Last fall Amanda DoAmaral was pitching her startup Fiveable to a group of angel investors at a country club in Tennessee. Early on during the pitch event DoAmaral, a woman of color, approached a White investor during a meet and greet to introduce herself. As she reached out to shake his hand, the investor handed her his plate.
Being mistaken for the cleaning crew, rather than a startup founder looking to network and raise funds for her business, is reflective of the type of racism DoAmaral and other entrepreneurs of color face when trying to build a tech company in a predominately White and male space.
"I walk in to the room and I’m not assumed to be the founder and the brain behind this," DoAmaral said. "That puts me at such a disadvantage when a White male walks into a room and they’ll get a handshake. They’re treated differently right from the jump."
Despite increased calls for diversity among startup ecosystems across the country, just 1% of venture capital goes to Black founders and just 0.2% goes to Black women. DoAmaral, whose family is from Brazil and identifies as mixed, recently closed a $1.2 million round for her Milwaukee-based startup, making her one of the few entrepreneurs of color to cross the $1 million threshold in Wisconsin.
Part of the problem, DoAmaral said, is that few Black investors are on the other side of the table when Fiveable and other minority-founded startups are out raising funding.
"In total, I don’t know how many Black investors I got to pitch to. I could probably count them on one hand," she said. "And when I do (pitch to an investor of color), there’s oftentimes a better understanding of what I’m doing, why I’m building it, who I am and how I go about it."
But a new venture capital fund in Milwaukee wants to put more diverse faces on the other side of the pitch table, and invest in startups specifically led by Black and Brown entrepreneurs.
Last week Jet Constellations, a Milwaukee-based software firm, announced that it's launching a $50 million fund to invest in tech companies founded by Black founders and other underrepresented entrepreneurs. Run by the company's social impact arm, The Milky Way Tech Hub, and led by CEO Nadiyah Johnson, The Milky Way Tech Hub Fund will invest in industries like 5G, AI and Internet of Things---all while focusing on Black and Brown entrepreneurs in Milwaukee.
Johnson said The Milky Way Tech Hub Fund is currently "soft circling" funds, and by the end of the year expects to have made "significant traction" toward its target funding amount. A "top five" automotive company has agreed to invest in the fund, she said.
"There's been this big question mark on how can we address Milwaukee's socioeconomic disparities. And how can we uplift the Black community, and address diversity and inclusion in our companies," Johnson said. "One of the bigger barriers has been excuses. Now that Jet Constellations and the Milky Way Tech Hub has created this new fund, we have actively removed that excuse. If you are, in fact, in support of diversity and inclusion, specifically uplifting the Black community, then you would strongly consider investing in this fund."
Along with investing in diverse Milwaukee founders, the fund also plans to back underrepresented startups outside of the city that either commit to relocating to Milwaukee or plan to invest significant resources into the area.
It's among the only, if not the only, funds in Wisconsin that specifically targets founders of color. But it's part of a growing number of national funds that have a similar focus, including Lightship Capital in Cincinnati, Harlem Capital in New York and Backstage Capital in Los Angeles.
Troy Vosseller, the co-founder of Wisconsin tech accelerator gener8tor, said he hopes more institutional investors like endowment funds, state pension funds and corporations invest in funds like The Milky Way Tech Hub and others led by emerging Black fund managers.
Gener8tor has publicly published the diversity statistics of its portfolio companies since 2016, which is a rarity in the venture capital industry. Twenty seven percent of gener8tor's companies have at least one female founder, and 36% have at least one minority founder. Vosseller believes more venture funds should publicly reveal the racial demographics of their portfolio to show just how far the industry still needs to go to be inclusive.
"We think confronting the data is the first step everyone should be taking," he said. "My concern is that there are a lot of investors everywhere who would have a giant zero in a lot of those categories. And we need to confront that."
To source more startup investments from founders of color, Vosseller said VCs need to rely less on their social networks and inbound pitches, and proactively reach out to more entrepreneurs and be "wildly open" to cold reach outs.
Cordero Barkley, a partner and director of finance and investments at TitletownTech, a $25 million Green Bay-based VC fund led by the Packers and Microsoft, said it's vital for founders of color to see other founders of color in startup spaces like pitch events and tech events.
"People will talk about technology as the way of the future, and there’s no, or very minimal, people of color in the room," he said. "So it leads me to question, who is the future being built for?"
Barkley said VC firms need more diversity in their associate and partner roles to help provide a diverse set of perspectives when it comes to startup investing.
"If you don’t have diversity---diversity of thought and diversity of problem solving---you’re only solving for one set of problems," he said. "It's a huge missed opportunity."
Diversity in tech isn't only about who gets checks from VCs---it's also about the makeup of a company's workforce. But given business strains caused by the coronavirus, experts worry that diversity initiatives could be on the chopping block. Ethos, a Chicago firm that help companies implement policies around diversity, equity and inclusion, saw a number of its clients terminate contracts during the beginning months of Covid-19, even losing 10% of its revenue in a single day. Google has also reportedly rolled back some of its diversity initiatives, including Sojourn, a comprehensive program for employees to learn about implicit bias.
Colorful Connections, a Milwaukee startup founded by Morgan Phelps that specializes in matching companies with diverse talent, has seen a similar scenario play out during Covid.
"All of our work just stopped," Phelps said. "We had a significant impact from the pandemic."
Phelps said she understands the budgetary reasons contributing to why companies have cut down on their recruiting, but bailing on diversity and inclusion initiatives sends the wrong message to employees.
"We were literally being told our services are not essential," she said. "It means that diversity and inclusion is a 'nice to have' within the origination, which means that companies aren’t truly understanding how essential diversity is for their bottom line."
Studies show that diversity does indeed boost a company's bottom line. A BCG study found that companies that reported above-average diversity on their management teams also reported innovation revenue that was 19% higher than that of companies with below-average leadership diversity.
"When you do not have diversity within your company, you’re not able to innovate as effectively," Phelps said.
In a study by Fit Small Business, a provider of digital resources for small businesses, Wisconsin came in at No. 47 in a ranking of best states for Black entrepreneurs, which examined factors like startup creation, cost of living and the number of Black-owned businesses.
There are several organizations working to diversify Wisconsin tech, including the American Family Insurance Institute for Corporate and Social Impact, Code for Milwaukee, and i.c.stars Milwaukee, among others. Closing the digital divide, creating more STEM training for undeserved students, providing more entrepreneurship resources to founders of color and mentorship opportunities for up-and-coming startup leaders are all ways founders say the state can continue investing in entrepreneurs of color.
But a $50 million fund for founders of color, led by a founder of color, could be the catalyst Milwaukee needs to make its tech scene more diverse.
"Leaders need to stop being observers and lead by example," Johnson said. "It should not be this much of a shock—a $50 million fund— yet it is. And I think it's because there are so many people who like to pose questions but don’t like to really take enough action to solve [the problems]. I'd like for there to be a bit more action and fire and urgency behind leaders. And I hope that this fund will function as a vehicle to prompt action."
