(EDITOR’S NOTE: We continue our multi-part series sharing the thoughts on the past year and the outlook for 2022 from seven angel or venture investors based in the region.)
TODAY’S QUESTION: There has been an enhanced emphasis in the past few years on start-ups led by women entrepreneurs and those of color. Are we making progress? What more could/should be done?
- Ken Woody, President of Innova Memphis. We are making progress. It takes ecosystems to attract those entrepreneurs, then an audience with investors with capital to deploy. We are seeing many more female, African-American and Latinx founders starting companies, developing solid teams and growing rapidly. It’s a very encouraging sign, but we still have a long way to go. I think we all need to publish the success of these companies as often as we can to encourage more to start and more investors to take a chance.
- David Adair, Managing Partner and Co-Founder of Solas BioVentures. I am a huge supporter of the challenged getting a spot at the table. However, I am not for propping up zombie, half-baked ideas in order to appease some checklist. Rather, the checklist that all companies are subjected to remains in place, but more emphasis on coaching, mentoring, and discovering the challenged entrepreneur should be encouraged. I am from West Virginia, major handicap was just being born and learning English as a second language, so I understand the odds. Perhaps in question 6 (“State Small Business Credit Initiative”), that money could be used to attract and cultivate the minority and female entrepreneurs. If the question is specifically in relationship to Tennessee, then the really good ones get called up to the big leagues fast. So, attention at retention of those entrepreneurs should have a premium on them. Another area is mentoring. Tennessee Tech (University) and more recently UTC (University of Tennessee at Chattanooga) have “shark tank” events that have made capital, mentoring, and competition available to aspiring would be entrepreneurs. Perhaps this same format but targeted, rather than a general audience, may have influence. Celebrating the victors and hero status of role models plays a large role as well. So, when we have a winner, use them for modeling purposes.
- Derren Burrell, President and Founder of Veteran Ventures Capital. The social issues that have taken center stage over the past year have increased awareness that we need a level playing field in all aspects of business, and funding is but one facet. The military provides a more balanced, merit-based approach when it comes to leadership and innovation, so veteran-owned start-ups and businesses are a natural fit to demonstrate the leveling of the playing field.
- Eric Dobson, Chief Executive Officer, Sheltowee Angel Network. We invest in great entrepreneurs. We seek to be inclusive. But we absolutely do not take gender or race into consideration as a criteria for our investments. We look for the traits that tell us we are dealing with a high-performing entrepreneur. Having said that, we invested in one women-led company in 2021 and are looking seriously at two more for early 2022. Historically, we invested in six female founders/Chief Executive Officers and are batting .500 from “still going” to “exciting leadership” representing ~14 percent of our total portfolio, which is above the national average of nine percent.
- Scott Ewing, Co-Founder and Principal Business Analyst, Appalachian Investors Alliance (AIA). We’re witnessing considerable bias on the part of investors to make investments targeting societal, rather than financial, outcomes. Again, I’ll paraphrase Jeremy Grantham (Chief Investment Strategist of GMO): “The worst argument is always that extra risk has to be taken because the need to deliver . . . (whatever outcome) is desperate. The market does not care what your targets are . . .” I won’t speak for other investors, but in AIA, our fund members set their own investing objectives, based on whatever they decide is a meaningful purpose for their money. Most of our members are self-described “impact investors.” So, we review a sizable number of applications for funding from entrepreneurs that certain programs categorize as “presumptively disadvantaged.” If any applicant has a stand-out business plan and can demonstrate reasonable prospects for growing a profitable venture, what they should expect from AIA investors is a rigorous but evidence-based and even-handed treatment through the diligence and investment selection process. What more we can do, and are doing, is to identify areas of common concern for investors and communities of applicants. To use a real example, it may be financial risk aversion in certain groups due to historic conditions of income instability. We work with our investors to identify and acknowledge such conditions and how particular experiences or viewpoints may work against an entrepreneur trying to negotiate the process for being awarded angel funding. This is where our coaching and educational outreach efforts are intended to make a difference.
- Tony Lettich, Managing Director, The Angel Roundtable (ART). ART emphasizes investment in start-ups with management teams which have what we describe as “360o Analytical/Decision Diversity.” Simply stated, the greater the academic, cultural, geographic, gender and functional diversity existing in the start-up’s “C” Suite Management Team, such that they are able to look at all opportunities and problems through the lens of a group which can see from all angles, the higher we view these teams and their ability to execute, and the more likely we are to invest. We believe we live in a diverse, multi-cultural world with peoples of various views, ideas, opportunities, problems, solutions and ways of doing things. It’s what mankind is, it’s what really drives our potential as humans, and we embrace it. From a portfolio company standpoint, this has resulted in almost 60 percent of the members of the “C” Suites in our ART portfolio companies being made up of females and persons of color. While progress is being made, its rate is relative. As compared to 25 or 50 years ago, such progress is significant. As compared to three to five years ago, not so much, and acceleration is needed. In the interim, we share/promote our perspective and why we believe our approach provides us with a competitive advantage, in driving more diverse analytics and decision-making capabilities, and ultimately better execution.
- Grady Vanderhoofven, President and Chief Executive Officer, Three Roots Capital. I do believe progress has been made. I believe we need to continue to pour gas on these flickers and flames to create raging infernos. We need to continue to cultivate these opportunities and seek these opportunities and support these companies, and we need to publicize success stories. That is a critical element; successful outcomes will attract more capital.
Previous Articles in the Series:
- Part 1A – A review of the past two years as well as a look into the future.
- Part 1B – A review of the past two years as well as a look into the future.
- Part 2 – Quality of deals and size of “asks.”
- Part 3 – Impact of COVID in past two years and going forward.
- Part 4 – Thoughts on national trends in angel and venture funding.
- Part 5 – Is there a “bubble” on the horizon?
- Part 6 – Suggestions on best utilization of federal SSBCI funding.