In many ways, Team Excel, a Richmond startup that uses gamification to encourage student success, is having a breakout year.
The company was a grand prize winner at the 2021 Center Street Pitch Competition, and it was one of 10 early-stage companies accepted into the spring 2021 Lighthouse Labs accelerator program.
But Johnathan Mayo, the company’s CEO and founder, still faces the same challenge confronted by many Black founders.
He’s underfunded.
After raising $100,000 initially, he’s brought in just $80,000 through an ongoing angel round.
“It continues to be a struggle,” he said. “I was hoping to raise $300,000 this round.”
Underrepresented startup founders, especially Black leaders, have long struggled to secure the kind of early-stage funding that can make or break a startup’s growth. In 2020, Black-led startups received less than 1% of the $150 billion of venture capital raised by U.S. companies, according to Crunchbase data.
The glaring funding inequality they face is not news to Mayo and other Black founders. But until recently, for many, it was.
A year ago, George Floyd’s murder at the knee of a Minneapolis police officer, and the subsequent Black Lives Matter protests, ignited a national discussion, not just about police violence, but also about systemic racism and the way it affects nearly every aspect of American life.
“Before the protests and everything last year, it really wasn’t even talked about,” Mayo said, of the challenges of being a Black founder.
Now that the Richmond ecosystem has been talking about the challenges facing Black and other underrepresented founders for more than a year, what’s changed? And — perhaps more importantly — what work remains?
A Hub for Black Businesses
With fundraising a challenge, Mayo has had to be creative. Capital One has become a partner, providing “tremendous” pro bono development support, he said.
Another source of support: The Jackson Ward Collective.
Founded last fall by three Black female entrepreneurs, the new organization has quickly made a significant difference for Richmond’s Black business community.
“Even though we’re eight months old, we are starting to really see the impact of the knowledge share, the networking, the partnerships we have and the resources we’re able to provide to our members,” said Rasheeda Creighton, a co-founder who is also CEO of The 3FiftyGroup and founder of the Killing Superwoman online platform.
The Collective has nearly 200 members, some of whom have been able to quit their jobs to focus on their entrepreneurial efforts full-time thanks to the organization’s support.
But Creighton said the Richmond ecosystem has a long way to go.
While the past year has seen more conversations about how to support Richmond’s Black business owners, representation and funding remain critical issues, she said. For its part, the Collective has provided about $7,000 worth of grants to Black business owners and plans to award another round of grants.
The Black wealth gap — the impact of generations of slavery followed by institutionalized racism that has hobbled Black families’ ability to own property, obtain high-paying jobs and pass down wealth — is real, Creighton said. And it continues to impede Black entrepreneurs.
“If you say that this matters, then put money in the hands of the businesses that can benefit from it,” Creighton said.
Studying Black Business Representation
In the wake of last year’s nationwide protests, Startup Virginia recruited Todd Waldo and Melody Short, two prominent members of Richmond’s Black business community, to lead the Black Business Opportunity & Investment Study.
Scheduled for release this fall, the goal of the study is to support the growth and sustainability of Black businesses.
“I hope it’s the start of a dialogue on how we can be more proactive in supporting Black business in the city of Richmond,” said Startup Virginia Executive Director Richard Wintsch.
Commissioning the study is one of several steps Startup Virginia has taken in the last year. The organization has also provided $68,000 in scholarships to underrepresented founders and launched the Idea Factory, a six-week entrepreneurial program.
It also launched VentureSouth Virginia, a chapter of early-stage venture capital firm VentureSouth. Currently, the VC is focusing on recruiting a diverse group of investors. While they’ve had success recruiting more female investors, they’ve been far less successful identifying Black investors, Wintsch said.
Speaking about the ecosystem broadly, Wintsch said that when it comes to more angel funding being directed toward underrepresented founders, he hasn’t seen meaningful change.
“I think it’s going to require something drastic and innovative to make a difference,” he said.
Funding: The Crucial Piece
This spring, Riverflow Growth Fund, a new Richmond seed-stage venture capital fund, made its first investment, sending $250,000 to DrugViu, an AI-driven population health platform started by Black founders. The Fund’s second investment, not yet announced, will likely also go to a company headed by an underrepresented founder, said Paul Nolde, Riverflow’s fund manager and managing director.
As the fund looks to invest in the most promising startups, one way Riverflow has been able to direct funds to underrepresented founders is by working with diverse deal sourcing partners.
“Like with anything, whether it’s marriage, kids, you have to work at it,” Nolde said. “It’s not just going to manifest on its own.”
The venture capital community has been cognizant of its diversity problem, Nolde said, but last year was a “watershed moment.”
“I think that there has been a lot of momentum in recent years to address this issue, but we still have a very long way to go,” he said.
At 757 Angels, an investment network of 100 Hampton Roads-area business and community leaders, 40% of funded teams have BIPOC (Black, Indigenous or people-of-color) in their executive ranks.
“No doubt there is a huge investment gap facing diverse founders,” Monique Adams, executive director of 757 Angels, said in an email. “757 Angels, Accelerate and Startup Studios place a high value on an inclusive ecosystem.”
In the past six years, 757 Angels has increased its diverse investors from 7% to 25%, she said. In the works are plans to provide workshops on diversity and unconscious bias and to diversify its board.
As for 757 Accelerate, the affiliated accelerator program, 68% of companies in the current cohort have underrepresented founders.
The Center for Innovative Technology, or CIT, launched the Virginia Founders Fund in 2018 and has since directed more than $3 million toward founder who are women, BIPOC and veterans, as well as those located outside of Northern Virginia.
CIT has made additional changes to its processes in recent months, including gathering demographic information from entrepreneurs and reaching out to Virginia’s Historically Black Colleges and Universities. The organization plans future changes as well.
“There are aspirational, strategic and programmatic goals throughout the Fiscal Year 2022 operating plan that are dedicated to furthering our diversity, equity, and inclusion efforts — especially in light of the national conversation about systematic racism,” spokeswoman Sara Poole said in an email.
Last fall, CIT Gap Funds hosted a roundtable event to bring together BIPOC founders to discuss barriers to forming and funding minority-led startups, a discussion that is expected to yield changes going forward.
For Mayo, one change he’d like to see in Richmond’s investor landscape is more Black people serving as angel investors.
“I think that does make a difference, when you think about who’s across the table from you, that can sort of change that landscape,” Mayo said.
Accelerating Underrepresented Founders
This spring, Lighthouse Labs welcomed its most diverse accelerator cohort ever, with 100% of its founders from underrepresented groups.
It was an outcome they worked toward intentionally, said Outreach Manager Ali Greenberg.
To start, Lighthouse Labs improved its application process, hosting information sessions, reducing the number of application questions, using jargon-free language friendlier to first-time founders and adding self-identification questions.
They also moved the program online, a necessity of the pandemic that had the by-product of increasing the number of potential participants. And, finally, Lighthouse actively recruited founders.
“Accelerator programs are inherently selective by nature,” Greenberg said. “We can’t help everyone, even if we wish we could. But we can be selective while still being inclusive.”
Lighthouse Labs has also gone a step further, partnering with DEI startup Pip Collective, to improve its practices around diversity, equity and inclusion. The Pip team, Danya Abutaleb and Taylor Trumble, conducted a full audit of the organization’s practices and provided trainings on topics like antiracism.
“They have spearheaded DEI efforts in a way that is not too prevalent in the accelerator startup community,” Abutaleb said.
Greenberg’s hope is that the collaboration between Lighthouse Labs and Pip will be a model going forward for other accelerators.
“For us, it’s about how do we support, truly, the best founders, and understand that they can come from anywhere,” she said. “If we want the best ideas out there, we have to be open to not just finding those founders but also supporting them along the way.”
Where Do We Go From Here?
Have there been changes to Richmond’s startup ecosystem since last year’s social justice protests? Absolutely.
Beyond the efforts by groups like Startup Virginia, The Jackson Ward Collective and Lighthouse Labs, there are other examples.
Last fall, Humanitru, a cloud-based supporter engagement platform for nonprofits, rebranded from Totem after concerns were raised about cultural appropriation.
And earlier this year, Activation Capital announced it was launching a pilot program to grow technology-driven companies led by minorities.
Even still, in Richmond, and the rest of the United States, much work remains, especially around funding.
“[We’ve] still got a long way to go,” Mayo said. “But we are in a better position now.”
It’s not just funding that continues to pose as a challenge. As an Asian-American leader, Philip Deng, founder of new Richmond startup Grantable and part of Lighthouse Labs’ spring 2021 cohort, said underrepresented founders often encounter a cycle that’s “almost a trap.”
First, they and their ideas are praised and put on a pedestal. But they often struggle to find adequate support to grow their idea, he said. If expectations aren’t met, there’s a backlash.
“It comes from not seeing the full person, which is the root of the issue,” Deng said. “If you’re only seeing us as founders-of-color, and the color is the overwhelming characteristic, then you over-weight the story.”
As for Mayo, he’s pushing Team Excel forward, but without the expectation that he’ll find meaningful investment support.
“Personally, I’ve decided to just bet on me, and just switch to focusing on sales,” he said. “And I would love to be in a position where maybe I don’t need to raise money at some point.”