When in 2018, Kimmy Paluch and her husband Sergio Paluch sold their house in California to move to Utah to start an early-stage venture fund focused on diverse founders, their friends and peers thought they were crazy.
“Not only did we want to be the first check for founders between the coasts, but we also wanted to serve as a bridge to coastal investors and operational expertise,” Kimmy said.
Despite the rapid tech growth happening in Salt Lake City in 2018, the theme there was the same as in Silicon Valley: diverse and female founders were left behind in tech when it came to raising funding, forming partnerships and finding mentorship. The couple saw an opportunity for their venture fund idea to help boost female-founded and minority-led start-ups by bridging the gaps that these founders often face.
A $4.4trn market
Later that year, Morgan Stanley published a report on a $4.4 trillion annual opportunity that the overlooked founders could represent in the US. And that’s not to mention the social benefit that comes with their wealth creation and the tech innovations they launch.
However, not all LPs are receptive to this data. “We’re approaching our first closing soon, and what we’ve learned is that the LPs’ reactions are very polarized,” Kimmy said. “Many institutional investors can’t imagine that this projection may become a reality.”
She added, however, that institutional investors have become more open to listening to underrepresented fund managers and entrepreneurs.
“2020 was a year of awakening for many of them,” she said. “They may not be ready to act yet, but I hope that it won’t take them too long to put their money where their mouth is.”
The Paluchs wouldn’t discuss details, but the fund is targeting $15 million and is rapidly approaching the first $5-million closing. Kimmy confirmed that institutional investors are reluctant to consider the small funds of first-time managers.
“Of course, it’s easier for us to work with wealthy individuals,” she said. “Not only because their investment threshold is lower, but also because many of them were or still are entrepreneurs themselves and they understand the struggles that underrepresented founders face.”
As a pre-seed investor, the main value aside from the first check that Beta Boom brings to the table is high-touch support to help early-stage teams execute successfully and cross the Valley of Death – that early period in a start-up’s life when it is not earning revenue.
It’s a difficult transition for start-up companies to emerge from the seed stage to become a Series A company. It’s an even harder task for female founders and people of color. This de-risking strategy is the foundation of the Beta Boom’s investment thesis.
Beta Boom is focusing on investing $150,000 to $200,000 in SaaS, healthtech, fintech and consumer software companies in Salt Lake City, Chicago, Los Angeles and New York.
The firm name originated from the idea of helping start-ups from their initial stages to the growth stage that epitomizes top companies and unicorns. The name blends two common tech business terms: “beta,” which refers to the early version of a product prior to the final release, and “boom,” the rapid growth of a break-out enterprise, industry or economy.
Their path to VC
With a bachelor’s degree in computer science, Kimmy started her career in user experience design. She said she tried to work with Bay Area software companies, but found out that being the only black woman in a tech company is challenging. “I didn’t want to admit that in the beginning,” she said.
Nevertheless, she threw herself into tech and expanded her expertise. She then launched her own innovation consulting firm, Boom Factor, to help start-ups and corporations build products. After earning an MBA at MIT, she added strategic consulting to the mix to help her clients grow beyond just the product line.
Over time, more companies she worked with became venture-backed. She then noticed that too few of them had women or people of color on founding teams. That was the time when people started talking about the lack of diversity in Silicon Valley.
“I felt that I would like to be a part of the change that everyone had started talking about,” she said. “When I stumbled upon an opportunity to become a fellow at a VC firm, I realized that the old venture model wasn’t meeting the needs of diverse founders failing to fully unlock their potential. I knew that I could do it better with a more hands-on approach, just as I had done throughout my career.”
She had launched the consulting firm Boom Factor together with Sergio, with whom she studied at Dartmouth College. An immigrant from Poland, Sergio said he knows first hand how to achieve more with less. Aside from physics, he also studied development economics – the study of low-income groups and countries – which made him a firm believer in the power of diverse people, women and immigrants.
The Paluchs were business partners at Boom Factor first before they got married. When LPs perform Beta Boom’s team due diligence, the Paluchs check all the boxes. “Limited partners are looking for a team that has a history together,” Sergio said. “We’ve proven that we have had strong business partnership as well as life partnership close to 20 years.”
Interestingly, start-ups founded by couples usually get a cold reception in the venture community, which she says shouldn’t be the case. This makes couples another group of overlooked founders.
Their proof-of-concept portfolio consists of 10 companies. The most notable among their first investments is Fiveable, which has grown to be a leading social learning platform. Founded by Amanda DoAmaral, a former Teach for America teacher, Fiveable helped more than 3 million high school students prepare for Advanced Placement (AP) exams last year. Each year 4 million students in the US take the APs.
Fiveable has raised $3.4 million in seed investment from BBG Ventures, SoGal Ventures, Matchstick Ventures and Metrodora Ventures (Chelsea Clinton’s fund).
The Paluchs say that they are proactively looking for diverse entrepreneurs and they don’t rely on the possibility that they will knock on their door. Instead, they chose an outbound approach to reach them.
“Diverse founders have been disenfranchised for a long time, so today, we have to make an effort to attract them,” said Sergio. “It would require investors to work in the field more, but that’s the only right way to get those diverse founders they claim to be looking for in the pipeline.”