3 Reasons Why the Next Unicorn Startup is Poised to be an Underfunded Founder Ignored by Venture Capital
- April 5, 2021
- Posted by: Kirsten Campbell
- Category: Blog
The summer of 2020 was marked by racial justice protests that galvanized many across the globe. It’s been nearly a year since corporations across the country pledged to change the ratio and invest in the overwhelming amount of non-white talent chomping at the bit for their turn at the American Dream.
However, tangible change in the finance and startup ecosystem has been lacklustre. Given how crowdfunding has been picking up the pandemic funding slack, it’s doubtful that the next monster startup will emerge from the venture capital industry. Here’s why.
They’re already over-mentored
When underrepresented founders are seeking startup money, they get thrust into mentorship and training programs instead. This is egregious because it implies and reinforces that these founders aren’t ready for primetime compared to their peers, which is totally incorrect. Given their position outside the margins, their ideas are fully fleshed out and they can hit the ground running to meet forecasted targets. VCs commonly spout how they are searching for proven traction; yet seem so willing to ‘take a chance’ on unproven founders who attended the same schools or run in the same insular circles. This is unfortunate as there are many very capable founders who simply aren’t on the receiving end of that small homogenous network who tend to invest tens of millions, primarily on those entrepreneurs who remind the investors of themselves.
Underfunded founders don’t need a $100M “education hub” from Apple—they need sweet, sweet startup money. Preferably with fewer strings attached. The sooner underfunded founders can access folding money, the sooner their ideas can reach a broader market and begin raking in profit. Give them a big bag of money, watch them soar.
The homogeneity in VC obscures reality
The data repeatedly confirms that diversity supercharges innovation and the bottom line. The needle has yet to be moved however, considering venture firms clock in at about 90% white and only 1% of funding goes to Black-founded startups, which demonstrates a chasm that must be addressed.
It’s common for investors at venture capital firms to consult their wives about investment ideas geared towards women because they typically lack the depth of awareness to know that they definitely aren’t the average consumers. This again demonstrates the lack of representation across every level when it comes to strategically funding startup ideas. This setup isn’t conducive to the future of post-pandemic business, because the lack of cultural understanding of those embodying the status quo means that their perception of the market is skewed. How can they be trusted to adequately grasp product-market fit when major markets remain invisible to them? They can’t, so they won’t. And huge markets continue to go untapped (until Rihanna swoops in).
They’re leading sustainable companies with huge upsides
It took lynda.com 17 years to secure its first round of VC funding, Mailchimp struggled and had to bootstrap the early years and the investors who took a chance on Shopify are still kicking themselves for not going harder. It’s easy to dismiss these examples as ‘shoulda, coulda, woulda’ but in reality, these investments were lucrative but the pros couldn’t see it. The founders behind these companies were sitting on goldmines, but the folks whose jobs it is to spot them repeatedly, just didn’t. As in, most of the time it seems. They have proven themselves insufficient cultural gatekeepers to determine who should get a chance to bat for unicorn status.
It’s great to see Apple open its wallet (while sitting on a $200B cash reserve), but this money is a drop in the bucket compared to the staggering amount injected into startups from giants like Softbank’s Vision Fund and the like. Considering they’re losing money hand over fist, it’s more proof they—along with the rest of the VC ecosystem—have no idea what they’re doing. They just need to open their eyes and fund the ginormous potential right in front of them. *hint: go check out the newly anointed crowdfunding ecosystem, now ready to catapult founders over the valley of death.
The future is now
Underfunded founders don’t have the luxury of failure or the benefit of the doubt. As such, their companies tend to address pertinent issues for sizable markets that were ‘invisible’ until they weren’t. They need more than just the run-of-the-mill mentorship or training. These founders need adequate funding. And this funding shouldn’t be pulled from separate ‘diversity funds’—which in itself is BS! Funding should be from the same giant bag of money every other founder gets their check from.
Entrepreneurs who can’t secure venture capital investment are particularly able to produce outsized results for their investors because they’re sitting on licenses to print money. That’s why venture capital investors will undoubtedly let the next unicorn founder slip through their fingers—while (ironically) in desperate pursuit of the next unicorn. Oof. They can’t see beyond their monoculture and will let the next major unicorn fly on by.
Too bad for them, but that’s great news for the crowdfunding ecosystem that’s ready to rocket into the stratosphere and haul entrepreneurs over the valley of death. Underfunded entrepreneurs deserve more than 5% of the cash Apple has kicking around on any given day. Cheers to them getting it as the post-pandemic economy takes shape.