Welcome back to The Innovation Armory. Over the past couple of weeks, I have been saddened and horrified by the brutal police violence against the black community. Systematic injustice also exists within the technology sector. Under-representation of both black individuals and women is a large issue within the technology community. Education is critical to helping collaboratively combat prejudice. This week’s piece shares the stories of inspiring black and female founders who speak about their experiences and discuss issues of racial and gender inequality in technology.

Thank you to Don Charlton (CEO of Kommute, Founder & Board Chairman of JazzHR), George Azih (CEO of LeaseQuery), Eirini Rapti (CEO of Inne) and Stephany Lapierre (CEO of Tealbook) for sharing their experiences with me.

Next week’s piece lays out a framework for “Advertising 3.0” and discusses how emerging themes of assurance, harmony, adaptability and assessability will fuel growth in eSports advertising ecosystems, digital product placements, in-store digital media, vertical advertising infrastructure and media cybersecurity.

Now onto this week’s update:

At a foundational level, venture capital and entrepreneurial innovation claim to assume equal opportunity. Investors back small startup teams with limited resources and unproven products to try to transform entrenched sectors and disrupt incumbents who possess massive barriers to entry. A David vs. Goliath battle professed to support systematic egalitarianism by supporting smaller businesses in taking on industry titans. Sadly, this claimed notion of equal opportunity is not currently extended to all founders. Black and female technology founders are disproportionately under-funded. This funding gap is the largest at earlier stages of investment (pre-seed, seed, series A, series B) where investor allocation decisions are driven more by perception of potential success of a product / team rather than a record of proven results. In 2018, only 1% of venture capital went to black founders. In 2019, only 2.7% of venture capital went to female founders.

Similarly, within the venture capital community, black and female investment professionals are disproportionately under-represented especially in roles that hold meaningful power such as partner roles. In 2018, black partners represented just 1% of the partner base in the industry’s leading venture firms. In 2019, women represented just 13% of the industry’s partner venture capital base and 65% of VC firms did not have a single female partner.

The funding and partner data is staggering. While I focus on black and female prejudice for purposes of this piece, other groups in technology also face prejudice. I spoke with four inspiring founders to learn more about their experiences and the racial and gender related barriers black and female founders respectively face. I hope you find the conversations below meaningful and informative in better understanding inequality within technology and steps we can take as a community to do better going forward.

A Conversation with Don Charlton

(Founder & CEO of Kommute, Founder & Board Chairman of JazzHR)

Don Charlton is Founder & CEO of Kommute, a workplace video messaging platform. Don is also Founder & Board Chairman of JazzHR, an applicant tracking system designed to streamline the hiring process.

SN: How do you think about the link between value creation and diversity?

DC: It is important to not only measure value creation, but also the amount of money that has been burned by White and Asian founders because they are over-funded disproportionately more. I like to use a football analogy to illustrate my point. Imagine you take two running backs in the NFL: one black and one white. The white running back gets 10 carries to prove his potential and the black running back gets 350 carries but also makes many fumbles. Some may conclude the black running back is better, but the fact is that he got more opportunities to run the ball because of bias and also made many mistakes. Any mistakes the white running back makes during his limited carry exposure just re-enforces to the coach that more black athletes should be running backs. Similarly, in the technology community, it is important to have a data-driven discussion about whether white / Asian founders have created more successful businesses or if they have just been given more “carries”. Over a number of years, only 105 black founded companies have raised over $1M, having raised $2.7 billion total (as of a 2018 study by Harlem Capital). There are single private companies with white founders that have raised more than that. With greater access to funding, white and Asian founders have a leg up in securing runway, recruiting, developing faster and investing in sales and marketing. They can afford to make and recover from more mistakes. White and Asian founders do not build better businesses than Black founders, they get more chances and therefore the “halo” to create more mistakes and correspondingly pivot. High access to capital skews aptitude. Black founders do not receive benefit of the doubt. If you raised a lot of money as a black founder, you built something really lasting and fantastic. That is why I can’t name a black founded business that has created a $100M startup that has gone bust after large fundraisings. The same is not true of white founders who are given more benefit of the doubt and who may have simultaneously burned more money.

SN: Could you speak of times where you have faced barriers as a black founder that others have not had to face and how that impacted your business?

DC: I don’t know what other people go through and I believe there is a trap and that trap is to try and just articulate that it was harder for me. I raised $24 million in venture capital for my company and so it is tough to say on paper I had trouble with funding relative to other black founders. What was different about my experience is that I did not feel like I was given equal credit for what I accomplished. For my last company, JazzHR, we found product market fit after a very short period of time and were the preferred HR vendor for many of the major technology startups around that time. Relative to traditional operating and capital efficiency metrics, we were scaling successfully. Given our scale and growth, I felt like the business was at the meritocracy level where I did not feel like my skin color would factor into whether I received funding. However, when I told the financial story to investors and saw how much more money my smaller competitors raised, I did not feel like that was the case. I felt like I had a first mover advantage that did not get fueled fast enough. I was a first time founder, from Pittsburgh and a single founder. I try to lean on those as reasons why it was harder to raise capital because I don’t want the race-based reason to be true. The most overt racism I ever dealt with was people asking, “did you actually build this?” In Silicon Valley, generally though, much of the racism is not as overt. Racism manifests as assigning unequal credit or lower investment allocation to black founders.

SN: Do you feel that black founders are measured against a higher bar / forced to prove more to successfully secure investments?

DC: Once you get to a certain scale and are fast-growing, meritocracy does kick in and it does not matter what you look like. Does an early-stage black female founder get taken as seriously when she says her business can scale to a $100M ARR business? At the earlier stage, fewer checks to black founders get written and it is tougher to get into accelerators. It is harder to get started and to have the courage and confidence to raise capital and start your own venture. What I would say to any investor is: when you talk with a black or female founder about what they plan to build, search inside yourself and see if you feel a bias. Are you looking at them the same way you look at everybody else who pitches to you? If you feel even a slight bias, know that as the outside world of black and female technology entrepreneurs, we really feel it amplified. The language used by biased people in positions of influence negatively affects the lives of aspiring entrepreneurs. If you are an investor and you truly believe black people are good at building technology companies, then stand up and explain to me what is going on when you don’t have black people in positions of power in your company or have companies in your portfolio created by black founders. In my opinion, when it comes to black people in technology, the only black people that get rewarded are people who exhibit black excellence in technology. It doesn’t matter what they look like and they would be successful no matter what. White mediocrity can make tens of millions of dollars for young white adults. White people are given more opportunities even after a miss on an initial startup idea or numerous unexpected pivots. Still many of them experience success with the right stroke of hard work and luck. Black mediocrity does not get the same opportunity to become black excellence. Technology entrepreneurialism is the intersection of hard work / perseverance and luck. Many black founders don’t get access to the right team, talent, network and capital to enhance their hard work. Investors internally know how they feel about investing in black people in technology. Every day that ticks by where investors know they have this bias is why this story continues to perpetuate itself. People must take responsibility because black founders don’t want to point the finger at investors. There’s an investor I spoke with recently who told me that he has had thousands of pitches and has only spoken with less than 10 black founders. Less than 10 over thousands of pitches. People just need to look at the data to understand the pervasiveness of the problem and understand the higher bar for black Americans.

SN: What advice do you have for black founders currently scaling businesses or aspiring to found a new business?

DC: There are two key areas to think about: “short-term you focused” and “long-term group focused”. As an entrepreneur, speed is important and you don’t have time to fight all of the battles of the world. Like everything else in your life, you’re going to have to show a whole lot more to get the same in return. It is defeatist to think: “I should just bootstrap.” You need to push and prod your way into the investing world. Our lack of interest in approaching angels and venture capitalists will reinforce the myth they aren’t seeing black talent anyway and we don’t want to perpetuate that. In the near term, you have to focus on building more to gain more traction while over the long term you start evangelizing for more black funding and representation. Long-term you need to evangelize and short-term you need to commercialize to be successful as a black entrepreneur. In the current environment, you will not get credit for your potential just for your proven past.

A Conversation with George Azih

(Founder & CEO of LeaseQuery)

George Azih is Founder & CEO of LeaseQuery, a lease-accounting software business that helps accounting and finance professionals eliminate lease accounting errors.

SN: Could you speak about prejudice in the fundraising process?

GA: I’ve never really looked for early-stage funding because I always wanted to run a profitable bootstrapped business. Many black founders looking for early stage capital do experience racism. Within the technology community, earlier stage funding for pre-profitability businesses face the most prejudice.

SN: How do you encourage diversity in your workplace and encourage a hiring culture that prioritizes differing perspectives?

GA: First, I’d like to address the term “diversity.” I’ve heard it said that “diversity is counting people; inclusion is making people count.” Diversity alone is not enough. We had a town hall to speak about the current climate and the outcome for LeaseQuery was that we need a R.E.D.I (Race, Equity, Diversity and Inclusion) committee to actively hold leadership accountable to make sure that we are hiring and seeking black candidates as well as find other ways to encourage diversity, equity and inclusion throughout the company. The talented black candidates we have sought after in the past have had major options with many doors open. Their appetite for the risk of coming to work at a startup was low. This barrier can often be attributed to racial inequities. These candidates could not afford to lose, or for things not to work out.  They were the major breadwinner of the family, and in many cases, they were the first to have these types of options. They felt they had to choose sure bets vs. going to work at startups where the risk is high.  This socioeconomic trend that prevents some talented black people from being afforded the opportunity to take risks has to be addressed as well.

SN: In addition to black startup hires, does that same risk constraint apply to black founders?

GA: Absolutely, that same barrier also applies to black founders who feel deterred from taking a risk or wait to start a new venture until later in life. A lot of black founders that do take that jump, and I was one of them, are sick of the lack of upward mobility in corporate America. I previously worked for a company that was not diverse in terms of senior leadership and I could tell it impacted my promotion opportunities while there. So when I came up with the idea for LeaseQuery, I just jumped at it.

SN: What measures at an industry-level would you propose being put in place to address issues of racial inequality?

GA: It comes down to supporting black businesses, making sure they have sufficient access to capital and early-stage customers throughout the ecosystem. Another area is making sure we have a lot more black engineers. That is going to move the needle. More companies could also benefit from implementing our R.E.D.I. Committee idea. It is important to not only make an impact on the black community outside of work through donations, but also actively focus on fostering diversity directly in your workplace.

SN: What advice do you have for aspiring black founders who may be facing adversity in breaking into the industry or raising money?

GA: A lot of people think they need to raise external money early on. However, as a black founder you have to go into your venture under the assumption that you will not raise early stage capital. Turn that weakness into a strength by creating an efficient bootstrapped business. For me, when I started, the first thing I did was turn down my personal spending. I funded my business initially by maxing out my 401K and borrowing against it interest-free. Then we changed our billing system so that our customers paid us up front (annually and with locked in multi-year contracts) so that we have more cash sooner to dampen burn. We would not have necessarily thought about smarter pricing models had we gotten early funding initially. There was a period of time when I sold 10% of my company for $12,000 because I needed the money. I’ll never forget this but the person called me shortly thereafter and asked for their money back. That % would have been tens of millions of dollars based on our valuation now. Use those lessons and experiences as motivation and as a driving force to succeed.

SN: Understanding entrepreneurs can minimize their capital needs as one strategy, what advice do you also have for investing firms to encourage them to make more capital available to black founders? 

GA: Investing firms need to get more black partners, even just more black people. We recently ran a formal process for our last funding round. I remember being aghast at the lack of diversity in the process. We reached out to many firms, at least 20+, and only two firms had black people within the organization and none of them were partners. Under-representation of black people in the investing community is a pervasive problem.

SN: How much of the responsibility falls on the investing community specifically within the technology ecosystem as opposed to other stakeholders?

GA: The investors are the parties who pick their horse to win. They go through and pick the winners in an industry and meaningful responsibility absolutely falls on them to improve.

SN: Do you have any concluding thoughts for the readers of The Innovation Armory?

GA: There is always an excuse for why we don’t have as many diverse teams. The community just needs to keep trying. Don’t give up on encouraging diversity, equity and inclusion even if certain avenues fail. It is hard but nothing good comes easy. Make it a priority and your business will figure out a way to contribute.

A Conversation with Eirini Rapti

(Co-Founder & CEO of Inne)

Eirini Rapti is Co-Founder & CEO of Inne, a hormone-based mini lab for women.

SN: Could you speak about experiences where you felt like you faced barriers as a female founder that men did not have to face?

ER: As a female founder, at some startup conferences I have been assumed to be someone’s partner in attendance rather than a startup founder. I have also often been the only woman in the room at certain professional events. During some of these discussions, some men in the room will make sexist jokes especially if there is alcohol involved at the events. As a female founder, you are put in a tricky position where you want to make business relationships with these people and so you are forced either to become one of the boys or be shut out from meaningful opportunities. My reaction has always been to be true to what I feel like. If I don’t feel like engaging in a confrontation, I walk away. However, very often, I do engage and this can help select partnerships but also has made some partnerships definitely not start out on the right foot. The most prominent example for me has been raising funds. The majority of the investment community is male and my product is for women. It is difficult to explain a product to them that they cannot relate to. The product is also associated with a sexuality taboo. I took it as a de facto that most investor appointments would be male and I tried to explain the pain point solved by the product from a personal angle, a wife, mother, etc. I have had some ridiculous comments in these meetings and have experienced blatant harassment. When I was first starting, I was having a conversation with someone from the medical community because I was looking for a professional gynecology opinion. Then, I started receiving inappropriate emoticons in the evenings from him because in his eyes “a young girl who talks openly about her body is definitely interested in engaging in sexual discussions.” For whatever reason, he felt that because of the nature of my business, I would be the type of person who sleeps around.

SN: How frequent are these types of encounters and how pervasive is the problem?

ER: For me, I did not make much of a big deal at the time about this harassment because these types of things happen so much. These are types of issues men generally don’t face in the community. I am generally not the type of person to brush things off, however, I learned to live with these situations. I thought that giving it importance would take away from my goal of launching my product and impacting customers. Because our company focuses on fertility monitoring, another prominent reaction that I got from technology investors frequently was: “so your product would be great for men because then you can send me a message and tell me whether my girlfriend is getting her period so I know whether to go home or buy her chocolates so I can avoid her being hormonal.” I heard this so many times and am disgusted by it. I am trying to put out a product that is beneficial for 50% of the world’s population and all some of these investors could think about was a crude, self-centered benefit. These comments show some of these male investors don’t take these conversations seriously because their first thoughts are not about my business plan, my product or my strategy. I also have gotten comments like: “so with your technology I could know when I do / don’t need to wear a condom. Amazing, that’s better for my sexual life.” Again, these types of comments try to make my product about men instead of women. The technology community should care about the main users of a product and try to understand the technology’s main use case. It is important not to go to the other extreme where men should feel severely restricted with what they can say. However, in the business world there is currently a level of comfort where some feel they can make these types of comments. Men should be more careful about the language they use in these meetings.

SN: Given the nature of your business as targeted towards women, how do you view the emerging but broad “femtech” category as important to combating prejudice against women in technology?

ER: Femtech’s category creation was absolutely necessary. It was initially about menstrual health but now must evolve to encompass many more categories that need to be funded. It is representative of how many products have historically not been tailored to women as a critical use case in research and development efforts. The category initially also used a lot of stereotypical female preferences for consumer products like pink, flowers and soft colors. Now, we are moving away from those because the new voices of femtech are bold, strong and diverse. I still believe we are far from equality and building technology that is created to meet the needs of those who are female or identify as female. Until we get there, I think having this separate category plays an important role.

SN: Long-term, is it constructive for investors to think of femtech as a separate category rather than just backing products that create use cases tailored for both women and men?

ER: I don’t believe we will get to the latter in my lifetime. I can’t envision technology companies building use cases for various user groups giving the same weight to both women and men in the near future. It requires a deeper societal change. It is great to target people and build products for them and then further bifurcate within those categories, i.e. younger and older women as an example. This segmentation helps make more delightful products for those user groups. The problem is not with the segmentation but with unequal distribution of funding. You can solve the problem by having all companies think of both user groups or making sure you fund different categories.

SN: What recommendations do you have for those in the investing community and within technology more broadly to help collaborate on gender equality issues?

ER: We need more funds that are led by women. The fund that led our latest Series A was founded by and is led by a woman. We need more female voices broadly even in male founded investing firms. Give female investors the opportunity to look at a variety of categories not just femtech so their role in the firm is equal. We also need organizationally to promote more women. Women are inspired by other women and we need more success stories. Maternity also plays a large role in the lives of many women. Every company needs to think earlier about maternity policies to attract top female talent. Pregnancy is a part of life that companies have 9 months to plan around rather than shying away from hiring someone because you worry they could soon be out on maternity leave. A lot of female employees are worried to talk openly about these issues because on the one hand they want the job, but separately they feel personal pressure because their body clock is ticking.

SN: What advice / learnings do you have for aspiring female founders?

ER: First, take time to self-reflect about your own boundaries because you are going to face uncomfortable situations. Make sure you know what you want to speak up against as a female founder. Second, reach out to people to find good mentorship that matches your values. Throughout my journey, I have had great men and women who have helped me. These mentors will help you through tough times where you may feel discriminated against or discouraged. 

A Conversation with Stephany Lapierre

(Founder & CEO of Tealbook)

Stephany Lapierre is Founder & CEO of Tealbook, an enterprise data software provider that powers superior procurement team visibility.

SN: What barriers have you faced as a woman in the technology community?

SL: I come from a long line of entrepreneurial women, so I have always been inspired to run my own company. But the stats are real, only 3% of venture-backed companies are founded by female founders. When fundraising in the early days, trust in the founder is as important as the opportunity. You have to be able to step back and be aware of how you come across no matter the gender of the investor. Being aware of potential gender bias gives you the opportunity to put emphasis on other factors you can control (size of the market, product market fit, traction, team, etc.).

SN: Could you elaborate on how to effectively pitch male investors as a female founder? How do you feel raising capital as a female founder is different from raising capital as a man?

SL: It is about awareness and adjusting to exude confidence to get investors really excited. It doesn’t come naturally for some of us. On the investor side, people need to change the way they are listening. If they are aware of the differences in style, they can focus on validating the idea and other more important factors. As an investor, if you like the idea and believe in the founder, then surround her with the right guidance, team, resources and ecosystem to help her grow the business.

SN: What is the role of female-focused funds, especially those investing at earlier stages, in combating bias against women within the technology community?

SL: We are a portfolio company of two female-focused funds. After the “Me Too” Movement, some new female-focused funds started popping up and LPs cared a lot more about gender equality. I don’t want investors to invest in my company because I am a woman, but rather, because of the massive opportunity with Tealbook. When you are first starting and just building out your idea and the need to validate assumptions, these female-focused funds are important, however. At an earlier stage and for unproven female founders, the bar is higher. At a mentorship and networking program, myself and three other female founders were the only 4 women in the program out of 20 companies. At one point in the program, we were talking about the difficulties of closing a series A round as a woman, while a male founder, (with what seemed like a less compelling idea) was talking about how easy it was to raise his series A round from a prestigious investor group. This seemed like a stereotypical moment.  These women had great passion, technology acumen and dedication, but seemed to be facing higher barriers at early stages than men. Once you’ve proven the business and market, I’ve found that capital comes more easily. Once you have reached a certain scale and show growth, gender becomes less relevant.

In addition to the stories of these inspiring founders, I want to leave readers with a few additional thoughts about race, gender and technology:

• Of course, the most compelling arguments for addressing prejudice are rooted in notions of justice, fairness and morality. If somehow the injustice of this under-representation does not bother you though, you should still care about these issues as greater inclusion is the logical conclusion of financial and economic thinking as well. First, technology companies with black and female leadership are able to build better products for a diverse user base. Greater inclusion enhances a company’s total addressable market and leads to the creation of products with better product / market fit. A diverse end consumer base is better understood by a diverse leadership team. Second, the funding gap is negatively self re-enforcing. Understanding it may be harder to secure funding due to prejudice, more black and female founders are deterred from taking greater career risk to start their own entrepreneurial ventures. This creates meaningful innovation and productivity opportunity costs for society stemming from the subsequent decisions to not invent by many talented women and black individuals. Check out the Patent Racism episode of NPR’s Planet Money podcast for research on the impacts of racism on patent filings (a proxy for innovation) in the black community. Third, disproportional allocation of capital to other demographic groups could be lowering returns to investors. Backing disproportionately fewer talented black and female founders means that more mediocre ideas are likely being backed in the leftward long-tail of other demographic startup outcomes.

• Management teams need to carefully evaluate their choice of words and even their smaller actions to be sure they are fostering an inclusive environment for all employees. You are a role model for your company and small / subtle statements or behaviors have a cascading effect on the culture you are building. They can have a spillover effect on broader industry culture. For new founders, prioritize cultural inclusion from day 0 and actively seek diverse talent initially. As a new company grows, subtle and systemic biases can become engrained in hiring processes and promotional policies even at a subconscious level. These biases are tougher to unwind the larger an institution grows. Prioritizing inclusion and diverse perspectives at a smaller scale increases the probability your culture remains inclusive as you grow as your employees also become champions of continued diversity.

• The stakes of inclusion and eliminating prejudice in our system grows greater as technology advances further, specifically with advances in automation and artificial intelligence. Machine learning algorithms could amplify exclusionary effects of systematic bias if left unchecked. For example, Google’s Vision AI was recently proven to produce starkly different results based on race for its automatic image labelling. Over the coming years, as these tools are relied upon more yet also become increasingly more complex through programmed self-improvement, it becomes tougher to identify racist or sexist elements and identify accountable parties. It is important that the organizations that create innovative tools be diverse so as to not inadvertently or intentionally create tools that accelerate systemic bias.

• Entrepreneurship is an important potential means of upward mobility. However, it requires an equal playing field for startup founders to justify the financial and professional risk of leaving current roles to start their own business. Addressing funding disparities is an important part of addressing broader income inequality by enabling black and female founders fair access to entrepreneurialism.

All Innovation Armory publications represent expressly my individual views and the views of those interviewed and do not represent the views of companies with which I have previously been associated or with which am soon to be associated. These publications are my personal opinions and are not meant to be relied upon as a basis for investment decisions.