Funding initiatives target diverse startups
Tech investors seek innovative ways to be inclusive.
SAN FRANCISCO — Among the dozens of Bay Area startup accelerators, where entrepreneurs work feverishly on products they hope will change the world, StartOut Growth Lab stands out because of one unusual statistic.
Each of the seven startups under its roof has a gay founder.
StartOut Growth Lab is one of several new programs seeking to remedy Silicon Valley’s lack of diversity by offering services and funding only to specific groups of under-represented founders, whether it’s members of the LGBT community, Hispanics, African-Americans or women. These single-minded funds and accelerators are popping up as the tech industry’s predominantly white male culture is increasingly under fire, prompting investors to find innovative ways to be inclusive.
StartOut accepts only early stage companies with at least one LGBT founder — making it perhaps the first LGBT-focused startup accelerator, Executive Director Andres Wydler said. Palo Alto-based LEAP Global Partners, meanwhile, in August launched a $15 million fund to invest exclusively in Hispanic entrepreneurs in the U.S. and Mexico. Then there’s SheEO — a women-only network where successful businesswomen donate small sums to help fund startups run by other women. And the Helm, launched earlier this month, provides a platform to connect investors with a network of companies founded by women.
In some ways these efforts are taking a cue from older firms like Kapor Capital in Oakland and Backstage Capital in Southern California, which have long focused more broadly on funding a mix of diverse entrepreneurs. But the newcomers are targeting an even narrower slice of the population.
“Access is the name of the game,” Wydler said. “It’s access to capital, it’s access to business development opportunities — access is what we need to provide. And what we really need to do is mimic the unfair access that the typical groups have.”
SheEO is providing that access to bridge the gender gap in venture capital funding. Just 7 percent of founders who received VC funding between 2009 and 2015 were women, according to a Bloomberg study. To remedy that, SheEO founder Vicki Saunders is asking successful businesswomen for donations of $1,100. The money funds $100,000 loans to companies run by women. The donors don’t get that money back — the startups repay the loan over five years, and that money goes into a pool to fund more companies.
When Sabrina Mutukisna needed funding for her Oakland-based startup, The Town Kitchen, she wasn’t sure if investors kept turning her down because she’d never founded a company before, because they didn’t like her business model, or because she’s a woman of color. Then she landed $108,000 from SheEO, and everything changed. After that first check, the money came easier, and Mutukisna ended up raking in $1 million. But more than that, the SheEO money gave Mutukisna confidence — suddenly, she felt like the CEO of a fast-growing company.
“I needed to hear that there was a whole world of women that supported our model and supported me as a founder,” said Mutukisna, an immigrant from Sri Lanka. Her company, which delivers lunches to local companies, employs at-risk, inner city youth.
StartOut Growth Lab launched in April. The sixmonth program gives companies access to office space, free legal advice from law firm Nixon Peabody, meetings with an experienced entrepreneur-in-residence, monthly lunches with different experts, and connections to mentors, investors and potential customers. StartOut doesn’t invest in the companies or take equity.
The first cohort of companies is set to graduate in December, and StartOut began accepting applications for the next batch last week.
While research on gay and lesbian entrepreneurs is lacking — most studies on diversity in Silicon Valley don’t look at the LGBT community, and companies like Google and Facebook don’t include that group in their annual diversity reports — StartOut conducted its own study last year. Less than half of the 87 investors the group surveyed could identify at least one openly LGBT founder in their portfolio, and 37 percent of LGBT founders surveyed said they kept their sexuality to themselves while fundraising.
At StartOut, entrepreneurs feel comfortable being open about their lives — bringing their same-sex partners to office holiday parties, for example, said Ajay Bam, co-founder and CEO of video marketing startup Vyrill, a StartOut company.
Other startups in the program include GPSGAY, a social network founded by a wifeand-wife team from Uruguay; and Mixalot, which makes matching software for speed dating and other networking events.
Programs focused on the LGBT community and other niches have two potential benefits: They may help foster inclusion in tech, and they also may be a boon for the VC firm or accelerator hosting the program, said Harvard Business School professor and VC expert William Sahlman.