With the spotlight shining brightly this year on social justice and racial inequity, Black entrepreneurs are having a moment. But will that moment last long enough to transform the venture capital industry, which currently invests in startups with Black founders at a rate of less than 1%?
“I think when it comes to racial equity, the venture industry has been a laggard and not a leader,” said Josh Kopelman, a Wharton graduate who is managing partner at First Round Capital, a seed-stage venture fund. “These issues are important, and they should be acknowledged and discussed, and VCs shouldn’t hide from the conversation. As systemic racism has come into the spotlight, venture firms have all realized they need to do more.”
Kopelman spoke during the Wednesday debut of Beyond Business, a series of discussions streamed live on Wharton’s LinkedIn page that will tackle the complex and pressing issues impacting individuals and organizations across the world. Part of the School’s Tarnopol Dean’s Lecture Series, the first three sessions in the series will focus on how systemic racism impacts business and society as a whole, and ways it can be confronted. Wharton Dean Erika James hosted the first lecture, “Race & The Entrepreneur,” and Karl Ulrich, vice dean of entrepreneurship and innovation, served as moderator. (Watch a video of the discussion above.)
Kopelman was joined on the panel by Chris Bennett, a fellow alumnus and friend who is the Black founder of Wonderschool, a company that helps licensed educators and child care providers launch in-home preschools and day cares. Wonderschool raised a total of $24 million in just two years following its launch in 2016. First Round Capital is an investor, and Kopelman sits on the board of directors.
“I think when it comes to racial equity, the venture industry has been a laggard and not a leader.” –Josh Kopelman
Bennett shared his unique experience of growing up in racially diverse Miami as the son of immigrants from Honduras. He was born into a family of entrepreneurs; his parents started small businesses in Miami, and his uncle is a doctor who opened two hospitals in Honduras.
Bennett started his own entrepreneurial journey with a textbook reselling business while he was a student at Wharton. After graduation, he worked at a private equity firm in Chicago and then moved to Silicon Valley, where he started e-commerce platform Soldsie in 2011. He pivoted his success with Soldsie to found Wonderschool.
Bennett said the conversation around diversity has changed Silicon Valley since he arrived there a decade ago. There is more interest in Black entrepreneurs and in what can be done to help them succeed. In 2011, he started a nonprofit called Black Founders to network with others like him because the experience was so singular.
“I remember it being a sort of radical idea. Why are you self-segregating?” he said. “Now, I think it would be widely accepted, which is sort of exciting. The thinking in the community is starting to change, and that’s largely because of what’s happening across the nation.”
Bias and Privilege
Bias is a big part of why it’s so hard for Black entrepreneurs to get in front of investors. James pointed to research that has shown people are more likely to seek out others who look and sound like themselves and who come from similar backgrounds. For investors, who are overwhelmingly white men, there is a level of comfort with the familiar and a perceived risk with the unknown.
Kopelman agreed and even admitted his own bias when he was approached by a Black female founder looking for seed money for her natural hair business. He thought it was just another salon.
“I was ignorant and too quick to dismiss that which I didn’t know,” he said. “Fortunately, another one of my partners was able to step in and push back and challenge me. The way we make decisions is based on our life stories and our biases.”
He noted that venture capitalists like to think of themselves as the type who embrace contrarians, but they fall victim to “pattern matching” just as much as anybody else. They look for resumes that have elite schools and prestigious internships as a signal of potential entrepreneurial success, when so much more goes into that formula.
“Society raises kids on a conveyor belt of conformity. You have to be a good map-follower to succeed. But when you start a business, no one tells you what to read, when to read it and what makes a successful entrepreneur,” he said.
The best founders aren’t afraid to go off the grid and chart their own path, which is exactly what Bennett did. Kopelman recalled first meeting Bennett when he was fundraising for Soldsie. He was struck by Bennett’s depth of knowledge, calling him a “product-first thinker.”
“It’s really simple. Invest in people of color, hire more people of color, invest in the careers of people of color.” –Chris Bennett
Bennett said he could have stayed the course of most business graduates, but he let his intuition lead the way.
“What’s really interesting about not being a rule follower, at least for me, is it’s actually terrifying,” he said. “You’re seeing people go down the same path, and you’re thinking that doesn’t make sense. But it’s really hard to go off path.”
James and Ulrich prompted the panelists to talk about white privilege from two perspectives: having the safety net that comes with generational wealth and living a life unburdened by discrimination.
Kopelman acknowledged his own privilege, saying he didn’t graduate with student debt and knew that if a company he started failed, his family wouldn’t be in peril. “[Most founders] look like me because, whether consciously or unconsciously, they have a safety net.”
‘Making the Hire’
All first-time founders need guidance, and Black founders are no exception. Bennett said he found mentors that helped him along the way, including Kopelman. He also tapped into the Penn community to network. He encouraged entrepreneurs to surround themselves with other ambitious founders who can share their experiences about everything from pitching to problem-solving.
When it comes to finding the money, there are more investment opportunities open to Black founders than ever before — from angel investors to accelerators to seed funds to multi-stage funds. There are funds now that exclusively target minorities and women. But Kopleman worries that it’s all not enough to keep the momentum going.
“I hope the attention and spotlight that has been shined on systemic racism and inequity doesn’t diminish,” Kopelman said. “I hope we don’t as an industry take our foot off the gas pedal, and it’s hard to sustain that.”
He said firms across all industries need to be “making the hire, sending the wire and building a bigger tent” to create a more inclusive society. Startups need to make sure they are hiring diverse employees from the very start, because it’s more difficult to prioritize that later, he added.
When Ulrich asked Bennett what steps the white business community can take to help minorities, Bennett recalled being asked that same question recently by a white friend he’d known since high school who is now on the partner track.
“I remember thinking, recognize that you have power,” he said. “You can speak up for someone who doesn’t look like you in the leadership team meetings, in hiring, in promotions, in mentoring.”
Kopelman’s prescriptive of making the hire, sending the wire and building a bigger tent is “totally spot on,” he added.
“It’s really simple. Invest in people of color, hire more people of color, invest in the careers of people of color,” he said. “That has a really long-lasting effect and I think will play a big role in changing the narrative that exists in the tech community today.”