Clarence Bethea is unusual among Minnesota entrepreneurs: a black founder who has raised more than $8.5 million for his startup, the warranty app Upsie.
In the wake of George Floyd’s death—another unarmed black man in custody of white police officers—the race conversation has broadened beyond police brutality and injustice into a look at systemic issues that make it difficult for people of color to get ahead, including a dearth of venture capital. African Americans make up 12 percent of the U.S. population but get less than 1 percent of venture capital, according to a study by CB Insights.
“Business ownership is an important path to wealth creation,” said Laura Dunham, associate dean of the Schulze School of Entrepreneurship at the University of St. Thomas Opus College of Business. She referenced a Federal Reserve study that shows median net worth is five times higher in houeholds headed by a self-employed business owner than that of other households. “Entrepreneurship is an important path for anybody and we see far lower rates of business ownership for blacks and latinos than for white people.”
Dunham says that path to becoming a business owner starts with access to capital. “When you come from a community that has been discriminated against, hasn’t had the opportunity to build wealth, it’s almost a self-perpetuating racist cycle. You have to be able to access loans and credit.”
It’s a topic Bethea discussed with Twin Cities Business last year when his founder’s story was featured on the podcast By All Means. “If I was a white guy in Silicon Valley, I’d have a lot more money. The vision is that big,” he said of the $47 billion warranty industry and his first of its kind direct-to-consumer warranty service. “People invest in people who look like them. Venture capitalists are mostly white guys. I definitely don’t look like them.”
None of Minnesota’s most visible venture capital firms are led by people of color. Matchstick Ventures, which has invested in Upsie, recently announced steps it will take to support black founders.
“With this movement literally starting in our own backyard of Minneapolis, we wanted to be leaders and demonstrate for others in venture capital all around the country how they can change for the better,” said Ryan Broshar, co-founder of Matchstick.
“We are committed to broadening and demystifying the closed networks that usually accompany venture capital,” Broshar and his Denver-based partner Natty Zola wrote in a statement on their website. Seven percent of the companies Matchstick has invested in have black founders, which they note, is “seven times the appalling industry average.”
“Our biases and ignorance of the black experience has contributed to this situation,” Broshar and Zola wrote. They are committing to:
Developing five more relationships with networks, organizations and groups who can “help our understanding and increase the prevalence of black founders in our investment pipeline"
Adding a black advisory board member
Helping at least 30 percent of the companies in their current fund add black members to their boards
And they’re giving themselves a deadline: June 1, 2021. “Enough talk,” Broshar said. “We need real action and real change.”
Bethea applauded Matchstick’s efforts and offered three tips to venture capitalists:
Stop expecting black founders to have crazy traction, but when our white founder friends share their pitch decks that you’ve funded, they’re don’t even have a product built.
Stop setting up meetings with us and not showing up. Or even worse, showing up and being unengaged. (Looking at your phone, etc.)
Stop discounting an industry’s total addressable market (TAM) because you don’t understand it. “Well the TAM can’t really be that big because I don’t use it.” This is just being lazy.
Bethea summed up his feelings about venture captial for black entrepreneurs in this recent tweet: “ ‘I’m now going to do open office hours for blk founders.’ Folks, we don’t need your charity. Just give us the same respect & opportunity you give to the white dude launching an app that makes cats smile.”
More about Bethea, and how mentor relationships can help founders in The New Rules of Mentorship.