After creating a prototype of a warranty app, Upsie Founder and CEO Clarence Bethea began setting up meetings with large insurance companies to share his idea.
At the first meeting, the insurance executives addressed all of their questions and comments to Bethea's White investor.
"I was the founder and CEO but to them I was invisible," said Bethea, who is Black. "When I began seeking funding, I encountered the same brick walls. I was a guy from the hood, with a non-traditional Silicon Valley story, and people judged me from the narrow lens of their experiences."
Raising capital is one of the most difficult challenges for any early-stage company. But for people of color, it is even more challenging. Vast inequities have existed in the space for years.
The death of George Floyd at the hands of Minneapolis police has prompted protests and calls for reform around the country. And amid these discussions of prejudice and inequality, venture capital is in the spotlight.
Only 1% of venture capital dollars went to Black startup founders in 2018, according to a study from the Silicon Valley Bank and others. The same year, the number of Black decision-makers in venture capital dropped to 1% – representing seven Black people at the 102 largest venture capital firms in the U.S.
Over the past month, venture capital firms of all sizes have made public promises to find better ways to support Black founders. For some, this means openly sharing their investment statistics. Others decided to meet exclusively with Black founders for the month of June.
Bethea said he's encouraged by those in the venture capital community that are willing to step up and take steps toward diversity and inclusion in real, quantifiable ways.
He recently worked with local tech organization BETA to help leaders recruit founders for their summer cohort. Until recently, this decision had been made almost entirely by White men. Bethea is also helping BETA find candidates to fill an open position on its board.
"Until the time comes when minority entrepreneurs are given the opportunity to obtain funding for startup growth, we will not have full economic freedom in this country," Bethea said.
Despite a challenging road, Bethea has continued to grow Upsie. In 2017, the company was one of 10 companies accepted to participate in the Target+Techstars Retail Accelerator. After that, the company raised $1.7 million.
Then last year, Upsie secured $5 million from a group of investors that included Minneapolis-based Matchstick Ventures and St. Paul-based The Syndicate Fund.
The growing tech company now employs about a dozen people and recently moved into a new office in St. Paul.
"I learned not to allow anyone to marginalize me or my dreams," Bethea said. "I didn't check the traditional boxes and never would, but I believed in what I was doing, and kept pushing and telling my story until I broke through."
Challenges and opportunities
We Sparkle CEO Michelle Maryns has spent the past several months trying to help more than 100 businesses stay afloat while trying to raise capital for her own company.
We Sparkle builds tools to help small businesses increase sales and invest in their communities. Its first product is a smart bot that helps business owners with administration and marketing tasks. We Sparkle offers its services to anyone that wants them, but places special focus on helping minority-owned businesses.
"When the pandemic hit, so many of our customers had to shut down," Maryns said. "And they're just starting to open back up."
One of the groups hit hardest was the Minnesota Healing Justice Network, a group of more than 100 doulas, midwives, nurses, therapists and other health professionals. Maryns said We Sparkle "went into crisis mode" helping the Healing Justice Network, one of its largest customers.
"There's been a lot of learning," she said. "I think it's helped everyone become more resilient in the future."
Currently, WeSparkle's 118 customers all identify as women or BIPOC. While many of these businesses have taken a hit as a result of the Covid-19 pandemic, some are starting to experience fresh support as part of the "Buy Black" movement. The Star Tribune reports that many Black-owned businesses have seen a surge in demand in the month following George Floyd's death.
With the economy beginning to open back up, Maryns is redirecting her attention to raise capital for We Sparkle.
"There have been a lot of studies done about minority and women-owned businesses having better returns for VCs," Maryns said. "People are starting to recognize that. Unprompted, I had a potential investor mention that in a meeting."
We Sparkle recently received just under $25,000 in the form of a Launch Minnesota Innovation grant. The company is actively seeking an individual or organization to match the grant and begin discussions with VCs and angel investors to lead a seed round.
"I've talked a lot with more traditional VCs so far and I feel really hopeful that the tide is turning," Maryns said.
'We press on'
Dionne Gumbs is familiar with the struggle of raising venture capital. After spending more than a decade in finance, she partnered with a friend from college (a White woman) to create a startup that helped women manage financial resources.
"We were well connected and well networked and we still faced polite smiles and meetings that led to nowhere," she said. "Whereas many founders of color have traditionally focused on businesses in areas that VCs claim to not understand, we were right in the middle of the growing financial-technology hub of New York."
Gumbs and her co-founder were armed with MBAs from Ivy League colleges, impressive resumes and a thorough business plan, but at the time it wasn't enough.
"Thankfully, things are changing," Gumbs said.
"You have to keep going – keep learning from each meeting, get coaching, be organized, be diligent, be relentless."
Gumbs founded GenEQTY in 2018. The fintech company offers a digital banking platform that manages all aspects of business for women-owned and minority-owned companies.
"My most successful clients would often share how unnecessarily difficult their journey was in accessing capital and resources," Gumbs said. "They didn't feel our current institutions were for them. It makes sense because they were not the original architects."
GenEQTY hopes make the system work for those typically overlooked by traditional financial institutions. Despite her passion and strong financial background, she found it difficult to gain interest or traction in the Twin Cities when she moved here several years ago.
"I was told there was a very tight community of investors and hopefully our paths would cross one day," Gumbs said.
Not wanting to wait for an invitation, she looked to the coasts to raise money. Fundraising for anyone is nerve-racking, but as a Black woman, Gumbs said, it's even more daunting.
"The list of direct insults is long, and the list of snide, indirect comments is even longer," she said. "You don't look like the people you're pitching to and the smiles, coffee chats, dinners and drinks that result in nothing can be enough to make you want to quit."
Just before the arrival of the Covid-19 pandemic, Gumbs had received the necessary capital commitments to launch her business. But investors decided to pull back due to the economic uncertainty caused by the virus. Still, she is pushing forward with GenEQTY.
"You have to keep going – keep learning from each meeting, get coaching, be organized, be diligent, be relentless," Gumbs said. "Many founders of color like me have had a life of doing more with less. So we press on."
