Austin’s opportunity to change America’s entrepreneurial narrative
My firm Village Capital has been active in Austin over the last few years — we’ve invested in a couple of companies, and we have more investors in our fund from Austin than anywhere else in the country. According to the Kauffman Foundation, in 2016, Austin was ranked #1 in entrepreneurial activity.
At the same time, success has been highly concentrated. According to CityLab, Austin was the third most economically segregated city in the country. In fact, according to Austin Inno, the percentage of African Americans in Austin has decreased as the flow of predominately white tech workers has helped fuel the growth of the tech sector and driven up the cost of living.
Austin’s not unique. Most of the country has this larger problem in innovation: what I call the “0 for 3” problem. Yet I’m excited about the intentional ways that Austin is trying to solve for the problem.
0 for 3
When I think about the problem of diversity in entrepreneurship, I like to tell the story of Jerry Nemorin.
In 1991, ten-year-old Jerry and his family escaped civil war in Haiti and resettled in America as refugees. Jerry’s first experience with the US financial system was when his mom tried to buy a car. Twenty-five years later, Jerry still remembers that with a ten-year-old’s understanding of math, he knew his mom was getting ripped off on her “BUY HERE, PAY HERE” auto loan. His mom was representative of over 150 million Americans who can’t access $500 in an emergency, and she regularly got ripped off.
Like any entrepreneur, Jerry wanted to solve it. He went to college, got a job on Wall Street, and launched a startup, LendStreet to help people like his mom refinance their bad loans and get access to better ones. When I first met Jerry, I thought this was a great idea. But Jerry struggled to raise the money he needed to start his firm. I asked why he had a problem, and he said, “Investors are all about pattern recognition. As a black guy, in central Virginia, solving poor people’s problems, I was 0 for 3!”
Entrepreneurship is at a 40-year low because there are thousands of Jerrys — great entrepreneurs, who understand problems, and don’t fit the pattern of what our financial system expects. As I outline in my new book, The Innovation Blind Spot, meritocracy in America today is a myth. Blind spots in our innovation economy are overlooking people based on who they are — less than 10% of investment in new companies goes to women; less than 1% goes to people of color. We’re overlooking people based on where they are — 78% of startup investment goes to just three U.S. states (NY, MA, CA). And we often discount the ideas that have the highest impact — only 15% of over 200 billion-dollar “unicorns” are in the real-world industries that people interact with every day (food, health care, energy, education, agriculture, housing).
As a result, inequality is at a 100-year high. And in response, our entrepreneurial, the Silicon Valley-style economy is putting $120 million into companies that are making $500 do-it-yourself cold-pressed juicers rather than respond to these pressing problems.
Austin’s opportunity
I’m excited to come to Austin next week because I’ve seen in the community everything we need to solve the problems we have. Austin can be a flashpoint for the problems in our country’s economy — it can also be a lab to develop solutions.
I’m excited about three opportunities that Austin — and as a metaphor, the broader country — can illuminate and solve for our blind spots.
First, we need to intentionally recruit a different and broader pipeline of founders.
If you’re a NFL-caliber athlete, whether you grow up in the poorest or richest precinct of Austin, college football coaches will know you by first name when you’re twelve years old. We invest billions of dollars making sure the kids with the highest potential get to be Longhorns and Cowboys. We need to intentionally do the same with people who have the potential to be entrepreneurs.
Recruiting founders requires investment (Nike and Adidas invest billions of dollars a year in talent pipelines), and I’m seeing Austin do just this. On September 29th, the Capital Factory, Austin’s entrepreneurial hub, is specifically hosting a pitch challenge for $100K for founders from diverse backgrounds. While one pitchfest won’t change the game, the entrepreneurial community won’t make progress on including more people unless events like this happen.
Second, we need to innovate as much in HOW we invest as WHAT we invest in.
Did you know that our venture capital structure — the structure we use to invest in startups — was originally developed for 19th-century whaling expeditions, with very little innovation since? Venture capitalists would say that a portfolio that has one grand slam, and 99 failures, can still be profitable — that’s the economics from chasing whales. Yet when we have a financial system that designs for one billionaire, and 99 broke founders, it’s no wonder inequality is at a 100-year high.
Fortunately, I’m seeing Austin think differently. I’m excited to see the Michael and Susan Dell Foundation and the Global Impact Investing Network convene a series of conversations around different and more inclusive investment structures that work not just for tech founders, but the rest of Austin (and the rest of the country).
Finally, we need to think with one pocket, not two.
I started Village Capital to invest in for-profit companies that also have a mission beyond financial returns (health, food/agriculture, education are a few sectors where we’re active). When I was just getting off the ground, I pitched an investor who said, “Ross, I have two pockets. With one pocket, I make as much money as I can; with my other pocket, I give it all away. Which pocket are you asking me for? If it’s an investment, why are you talking about doing good things? If a grant, why are you talking about making money?”
I see Austin full of “one-pocket thinkers.” The emerging movement of impact investing, led by Austin groups such Notley Ventures on the investment side and UnLtd USA on the entrepreneurship side are integrating one-pocket strategies. And there’s an amazing group of innovators in Austin who are thinking about different and more inclusive ways we can invest in companies.
I’m coming to Austin because I love what the community is doing — and how they are solving for our blind spots. The morning of September 29th, I’ll be co-hosting a breakfast with Notley Ventures, Sense Point, Tideline Advisors, and UnLtd USA to talk about different investment structures that may work better, and be more inclusive, for more founders. We’ll also have copies of my book (all proceeds from sales will go to Entrepreneurs for Houston, a group of entrepreneurs rebuilding another great city post-Harvey). RSVP here if you’d like to join.
Austin, we have a problem. The good news — I’m excited to come to Austin because there’s everything we need here to solve the problems we have.
Ross Baird is President of Village Capital, and author of The Innovation Blind Spot: Why We Back the Wrong Ideas and What to Do About It.
