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Why venture capital can be a trap for entrepreneurs | Nathalie Molina Niño | Big Think - YouTube
Channel: Big Think
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So women entrepreneurs currently are getting
about 2.5 percent of all venture capital.
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It’s not the only source of funding, but
it’s a really great indicator on how we
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fare in the space.
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And that’s a fairly commonly understood
statistic.
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But the statistic that I like to feature—which
is the one that nobody ever talks about—is
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what percentage of funding is actually going
to Women of color, and that’s a much more
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dismal number.
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That’s actually—depending on what city
you look at it’s between 0.1 percent or
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0.2 percent, which is to say that women of
color and companies founded by women of color
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aren’t really even statistically relevant
as well.
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The fact that women of color and companies
founded by women of color don’t really even
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play in the space is particularly jarring
if you think about the fact that most companies
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in this country are actually founded by women
of color.
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So it’s bad that we’re not getting funding,
but it’s particularly bad given that we
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seem to be the source of innovation and probably
the most entrepreneurial community of all.
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So venture capital is I often call it like
the house flipping version of investments,
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right.
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Like house flipping shows, it has become the
most popular and the most visible and the
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most sort of prolific version of investing
that’s out there, or even of capital sources.
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But there’s way more to the world of investing
and securing capital than just venture capital,
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right?
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There’s long view investments, there’s
debt, there’s crowdfunding.
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There are many different options when it comes
to getting funding, but the one that dominates
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the headlines is venture capital.
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You get to be on the cover of things when
you’ve secured a big series A.
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You don’t really get a whole lot of press
when you secure a line of credit or a loan;
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it’s just not perceived as sexy.
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And yet companies need debt in order to be
successful.
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Companies that are women-led tend to be more
successful at getting crowdfunding dollars
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than they are at getting venture capital dollars.
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So in these areas, funding that don’t get
a lot of publicity are actually really critical
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because they are doing a better job of servicing
women who own businesses.
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And so the thing that I always tell founders
is that VC might be for you, it might not
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be.
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But let’s not romanticize what it is and
how it works.
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Please do not take venture capital from any
investor, no matter what terms they’re giving
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you, unless you’re willing to be fired from
your own company—which is what happens to
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a lot of people who end up taking venture
capital.
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The bottom line for me is that there are many
different sources of capital.
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It’s not a one size fits all regime, and
we get fed one single product.
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And the reality is is a smart founder has
to look around to see what their other options
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are.
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And I would say that this is not just a “nice
to have,” this is a critical, critical thing.
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And part of the reason that I worry about
that, there’s a hack in my book that comes
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from an amazing investor called Don Rayvon,
and he talks in the book about how he knows
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“how this movie is going to end,” which
is this idea that we don’t have enough women
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and people of color getting debt, for example.
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And what I’m worried about, and what he’s
worried about, is that in ten years we’re
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going to look back at the statistics and we’re
going to see that we had too many women and
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people of color accepting—blindly—horrible
terms and horrible venture capital packages.
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And in ten years when we look back what’s
that going to produce?
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It’s going to produce a whole series and
maybe even a whole generation of entrepreneurs
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that were disproportionately more likely to
fail.
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And I worry that in ten years when we look
back at a statistic like that, people aren’t
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going to blame an unbalanced capital stack.
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They’re not going to blame the fact that
people should have taken debt and they didn’t.
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They’re going to look at stats that simply
say that women and people of color fail at
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a greater rate than anyone else.
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And I want that not to be the end of our movie.
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Some of my favorite alternatives in terms
of getting funding are things like loans,
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are things like lines of credit.
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But there are some that are even less [negatively]
impactful to your business.
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They’re a little more work, but the country
is now speckled—all the country, I can’t
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think of a state that doesn’t have competitions,
that doesn’t have pitch events where you
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can go spend a little bit of time and energy
and get money for your company—especially
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in those early days—because you tell a good
story, because you have a great idea and especially
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money that doesn’t actually have to require
that you give away equity in your company.
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Another one of my favorite sources of funding
is crowdfunding.
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And there are a couple of different kinds,
right?
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There’s crowdfunding where you give people
T-shirts or you presell whatever product you’re
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trying to manufacture.
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In that case you’re not giving up any equity.
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You’re giving people good will, you’re
giving people product, you’re giving people
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a sneak preview into what you’re working
on, and in exchange you’re getting meaningful
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capital.
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Women tend to be disproportionately more successful
at crowdfunding campaigns.
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There are different studies that say why that
might be, and I suspect that it’s because
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their social networks are strong, and I also
suspect it’s because we’re shut out of
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other forms of capital.
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But there’s also equity crowdfunding where
you are actually giving a piece of your company
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away much like you’re doing with venture
capital.
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But in the equity crowdfunding space the terms
tend to be better, so you’re not giving
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away as much and you’re not giving away
nearly as much control.
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