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Business News/ Companies / Start-ups/  A new push for diversity in funding tech startups

A new push for diversity in funding tech startups


The idea: Tech entrepreneurs of color get venture and angel money from investors of color


Tech entrepreneurs of color often struggle to attract early-stage funding for their startups. But that may be starting to change—thanks in part to investors of color.

Professional networks have formed in cities such as Chicago, Detroit and Miami in recent months to identify and recruit Black, Latino and other angel investors of color to fund tech entrepreneurs. At the same time, venture firms founded by women as well as racial and ethnic minorities are growing their profiles in raising funds to inject capital into startups.

Participants say these new angel groups can build a foundation for generational wealth through investments in high-growth companies, while enabling minority entrepreneurs to access funds from a wider range of sources.

“The population of us [Latino] professionals has reached that critical mass where we can do some of that investing ourselves" instead of investing through venture-capital funds, says Adela Cepeda, chairwoman of Angeles Investors, a nationwide group of Latino business executives who make angel investments in Latino-owned tech startups.

Boosting minority participation in angel investing has long been desired within tech startup circles, but progress has been slow. More than $15 billion has been raised by Black and Latino founders in the U.S. since 2015, but that accounted for 2.4% of all venture capital raised during that time, according to a recent report from Crunchbase.

But founders as well as executives from technology and venture-capital firms say the heightened awareness of racial inequities in the wake of the police killing of George Floyd has spurred efforts to accelerate investments in minority entrepreneurs.

Ms. Cepeda, a Chicago-based corporate and public-finance consultant, says Angeles Investors incorporated as a nonprofit earlier this year and now has roughly 50 members. Angeles, which has set a goal of 250 members and $10 million invested by 2025, has committed seed money to seven companies, with check sizes averaging about $150,000, Ms. Cepeda says.

Minority entrepreneurs often can’t raise the same levels of cash as others from friends and family at the earliest stages of their ventures, which can make them more likely to fail, Ms. Cepeda says.

Seeing the value

Isabel Rafferty Zavala, chief executive of Canela Media, which operates an internet television service aimed at Spanish-speaking audiences in the U.S. and Latin America, raised money in a funding round led by BBG Ventures and Reinventure Capital and including Angeles Investors members. BBG Ventures focuses on consumer-tech startups with female founders. Reinventure funds companies led by women or people of color.

Ms. Rafferty Zavala, a New York-based entrepreneur who founded Canela in 2019 and launched the TV service earlier this year, says that while the firm was raising capital she came across a press release about Angeles and was intrigued by a Latina serving as a startup investor.

“If someone is going to understand the value of the Latino audience, this is it," says Ms. Rafferty Zavala. “I need people to understand what I’m doing and see the value."

Black Angels Miami, formally established in November, has roughly two dozen members, says executive director Kevin Cadette. The group aims to provide people an opportunity to invest in everything from companies in the earliest stages of funding to venture funds, and to provide education on the mechanisms behind angel investing, Mr. Cadette says. More than 100 people have engaged in its programming, he says, including a virtual session over the past few months led by venture capitalists on limited partnerships.

Members of Black Angels Miami, with some participation from members of Miami Angels, invested more than $200,000 with MaC Venture Capital earlier this year. Additionally, Black Angels Miami has hundreds of thousands of dollars in the pipeline to be invested in other funds.

“Convincing people to write checks in 2020 is a challenge" because of the uncertainties created by the coronavirus pandemic, Mr. Cadette says. “With that said, we’re showing it can be done."

New rules

The Securities and Exchange Commission has lent its support to opening up private investment to more investors, with its vote in August to expand the definition of so-called accredited investors beyond individuals with $1 million in net assets, not counting their home, or at least $200,000 in annual income. The move will allow stockbrokers and investment advisers who hold certain licenses and “knowledgeable employees" of private funds to act as angels. The SEC also opened the door to holders of other professional certifications to be included later.

Commune Angels, a group based in the Detroit area that launched in August, aims to educate potential investors as well as provide investment opportunities. The group’s organizers want to prepare nonaccredited investors so they’re equipped to invest when they qualify as accredited investors.

Commune Angels plans to offer internships to college students that would give them exposure to vetting investment opportunities and supporting startup founders, says Terrence J.L. Reeves, head of law firm Frost Brown Todd’s venture-capital practice and one of the founders of Commune Angels. Mr. Reeves says the angel network also plans to roll out an education program for younger people next year.

Tech startup entrepreneur Rodney Sampson has been working to increase the ranks of Black angel investors for nearly a decade, seeing it as a pathway to create generational wealth. Mr. Sampson, who is also courting investors for his 100 Black Angels & Allies Fund, says that making Black people aware of the risks and opportunities of angel investing is critical in bringing more investors into the ecosystem.

“If people don’t see [angel investing] as an asset class and they don’t know how to access the asset class, it’s not going to advance investments in funds, founders and families," says Mr. Sampson, who is working with the University of North Carolina at Chapel Hill to develop an angel-investing certificate program to prepare prospective investors.

Even without an expanded pool of accredited investors, there are plenty of potential angels who could participate in the market, says Pat Gouhin, executive director of the Angel Capital Association. The ACA estimates at least 300,000 people in the U.S. are active angels—but some 16 million U.S. households last year qualified as accredited investors, according to an SEC analysis of Federal Reserve data. In addition, Mr. Gouhin says the ACA is developing a plan to better connect investors with founders of color.

This story has been published from a wire agency feed without modifications to the text

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