of color aren’t treated equally by funders, we all lose out. After all, more diverse businesses “bring products and services that a more diverse population want to see in the world,” said Alicia Robb, founder of the investment fund Next Wave Impact. “Research shows that a large majority of investors won’t invest in something they don’t personally see a need for. A group of white men may not see a need that may be beneficial for a broader population.”
Robb, an economist by training, began her career working on small business finance issues for the Federal Reserve, and later researched issues of entrepreneurial finance and equity at the Kauffman Foundation. While writing a book about the gender gap among investors, Robb decided she wanted to tear down the roadblocks keeping many women out of the investing space.
Next Wave Impact launched in 2017. The fund brought together 99 women who invested $10,000 each. That approach lowered one of the major barriers to entry: that women are hesitant to invest, or simply don’t have, huge sums of capital. Robb also makes sure that women who have never invested before have access to education and training, and the community of other investors who they can go to for mentorship and advice.
“I’m basically trying to do away with all of the different things that would cause them to say no,” said Robb.
And so far, in her experience, diversifying the investors — 25 of Next Wave’s 99 investors are women of color — has allowed them to diversify entrepreneurship, too.
“We’re learning that we don’t want to just re-create what the white guys are doing,” Robb said. The fund’s terms of investment often include creative options such as equity buybacks, which allow founders to buy back their shares instead of exiting through an acquisition or initial public offering — the typical ways venture funds earn a return.
Robb, who is based in Boulder, said all of this is just the first step to more visibility for entrepreneurs outside of Silicon Valley. “I think as we get more diverse entrepreneurs funded, and we see more successful minority- and women-led companies, hopefully we’ll create the next wave of mentors, advisors, co-founders, and investors, and a more inclusive ecosystem where everybody wins.”
That idea has fueled much of Mara Zepeda’s work in recent years. Zepeda co-founded Switchboard, a networking platform designed for institutions such as universities or nonprofits, in Portland in 2013. She described Oregon as a far friendlier atmosphere than one would find in Silicon Valley. “We were fortunate to get into a Portland incubator that had a very different take. We weren’t pressured just to blitz scale,” she said.
Even so, Zepeda became very aware, very quickly, of a major issue within the entrepreneurial world. “There is no not seeing it,” she said. “It’s not like one day you’re like, ‘Oh, there’s a diversity problem.’ Everything is designed as the status quo for a certain type of founder.”
That problem led to Zepeda’s next creation: XXCelerate, a revolving debt fund primarily for women, transgender, and nonbinary business founders in Oregon whose companies fall into a funding gap: too big for small business loans, too small for venture capital.
Building XXCelerate taught Zepeda what other women founders need beyond investment. “We did really deep listening about their own lived experiences, and the challenges they’re facing. Peer mentorship was really critical for many. Many wanted skills to help promote self-efficacy.” The educational portion of the program now dives into issues of scheduling, childcare, and how to build businesses that support families by ensuring women founders can pay themselves right away.
Ultimately, Zepeda sees entrepreneurship as the answer to a lot of big-picture problems, from income inequality to the way that public pension funds support private equity. That’s why she and some like-minded founders started another group, Zebras Unite, for companies that put community and public good above exponential financial growth. Now, the organization has 40 chapters on six continents, and is working toward creating a startup business world that thinks and acts differently. “Once that community is established, you can begin to advance policy change, corporate change, and cultural change,” she said. “That all comes from a core community first.”
While these changes are incremental, those putting them into practice are hopeful they’ll eventually help the numerous businesses founded by women and people of color.
“Entrepreneurship is much broader than venture capital and Silicon Valley,” Robb said. “There are great ideas and great companies everywhere. … As we see more successes and great companies built by the non-white guy in a hoodie, we’re going to get to that day when anyone on the street can give the name of five entrepreneurs and they aren’t all white men in tech.”
