10 Aug Meet the VC going after the $2.5 trillion market most investors are ignoring by Caroline Fairchild
When Monique Woodard tried to launch startups early on in her career, she took an approach that is unconventional around Silicon Valley. Living in Miami, Florida, at the time, she would just build products that she thought were interesting and work on them until they made money — no outside funding or support needed.
“At the time I didn’t know that there was this whole other place in the United States where they would just give you money to hopefully realize your startup ideas,” she said when we sat down for an interview. “I am the bootstrap queen and really understand how to get entrepreneurs to revenue.”
It’s been about eight years since Woodard left Miami and now she not only understands Silicon Valley fundraising — she is responsible for a part of it. The newest partner to join 500 Startups, Woodard is the head of a $25 million microfund dedicated to supporting Black and Latino entrepreneurs. The share of racial minorities launching startups has risen dramatically from about 23 percent in 1996 to 40 percent in 2015. Yet the amount of capital deployed to founders with diverse backgrounds remains abysmal. By targeting capital at Black and Latino entrepreneurs, Woodard hopes to buck the trend while making a big return in the process.
“Initially, people try and put this in the social good bucket or they say it is a diversity fund,” she said. “It is not. Diversity is certainly a great by-product of investing in companies with Black and Latino founders, but it’s nowhere near the whole nut.”
In an interview, Woodard and I discussed the thesis of her fund, why most investors don’t get it and where she hopes the market for startup funding will be in five years.
Edited excerpts:
Caroline Fairchild: What was Silicon Valley like when you first moved here in 2008?
Monique Woodard: It was around the time of the financial crash, so you were seeing and hearing all these stories about the real estate market and the rest of the world crashing. But you were also seeing that there was an upswing here. People were starting businesses. Uber was starting and Airbnb was starting. But at the same time, I tried to get a job at Uber at the time and couldn’t get a job there. I tried to get a job at a lot of major tech companies and couldn’t get a job. Being a bit of an outsider of Silicon Valley, I didn’t have a network so I had a lack of access to opportunity here.
CF: How would you describe the funding environment now?
MW: Despite the slowdown in funding, you don’t see much doom and gloom from the entrepreneurs. They shouldn’t be concerned about the funding environment. If an entrepreneur comes into a meeting with me and starts talking about the private markets, I am going to be like, ‘Dude, what are we talking about?’ As a founder, you should be concerned about your own business. You should be focused on the best business they can build and controlling the pulleys and levers they can. You can control your customer acquisition and your product, but you can’t control the environment. I want entrepreneurs who can build businesses whether they are in the middle of a crash or a fire. From my perspective, I am out raising a fund now, when you start to dig into the thesis behind the companies that I want to invest in and why, I think it is a differentiated enough from others who are fundraising right now. So I hope that sets me aside a little bit.
CF: What is the investment thesis with your fund?
MW: If you look at the way the U.S. is taking shape, you can see that people of color will be the majority by 2044. There is $2.5 trillion combined spending power between Black and Latino consumers. Black and Latino millennials will be the top of the heap in population size. You also have a population that is going to be skewed younger. The median age of a White person is 42 and the median age of a Black person is 33 and a Latinx person is 27. This is important because of how much more active spending time as a consumer Black and Latinx people will have compared to the majority. This is a group that has never really been spoken to before. There is a lot of blue sky there for entrepreneurs to take on these interesting consumer groups and make products that are really scalable.
CF: How do investors react when you explain that thesis?
MW: People think it’s investing in “products for poor people.” I literally have been asked how I am going to make money off people who have no money. That can be frustrating to make people interested in what the market is about. I am interested in people who understand. Or at least are aware of the booming Latino population and are thinking about ways that demographic change will change the way they are deploying capital. That is the person I want to talk to.
CF: Why are there still so many misconceptions about the market opportunity you are trying to address?
MW: I think on the VC and LP side, a lot of money is being held in the hands of your average older White guy. The likelihood that the older male White guy has friends that are women and friends who are Black and friends who are Latino is highly unlikely. All of their friends are equally White and old and male. They might not see that there is another market out there. Occasionally you get older White investors like Ben Horowitz and Steve Case who understand where the markets are going and where economic activity will be concentrated, but those are few and far between. The lack of access to people who are different than them influences the way that they invest.
CF: So would you say that the shortage of funding going to minority and female founders is a product of unconscious bias?
MW: I don’t know that it is unconscious bias. It is an ignorance of a segment of the market. Let’s be quite honest — investors didn’t have to be understanding of different segments of the market because it has been so lush. There have been so many great deals to be had. If there are Ubers and Airbnbs that you can invest in over and over again, why would you think about these other markets that you already perceive as niche? But, as population and economic activity changes, these people are going to have to start thinking about these markets.
CF: Why do you think we continue to see so few female and racially diverse partners at the big firms?
MW: I think that it is a lack of access to a network. I know really talented Black and Latino tech entrepreneurs, but do they know someone at Sequoia? Probably not. That impacts the types of jobs they are up for and whether or not they would ever be hired as an associate at Sequoia or another firm. It impacts all of those things.
CF: What are the specific market opportunities among the Black and Latino communities that you are most excited about?
MW: There are a lot of opportunities in media. I have started to make a few bets there. Black and Latino consumers over index on consumption of spiritual and inspirational content and they also over index in consumption of video. Those two trends as they merge could create a platform that is really exciting. Within media, you have all these legacy brands. The Huffington Post is now considered a legacy brand. Also older Black print media like Essence and Jet, but you have very few online voices that are taking advantage of technology in an interesting way. I think there is a huge opportunity there to create the next wave of Black digital media.
CF: Any companies that are addressing this trend that you are backing?
I am incredibly excited about Blavity. Blavity was rated by Mattermark as the fastest growing company that presented at Demo Day last week. I have known [co-founder] Morgan DeBaun for three years now since before she started Blavity. I have been excited to see that company develop and grow. [Editor’s note: Blavity co-founder Jonathan Jackson previously worked at LinkedIn.]
CF: Where do you see the market for funding for diverse founders being in five years and where do you see yourself?
MW: Right now we are in a really interesting place. You have this network of funds, all mostly investing at the early stage, and all looking at founders who might not have made it of the offices of the larger firms. I think that now is a really interesting and positive time for entrepreneurs. The challenge is what will happen beyond Series A. That is going to take deeper funds and bigger checks. So five years from now I’d like to be writing much bigger checks. That is where my goal and trajectory will be. At 500 Startups for this fund, we write checks between $150,000 and $250,000 for a first check and up to $500,000 on a second check. Eventually I want to keep moving up the food chain as these founders move so there is capital available for them.
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