Wednesday, November 12, 2014

Risk and Race: A Modest Proposal To Encourage Investing In Minority Entrepreneurs

Fast Company put out a fantastic package of stories covering the role of race in Silicon Valley.  The centerpiece is a deservedly glowing profile of Tristan Walker, but my favorite was an interview with a group of African American startup folks titled "An Honest Discussion of Race in Silicon Valley."

One thing that I failed to appreciate before, and that this story made clear, is the interaction of risk and race:
In many African-American households—since we don't descend from centuries of wealth in this country—parents want their kids to be a lawyer or a doctor, or go to Wall Street to make a lot of money so they can come back and take care of the family. Is the African-American community too cautious for tech and its "fail fast" mantra?

Erwin: Black folks like me have to take care of family members at home, so jumping into a startup is very risky when you can make it either on Wall Street or do something more stable in finance. If my company fails, the people who are counting on me also fail.

T. Gauda: You have to have a very high risk tolerance, and we are traditionally risk averse. As it is, just being who we are is extremely risky.
The two key points are that a) simply being African American increases the level of risk in your life.  Logically, the principle of risk compensation would call for African Americans to take on less personal risk.  Layer in the socioeconomic effects of historical discrimination, and the magnitude of the effect would grow further.  B) Coming from a less-advantaged background, a potential African American entrepreneur might feel compelled to "play it safe," so that he or she would be in a better position to help the rest of the community.  The cost of failure is far higher for such an entrepreneur than for a wealthy Caucasian male.

Given these headwinds, it is all the more important that we encourage the minority entrepreneurs who take on these increased risks.

Another key passage tackles the issue of networks:
"I hear about bootstrapped rounds and angel rounds and friends-and-family rounds, and I just think to myself, Man! There are people who just know and are related to folks who can write $50,000 checks all around them! It's in their ecosystem."
As an investor, I take the stance that an entrepreneur ought to be able to be able to bring a product to market before raising money from professional investors, either by bootstrapping, or by raising a friends and family round.

But I'm guilty of unconscious bias in that filter--how can an entrepreneur bootstrap a company or raise money from friends and family if she comes from poverty and doesn't have any friends and family who can write a $50,000 check?

That being said, investing in pre-product startups tends to be a bad bet; I'd be hard-pressed to make money with that investment strategy.

Encouraging Investing In Minority Entrepreneurs: "Greed Is Good."

I believe the answer is to set up some kind of matching fund to encourage investing in underserved minority entrepreneurs; if my check were doubled or tripled by a foundation (and I got the equivalent equity to compensate for the increased risk), the financial incentives would encourage, rather than discourage investing in those entrepreneurs.  Investors would see investing in minority entrepreneurs as *less* risky, and minority entrepreneurs would see starting companies as *less* risky.

When it comes to getting people to change, I always bet on appealing to their sense of self-interest, not their sense of responsibility.  And the idea of using risk manipulation to solve a problem that's created by risk has a certain ironic appeal!

Now we just need someone to reach out to the appropriate funders to create this program....

Monday, November 10, 2014

What Entrepreneurs and Leaders Can Learn From Happy Marriages

As a happily married man, I can confirm what the latest research indicates: The secret to a happy marriage is kindness and generosity.

When I was a kid, I was mystified by altruism; I couldn't understand why my parents would always let me have the best share.  At the time, I just figured that they were suckers, and that I ought to take advantage of the situation (sorry, Mom and Dad!).  As far as I was concerned, they were "support staff," there to cater to my needs.

Needless to say, I was kind of a self-centered kid!

Today, while I'm still a self-centered something or other, I always try to be kind and generous to my wife and kids.  The key is consistency:
Couples who had divorced after a six-year follow up had “turn-toward bids” 33 percent of the time. Only three in ten of their bids for emotional connection were met with intimacy. The couples who were still together after six years had “turn-toward bids” 87 percent of the time. Nine times out of ten, they were meeting their partner’s emotional needs.

By observing these types of interactions, Gottman can predict with up to 94 percent certainty whether couples—straight or gay, rich or poor, childless or not—will be broken up, together and unhappy, or together and happy several years later. Much of it comes down to the spirit couples bring to the relationship. Do they bring kindness and generosity; or contempt, criticism, and hostility?

“There’s a habit of mind that the masters have,” Gottman explained in an interview, “which is this: they are scanning social environment for things they can appreciate and say thank you for. They are building this culture of respect and appreciation very purposefully. Disasters are scanning the social environment for partners’ mistakes.”
Any factor that has 94% predictive power is one hell of a lever.  So why limit it to marriages?

Barbara Fredrickson's work on the positivity ratio shows that the same effect can be found in the workplace.  Unless positive interactions outnumber negative ones by at least 3:1, the culture withers and dies.

Here in Silicon Valley, we focus an awful lot on hiring smart people and adopting fancy management practices like agile development.  I don't hear that much about being nice to each other.  Sometimes, it's almost as if being nice is considered a negative, because it prevents "honesty."

If you want your company to last like a successful marriage, ask yourself if your people bring kindness and generosity or contempt, criticism, and hostility.  If the answer is the latter, it's time to make a change.