Finding (and Funding) America’s Most Promising Entrepreneurs

America must identify and nurture its best and brightest entrepreneurs if it wants to break the bonds of the worst recession since the Great Depression. We need these entrepreneurs to use their ideas and technologies to build companies. These companies and the jobs they create can’t come fast enough.

Entrepreneurial activity has always been vital to our economy. The Ewing Marion Kauffman Foundation determined that over the last 30 years, all net new job growth came from companies less than five years old. Put another way, job growth would have been negative, on average, each year from 1980 through 2005 without the jobs created by startup companies.

Venture capitalists play a critical role in the growth of high potential young companies, providing the money they need to prove their technologies, go to market and ultimately create jobs. But who are the people and firms investing millions of dollars into our country’s most innovative and fastest growing companies?

The National Venture Capital Association’s (NVCA’s) membership includes about 400 firms, ranging from the country’s largest venture capital firms to smaller organizations like the one I work for—JumpStart, a nonprofit venture development organization that invests regionally. The venture capital industry is only a little more than a generation old and literally started as an investment club in the 1960s, made up of a small number of Ivy-educated investment bankers. So the results of this year’s demographic NVCA survey, released last month and showing that, in this small and young industry, the majority of the investors are similar to those first investors, should not be surprising: Caucasian (87%) , male (89%),  and educated at a prestigious school (53% from just ten schools including Harvard, Stanford, and MIT).

And yet, America’s racial and ethnic diversity has changed dramatically over the last 40 years. According to researchers at the Frank Hawkins Kenan Institute of Private Enterprise at the University of North Carolina at Chapel Hill, “It is now estimated that the non-Hispanic white share of the U.S. total population will likely fall below 50 percent by 2050.” That’s down from 75 percent in 1995 and 67 percent in 2005.

“Ideally, we’d like to see a professional base that reflects the entrepreneurs in which we invest, one that is robust and diverse in terms of gender, ethnicity, nationality and age,” said Mark Heeson, president of NVCA. 

But does it matter that our nation’s risk capital investors look different from the rest of us? Demographics of investors generally mirror the demographics of entrepreneurs receiving venture capital investment and perhaps that is one reason why only 10% of investor dollars go into firms founded by African American, Hispanic, and female entrepreneurs. As such, I would think that there are some highly promising firms run by diverse entrepreneurs that are being unintentionally overlooked. If investors don’t share networks with these entrepreneurs, it may be a little more challenging for these entrepreneurs to get noticed and gain trust. While the pool of successful diverse entrepreneurs that go on to become investors will surely grow over time, there are ways we can all broaden our networks now to find the best entrepreneurs (and therefore the best investments) no matter where they live, their ethnicity, or where they went to school.

Located in the Midwest away from the investor-filled coasts, we at JumpStart realize that connectivity to investors can be an issue for some promising companies. We also don’t want gender or ethnicity to further impede progress of our region’s entrepreneurs. So, we’ve made inclusion a focus of our investing and services. And, while our current team is comprised of 58% women and minority professionals, we’re taking many other purposeful actions to diversify our networks. Here are a few things I think anyone can do:

• Attend a meeting of your local chapter of Blacks in Technology, Latinos in Technology and Information Sciences Association, or National Association of Blacks in the Biosciences.
• Start or join a group for women in your area expressly focused on in investing and technology. Or actively invite other women to networking events you attend.  
• 40% of investors are either former CEOs or had worked at a venture-backed company. If you have a role in hiring people or building boards of advisors for VC-backed companies, make sure you actively look for diverse candidates.
• With 49% of investors holding an MBA, be actively inclusive when you recruit at business schools. Make sure the school knows it is your personal priority to have diverse candidates invited to your recruiting and networking activities— and hold them accountable.
• Recruit from different schools than the ones you attended. Develop relationships with other schools to bring new folks into the mix.
• Connect with local groups in your region that prepare African American, Hispanic, or inner-city high school students for careers in entrepreneurship. The Network for Teaching Entrepreneurship (NFTE) is a great one.

Increasing the diversity of our networks—and our investments—is a complex challenge. But committing to diversity is the only way to find and fund the best entrepreneurs in America’s changing demographic mix. And these entrepreneurs are our best hope for putting the U.S. economy firmly on the road to recovery and future growth.