Driving Black Innovation

African Americans have long been under-represented in Silicon Valley and most other tech communities. But thanks to several new programs and fresh attitudes, that’s finally starting to change.

One promising program is the NewMe Accelerator, which recently wrapped up its inaugural nine-week program. A group of mostly black entrepreneurs from eight startups lived and worked in a rented house in Mountain View, Calif., sharing ideas, sharpening their technology and honing their pitch to investors.

Over the nine weeks, NewMe invited various members of the tech universe—including Tristan Walker of Foursquare; Greg Tseng, co-founder and CEO of Tagged; and MC Hammer, the onetime rapper-turned businessman—to visit the house and mentor the startups. It also hosted a formal pitch day with dozens of investors in attendance.

The whole idea behind NewMe is to act as entry point for black entrepreneurs into the Silicon Valley ecosystem, says NewMe founder Angela Benton.

“Black entrepreneurs feel disconnected from Silicon Valley and that has hindered their ability to grow and to even gain mentorship,” Benton says. “Another big impediment is that minority founders don’t even have access to that first round from friends and family to get off the ground.”

Although there is no venture fund currently attached to the NewMe Accelerator, Benton says such a vehicle is in the works. NewMe is currently in talks with supporters to create a “pre-seed” fund that can invest anywhere from $25,000 to $50,000 in participating startups.

Another program hoping to bridge the funding gap between black entrepreneurs and investors is the Black Innovation and Competitiveness Initiative (BICI). Its mission is to create new opportunities by encouraging more investment in black innovators.

To that end, BICI holds a number of annual events, including the upcoming Black Angels and Entrepreneurship Forum to be held in partnership with Rutgers Business Schools’ Center for Entrepreneurship and Economic Development. Investors nationwide will address the lack of black capital as well as what can be done to establish a high-tech entrepreneurial ecosystem for the African-American community.

“The basic problem is that black entrepreneurs aren’t finding opportunities to access capital in order to create high growth companies,” says Mike Green, one of three co-founding members of BICI. There are hundreds of VC and angel groups across the country, he notes, but only a smattering of those investors are black.

Black entrepreneurs feel disconnected from Silicon Valley and that has hindered their ability to grow and to even gain mentorship.”

Angela BentonFounderNewMe Accelerator

“That is why we need more black investors involved in risk capital. We need to invest in ourselves,” Green says. “We need to bring black capital to the table as high net-worth individuals and address the dearth of black angels and black VCs. That’s the way to ensure there is sufficient capital for black entrepreneurs.”

One new fund starting to make that happen is the 1-year-old Detroit Venture Partners (DVP). Though the fund was founded by three rich Jewish guys—including Dan Gilbert, majority owner of the NBA’s Cleveland Cavaliers—the idea is to fund digital technology businesses that are based in Detroit and that can bring jobs back to the ravaged city.

The firm recently added NBA legend Ervin “Magic” Johnson as a partner. Johnson, who has a track record of financially revitalizing blighted African-American neighborhoods, will invest his own money into deals, as will the other three partners.

“We saw an opportunity here in Detroit to rebuild our troubled region through high-tech entrepreneurship,” says Josh Linkner, DVP partner. “If we can help early stage companies scale dramatically, then we could really make an impact on our region and our city.”

He adds that there is no minority aspect to their funding requirements. Of the firm’s first six investments, none are led by a black CEO. But that, says Linkner, is almost certain to change. What’s more, Detroit has such a large African American population, any company funded by DVP will inevitably be creating jobs in the Black community.

“Without a fund like ours, it would be very hard for promising companies to stay in Detroit,” Linkner says. “They would either raise no money at all, or they would get capital and then leave our state. That keeps happening again and again.”

DVP’s core mission is to reverse this phenomenon by investing up to $3 million each in 12 to 15 local tech startups per year. And adding Magic Johnson to the investment team “serves as a beacon of hope and inspiration for the entire Detroit community,” Linkner says.

Despite the recent advances, the deck is still clearly stacked against the black tech community. In 2010, research firm CB Insights surveyed 165 venture-backed early stage Internet companies, finding that just 1% of the CEOs were black, while 83% were white.

Moreover, according to the Census Bureau, of the 1.9 million black-owned businesses in American, fully 1.8 million are sole proprietorships, meaning that they don’t employ anyone other than the owner.

I see more people of color in engineering roles at companies like Google. It is only a matter of time before they get the itch to do their own things.

Charles HudsonVenture PartnerSofTech VC

As for the number of black VCs, “we are probably one-tenth of 1% of the venture population,” says Stephen DeBerry, a partner at Kapor Capital, an advisor to NewMe Accelerator, and one of the few African Americans in the venture industry.

What these numbers really suggest is that there is no real infrastructure to support black entrepreneurs and black investors. Much of the venture business is about pattern matching. Did you go to the right school, did you work for the right startup, do you know the right people?

“It’s a question of access, and in this respect the odds are against most black entrepreneurs,” DeBerry says.

Just ask Chad Womak, a founding member of BICI. When he tried to raise money for his first venture, the biotech company NanoVec Inc., he says he felt like investors treated him as though he was from another planet.

“I was in a room with angels and VCs and it was like I had landed in a Martian spacecraft when I said I was launching a biotech company,” he recalls. “The problem is that I just didn’t look like anyone they had funded in the past. There was no pattern matching. I did not have anyone in the African-American community I could go to for funding. That’s what’s missing in the black community today.”

DeBerry, for his part, doesn’t believe there is necessarily more hostility towards blacks in the venture world than elsewhere in society. But he doesn’t think there’s a particular awareness either. And that bothers him.

“We are hitting the moment in this country where regardless of race or gender or background, we really need all hands on deck in terms of innovation to solve the most intractable problems that face this country,” he says. “We need everyone. And it’s less a matter of race or race politics and more a matter of really optimizing our chances of having a really enjoyable life going forward. We need to open our eyes to everyone, not just the usual suspects.”

The traditional knock against black entrepreneurs, at least in tech circles, it that they tend to lean toward opportunities in retail or consumer goods over those in technology or the Internet. But, Garren Givens, founder of social shopping startup Dibsie.com, says that this is a misconception.

Blacks as a group are consuming technology and innovation in proportionate numbers to the rest of the population, he argues. For example, a report by Edison Research found that black people represent 24% of Twitter’s users, which means they are active on the service considering they make up only 11% of the U.S. population.

It’s a question of access, and in this respect the odds are against most black entrepreneurs.”

Stephen DeBerryPartnerKapor Capital

“The key issue for VCs is one of balance,” Givens says. “It’s not just a matter of having balance in the verticals represented in their portfolios, but also balance in terms of gender and ethnicity, simply because there might be different perspectives to help create better return for their portfolios. Investors might actually improve returns by casting a wider net.”

So are VCs actually missing some great companies based on their narrow range of experience and their penchant to follow the patterns that have proven successful in the past—patterns that have not typically included black entrepreneurs?

Absolutely, DeBerry says. He cites one startup in the NewMe program called Pencil You In as a perfect example.

“Pencil You In is a scheduling platform for salons, but if you don’t understand the role of barbershops and salons in the black community, you just won’t get that market opportunity,” he says. “There are no IDC reports on that industry.”

Charles Hudson, a venture partner at SoftTech VC, says programs like NewMe are part of larger set of events that are opening access to a career in tech entrepreneurship for people of color. He believes it is inevitable that talented African Americans will flood into the tech industry, just as they previously did in the legal and medical fields.

Though he himself is a black investor, he does not see a lot of black entrepreneurs knocking on his door. No yet, anyway.

“I look across the tech landscape and I see more people of color in engineering roles at companies like Google,” he says. “It is only a matter of time before they get the itch to do their own things, so I think the precursors are in place.”

DeBerry has his own selfish reasons for making the venture industry more open and diverse. “Our events will probably have better music and tastier food if we get this right,” he chuckles.

Tom Stein is a Palo Alto, Calif.-based contributor. He can be reached at tom.stein@yahoo.com.