Realizing that when you don’t write your own story others might write it for you, I offer this.
I’ve been materially shaped by the challenges my colleagues and I continue to face in starting and growing innovation startups in Central Indiana. In and through countless conversations with other startup founders who have tried to do the same in our resource-constrained environment, I’ve taken comfort in the shared struggle of finding venture capital and entrepreneurial support at the earliest stages of a company’s life.
Though I live here in Central Indiana, I didn’t grow up here, and it wasn’t until several years into the founding of CloudOne that I had any professional interests here, so I didn’t benefit from a built-in network gifted to me by my family. I also didn’t have family wealth that would have provided me with that critical capital and ecosystem. I had to work, and it had to work, to live.
From my gratitude and support of Elevate Ventures in their role in bringing my company here and helping it grow, even as they worked in their early days to find their way, to my vocal opposition to RFRA, to proposing and helping to pass the Next Level Fund, to shaping the first technology and innovation policies of the Indiana Chamber of Commerce, to helping to create the Indiana Technology and Innovation Association, to chairing and establishing and advocating for it’s capital policy agenda, to my support for 16Tech and the bold vision for Indy that birthed it, to my efforts to help the Indy Chamber advance its entrepreneurship agenda, to quiet meetings in bars and restaurants and coffee shops with founders struggling to figure it out, I think I’ve developed a reputation of being fearless in challenging the existing system when it’s outcomes are less than what is needed.
But, let me reveal a truth: I am not at all fearless. I am full of fear all the time. This is because each time I think about challenging something, I am painfully aware that there are many cloaked within the system that want or need it to stay the way it is. They fight back covertly and overtly, like antibodies, leveraging the full toolkit of conservatism, old boy networks, and passive aggressiveness that we’ve worked and honed and sharpened here as skilled craftsman in the art of mediocrity.
When it became clear I was going to need to find something else to do after selling my company, I was blessed with options, but what I wanted more than anything was to create an organization that would be a force multiplier in helping underserved founders obtain the entrepreneurial support and early stage funding needed to realize their dreams – in short, to give them the help I didn’t have.
As a quick study, I learned a few things right off the rip. First, the aforementioned: when creating something that offers new pathways, those who control the old pathways aren’t happy. Their responses range from unfulfilled collaborations to circling the wagons to unvarnished anticompetitiveness. The system favors the system.
Secondly, I learned that the group of organizations that actually DO care about early-stage entrepreneurship is a lot smaller than the universe of organizations that SAY that they care. This creates a lot of noise, such that founders don’t really know who to turn to for help, or know if the help they are getting is of any real value. Once an organization says, “I’ve got it,” the rest back down, even if they don’t got it.
However, the biggest thing that I learned is because there are so many ready to rush to your aid if you say you’re an entrepreneur, the market expectation of what support for your journey should cost you is zero. In fact, because many accelerator programs will make an investment in your company as a part of their program, you could say that they are actually paying selected entrepreneurs to be supported by them, so that the price point for this support is actually negative. Said more succinctly, there is no sustainable independent business model in providing entrepreneurial support yet.
Most quality entrepreneurial support is therefore either funded privately as an outcome insurance policy benefiting investors, or is funded philanthropically. As such, traits valued in the startup world like speed and agility, individual achievement, and private wealth building clash with the norms of careful study, community impact, and public good that are valued in the charitable world. While newer philanthropic organizations, particularly those funded by entrepreneurs, are working to close that distance, an enormous gap remains between the needs of underserved founders and the abilities of the philanthropic world to meet them.
It requires risk taking, like when the Central Indiana Community Foundation agreed to create a community impact fund with us that uses private donations like private equity to give funding options to founders locked out of the traditional venture capital system, or when the Don Wood Foundation decided to support the Northeast Indiana Innovation Collective’s journey towards being a regional convener of entrepreneurial support organizations and individuals. These examples and many more that never hit social media bend or break existing norms to achieve, and so I’ve much gratitude in my heart for the uphill battles they fight.
But let me offer up another example that’s instructive in its own way. It’s been widely reported that venture capital has a very, very poor record in their investment share into underserved founder communities. No matter which community you’re a part of, it’s generally low single digit percentages of capital that finds its way into these startups. But if you start to ask, “why,” your immediate answer might be systemic racism or homophobia or misogyny. While I don’t doubt for a minute that all that is occurring, I also believe it to be an insufficient explanation. To account for these wildly inequitable outcomes, it would require that that the vast majority of leaders and associates of these firms are practicing bigots.
But, if you look slightly deeper, you can uncover a more fundamental reason. Despite the label “venture capital,” the reality is that they aren’t all that venturous. The way venture funds work is that fund managers take in money from investors, and then turn around and deploy that money into startup companies, seeking outsized returns in exchange for the perceived riskiness of the investment. The return expectation by investors is ENORMOUS. They have shorthand borrowed from baseball for this, calling returns “doubles,” “triples,” and “home runs,” which means getting back 200%, 300%, and 400% or more what they put into the fund, respectively. That plus the fact that if you do a poor job as fund manager you’ll have no chance of getting investors for your next fund or your next fund, means that ironically, venture fund managers are primarily driven by risk aversion. They will therefore tend to return again and again to the same people who have delivered for them before, which results in most of the capital going back to small pockets made up of narrow demographic founders, and not to the underserved, as they are too “risky.”
I believe that to be a great example of a system that perpetuates the system, and that’s why things like community impact funds are needed. They are examples of the new system that is emerging that is significantly more inclusive, and they are worth the price that’s paid by leaders to see them through.
It’s also been widely reported that Indiana punches well below its weight concerning the percentage of our population that works in startup companies. It’s further been widely reported that most all of the new jobs in the American economy come from startup companies. Together these facts amount to a long-term death sentence for our State – really any state where there’s not an intentional, impactful, effort to bring more startup founders to the table and give them the support and capital they need. Clearly not enough is being done.
Here again, though, if you ask the question, “why,” your immediate answers might be inept leadership or systemic racism or conservatism or any number of other factors that are all likely contributing to a degree. But I think the real problem is that when you add up all of the potential founders from various underserved communities who find themselves without clear pathways to early stage capital and entrepreneurial support, they actually together make up the majority of our population. What we are doing is locking out most Hoosiers, and as a result, we have several orders of magnitude fewer founders than we need.
But inside the problem lies the solution: if you can create new pathways for founders to access what they need, you’ll get the new startups we all need. That’s what I’m all about, that’s what NEXT is all about, and that’s hopefully what many more are all about: being force multipliers in helping underserved founders obtain the entrepreneurial support and early stage funding needed to realize their dreams.