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Why venture capital can be a trap for entrepreneurs
Venture capitalists do not invest in female and minority entrepreneurs in any significant way. Nathalie Molina Niño explains several viable fundraising alternatives that won't require founders to give up control of their companies.
Nathalie Molina Niño is the CEO of BRAVA Investments and the author of LEAPFROG, The New Revolution for Women Entrepreneurs (Tarcher Perigee, a Penguin Random House imprint). She is committed to delivering returns to investors while making a catalytic impact on women in the world. A technologist and coder by training, Nathalie is a consummate entrepreneur, and a storyteller at heart.
Prior to launching BRAVA, Nathalie led the launch of SELF MADE, the company, mobile app, learning platform and NY Times Best Selling book by Telemundo's former Entertainment president, Nely Galan. In 2015, Nathalie stepped in as interim Chief Revenue Officer of PowerToFly, a startup aimed at closing the gender gap in tech. And in 2012, while at Columbia University, Molina Niño co-founded Entrepreneurs@Athena at the Athena Center for Leadership studies of Barnard College, with the mission of leveling the playing field for women entrepreneurs. Nathalie launched her first tech startup at the age of 20.
Prior to Athena, Molina Niño was involved in launching and growing a multinational business with Lionbridge (NASDAQ: LIOX) into a $100M operation in 30+ countries. At Lionbridge she helped lead the growth of its largest business from approx $5M in 2003 to nearly $100M in 2009, including the inception of the strategic relationship with Microsoft Bing.
Molina Niño has advised industry leaders in both the for- and non-profit sector ranging from multinationals (Disney, Microsoft, MTV, The Discovery Channel, Mattel), early stage startups (Cranium, Onvia) and non-profits (Bill & Melinda Gates Foundation, World Affairs Council, Seattle International Film Festival, Athena). She writes and is quoted widely in the media, from best-selling books like Tim Ferriss' 4-Hour Workweek to diverse media outlets ranging from Bitch Magazine to Forbes, Time Inc and CNN Money.
As New York City & State's Corporate Social Responsibility Honoree, Nathalie has been recognized for her exceptional leadership in educating women founders. Keith Ferrazzi called her a “super-connector" in his updated best-selling classic, Never Eat Alone
Nathalie Molina Nino: So women entrepreneurs currently are getting about 2.5 percent of all venture capital. It’s not the only source of funding, but it’s a really great indicator on how we fare in the space. And that’s a fairly commonly understood statistic.
But the statistic that I like to feature—which is the one that nobody ever talks about—is what percentage of funding is actually going to Women of color, and that’s a much more dismal number. That’s actually—depending on what city you look at it’s between 0.1 percent or 0.2 percent, which is to say that women of color and companies founded by women of color aren’t really even statistically relevant as well.
The fact that women of color and companies founded by women of color don’t really even play in the space is particularly jarring if you think about the fact that most companies in this country are actually founded by women of color. So it’s bad that we’re not getting funding, but it’s particularly bad given that we seem to be the source of innovation and probably the most entrepreneurial community of all.
So venture capital is I often call it like the house flipping version of investments, right. Like house flipping shows, it has become the most popular and the most visible and the most sort of prolific version of investing that’s out there, or even of capital sources. But there’s way more to the world of investing and securing capital than just venture capital, right?
There’s long view investments, there’s debt, there’s crowdfunding. There are many different options when it comes to getting funding, but the one that dominates the headlines is venture capital. You get to be on the cover of things when you’ve secured a big series A. You don’t really get a whole lot of press when you secure a line of credit or a loan; it’s just not perceived as sexy.
And yet companies need debt in order to be successful. Companies that are women-led tend to be more successful at getting crowdfunding dollars than they are at getting venture capital dollars.
So in these areas, funding that don’t get a lot of publicity are actually really critical because they are doing a better job of servicing women who own businesses.
And so the thing that I always tell founders is that VC might be for you, it might not be. But let’s not romanticize what it is and how it works. Please do not take venture capital from any investor, no matter what terms they’re giving you, unless you’re willing to be fired from your own company—which is what happens to a lot of people who end up taking venture capital.
The bottom line for me is that there are many different sources of capital. It’s not a one size fits all regime, and we get fed one single product.
And the reality is is a smart founder has to look around to see what their other options are. And I would say that this is not just a “nice to have,” this is a critical, critical thing.
And part of the reason that I worry about that, there’s a hack in my book that comes from an amazing investor called Don Rayvon, and he talks in the book about how he knows “how this movie is going to end,” which is this idea that we don’t have enough women and people of color getting debt, for example. And what I’m worried about, and what he’s worried about, is that in ten years we’re going to look back at the statistics and we’re going to see that we had too many women and people of color accepting—blindly—horrible terms and horrible venture capital packages. And in ten years when we look back what’s that going to produce? It’s going to produce a whole series and maybe even a whole generation of entrepreneurs that were disproportionately more likely to fail.
And I worry that in ten years when we look back at a statistic like that, people aren’t going to blame an unbalanced capital stack. They’re not going to blame the fact that people should have taken debt and they didn’t.
They’re going to look at stats that simply say that women and people of color fail at a greater rate than anyone else. And I want that not to be the end of our movie.
Some of my favorite alternatives in terms of getting funding are things like loans, are things like lines of credit. But there are some that are even less [negatively] impactful to your business.
They’re a little more work, but the country is now speckled—all the country, I can’t think of a state that doesn’t have competitions, that doesn’t have pitch events where you can go spend a little bit of time and energy and get money for your company—especially in those early days—because you tell a good story, because you have a great idea and especially money that doesn’t actually have to require that you give away equity in your company.
Another one of my favorite sources of funding is crowdfunding. And there are a couple of different kinds, right?
There’s crowdfunding where you give people T-shirts or you presell whatever product you’re trying to manufacture. In that case you’re not giving up any equity. You’re giving people good will, you’re giving people product, you’re giving people a sneak preview into what you’re working on, and in exchange you’re getting meaningful capital.
Women tend to be disproportionately more successful at crowdfunding campaigns. There are different studies that say why that might be, and I suspect that it’s because their social networks are strong, and I also suspect it’s because we’re shut out of other forms of capital.
But there’s also equity crowdfunding where you are actually giving a piece of your company away much like you’re doing with venture capital. But in the equity crowdfunding space the terms tend to be better, so you’re not giving away as much and you’re not giving away nearly as much control.
Venture capitalism is glamorous. But is it smart? Securing a huge series A investment round can get founders on the covers of magazines, but VC can take as much as it gives. CEO of Brava Investments Nathalie Molina Niño offers a straightforward piece of advice to all entrepreneurs: "Do not take venture capital from any investor, no matter what terms they’re giving you, unless you’re willing to be fired from your own company," she says. For female and minority entrepreneurs, this advice is even more important—yet so much harder to follow once you know the stats. Female-founded companies currently get just 2.5% of all venture capital. For women of color, that number drops down to 0.2%. If this underfunded (and potentially desperate) group accepts poor venture capital packages with horrible terms, it can only end in disaster, Molina Niño warns. "It’s going to produce a whole series and maybe even a whole generation of entrepreneurs that were disproportionately more likely to fail... They’re going to look at stats that simply say that women and people of color fail at a greater rate than anyone else." While venture capital is the most romanticized type of investment, Molina Niño outlines several fundraising alternatives that let founders stay in control of their companies. This is the advice every entrepreneur, regardless of demographics, needs to hear. Nathalie Molina Niño is the author of Leapfrog: The New Revolution for Women Entrepreneurs
Higher education faces challenges that are unlike any other industry. What path will ASU, and universities like ASU, take in a post-COVID world?
- Everywhere you turn, the idea that coronavirus has brought on a "new normal" is present and true. But for higher education, COVID-19 exposes a long list of pernicious old problems more than it presents new problems.
- It was widely known, yet ignored, that digital instruction must be embraced. When combined with traditional, in-person teaching, it can enhance student learning outcomes at scale.
- COVID-19 has forced institutions to understand that far too many higher education outcomes are determined by a student's family income, and in the context of COVID-19 this means that lower-income students, first-generation students and students of color will be disproportionately afflicted.
What conditions of the new normal were already appreciated widely?<p>First, we understand that higher education is unique among industries. Some industries are governed by markets. Others are run by governments. Most operate under the influence of both markets and governments. And then there's higher education. Higher education as an "industry" involves public, private, and for-profit universities operating at small, medium, large, and now massive scales. Some higher education industry actors are intense specialists; others are adept generalists. Some are fantastically wealthy; others are tragically poor. Some are embedded in large cities; others are carefully situated near farms and frontiers.</p> <p>These differences demonstrate just some of the complexities that shape higher education. Still, we understand that change in the industry is underway, and we must be active in directing it. Yet because of higher education's unique (and sometimes vexing) operational and structural conditions, many of the lessons from change management and the science of industrial transformation are only applicable in limited or highly modified ways. For evidence of this, one can look at various perspectives, including those that we have offered, on such topics as <a href="https://www.insidehighered.com/digital-learning/blogs/rethinking-higher-education/lessons-disruption" target="_blank">disruption</a>, <a href="https://www.nytimes.com/2020/02/20/education/learning/education-technology.html" target="_blank">technology management</a>, and so-called "<a href="https://www.insidehighered.com/sites/default/server_files/media/Excerpt_IHESpecialReport_Growing-Role-of-Mergers-in-Higher-Ed.pdf" target="_blank">mergers and acquisitions</a>" in higher education. In each of these spaces, the "market forces" and "market rules" for higher education are different than they are in business, or even in government. This has always been the case and it is made more obvious by COVID-19.</p> <p>Second, with so much excitement about innovation in higher education, we sometimes lose sight of the fact that students are—and should remain—the core cause for innovation. Higher education's capacity to absorb new ideas is strong. But the ideas that endure are those designed to benefit students, and therefore society. This is important to remember because not all innovations are designed with students in mind. The recent history of innovation in higher education includes several cautionary tales of what can happen when institutional interests—or worse, <a href="https://www.insidehighered.com/news/2016/02/09/apollos-new-owners-seek-fresh-start-beleaguered-company" target="_blank">shareholder</a> interests—are placed above student well-being.</p>
Photo: Getty Images<p>Third, it is abundantly apparent that universities must leverage technology to increase educational quality and access. The rapid shift to delivering an education that complies with social distancing guidelines speaks volumes about the adaptability of higher education institutions, but this transition has also posed unique difficulties for colleges and universities that had been slow to adopt digital education. The last decade has shown that online education, implemented effectively, can meet or even surpass the quality of in-person <a href="https://link-springer-com.ezproxy1.lib.asu.edu/article/10.1007/s10639-019-10027-z" target="_blank">instruction</a>.</p><p>Digital instruction, broadly defined, leverages online capabilities and integrates adaptive learning methodologies, predictive analytics, and innovations in instructional design to enable increased student engagement, personalized learning experiences, and improved learning outcomes. The ability of these technologies to transcend geographic barriers and to shrink the marginal cost of educating additional students makes them essential for delivering education at scale.</p><p>As a bonus, and it is no small thing given that they are the core cause for innovation, students embrace and enjoy digital instruction. It is their preference to learn in a format that leverages technology. This should not be a surprise; it is now how we live in all facets of life.</p><p>Still, we have only barely begun to conceive of the impact digital education will have. For example, emerging virtual and augmented reality technologies that facilitate interactive, hands-on learning will transform the way that learners acquire and apply new knowledge. Technology-enabled learning cannot replace the traditional college experience or ensure the survival of any specific college, but it can enhance student learning outcomes at scale. This has always been the case, and it is made more obvious by COVID-19.</p>
What conditions of the new normal were emerging suspicions?<p>Our collective thinking about the role of institutional or university-to-university collaboration and networking has benefitted from a new clarity in light of COVID-19. We now recognize more than ever that colleges and universities must work together to ensure that the American higher education system is resilient and sufficiently robust to meet the needs of students and their families.</p> <p>In recent weeks, various commentators have suggested that higher education will face a wave of institutional <a href="https://www.businessinsider.com/scott-galloway-predicts-colleges-will-close-due-to-pandemic-2020-5" target="_blank">closures</a> and consolidations and that large institutions with significant online instruction capacity will become dominant.</p> <p>While ASU is the largest public university in the United States by enrollment and among the most well-equipped in online education, we strongly oppose "let them fail" mindsets. The strength of American higher education relies on its institutional diversity, and on the ability of colleges and universities to meet the needs of their local communities and educate local students. The needs of learners are highly individualized, demanding a wide range of options to accommodate the aspirations and learning styles of every kind of student. Education will become less relevant and meaningful to students, and less responsive to local needs, if institutions of higher learning are allowed to fail. </p> <p>Preventing this outcome demands that colleges and universities work together to establish greater capacity for remote, distributed education. This will help institutions with fewer resources adapt to our new normal and continue to fulfill their mission of serving students, their families, and their communities. Many had suspected that collaboration and networking were preferable over letting vulnerable colleges fail. COVID-19's new normal seems to be confirming this.</p>
President Barack Obama delivers the commencement address during the Arizona State University graduation ceremony at Sun Devil Stadium May 13, 2009 in Tempe, Arizona. Over 65,000 people attended the graduation.
Photo by Joshua Lott/Getty Images<p>A second condition of the new normal that many had suspected to be true in recent years is the limited role that any one university or type of university can play as an exemplar to universities more broadly. For decades, the evolution of higher education has been shaped by the widespread imitation of a small number of elite universities. Most public research universities could benefit from replicating Berkeley or Michigan. Most small private colleges did well by replicating Williams or Swarthmore. And all universities paid close attention to Harvard, Princeton, MIT, Stanford, and Yale. It is not an exaggeration to say that the logic of replication has guided the evolution of higher education for centuries, both in the US and abroad.</p><p>Only recently have we been able to move beyond replication to new strategies of change, and COVID-19 has confirmed the legitimacy of doing so. For example, cases such as <a href="https://www.washingtonpost.com/education/2020/03/10/harvard-moves-classes-online-advises-students-stay-home-after-spring-break-response-covid-19/" target="_blank">Harvard's</a> eviction of students over the course of less than one week or <a href="https://www.nhregister.com/news/coronavirus/article/Mayor-New-Haven-asks-for-coronavirus-help-Yale-15162606.php" target="_blank">Yale's apparent reluctance</a> to work with the city of New Haven, highlight that even higher education's legacy gold standards have limits and weaknesses. We are hopeful that the new normal will include a more active and earnest recognition that we need many types of universities. We think the new normal invites us to rethink the very nature of "gold standards" for higher education.</p>
A graduate student protests MIT's rejection of some evacuation exemption requests.
Photo: Maddie Meyer/Getty Images<p>Finally, and perhaps most importantly, we had started to suspect and now understand that America's colleges and universities are among the many institutions of democracy and civil society that are, by their very design, incapable of being sufficiently responsive to the full spectrum of modern challenges and opportunities they face. Far too many higher education outcomes are determined by a student's family income, and in the context of COVID-19 this means that lower-income students, first-generation students and students of color will be disproportionately afflicted. And without new designs, we can expect postsecondary success for these same students to be as elusive in the new normal, as it was in the <a href="http://pellinstitute.org/indicators/reports_2019.shtml" target="_blank">old normal</a>. This is not just because some universities fail to sufficiently recognize and engage the promise of diversity, this is because few universities have been designed from the outset to effectively serve the unique needs of lower-income students, first-generation students and students of color.</p>
Where can the new normal take us?<p>As colleges and universities face the difficult realities of adapting to COVID-19, they also face an opportunity to rethink their operations and designs in order to respond to social needs with greater agility, adopt technology that enables education to be delivered at scale, and collaborate with each other in order to maintain the dynamism and resilience of the American higher education system.</p> <p>COVID-19 raises questions about the relevance, the quality, and the accessibility of higher education—and these are the same challenges higher education has been grappling with for years. </p> <p>ASU has been able to rapidly adapt to the present circumstances because we have spent nearly two decades not just anticipating but <em>driving</em> innovation in higher education. We have adopted a <a href="https://www.asu.edu/about/charter-mission-and-values" target="_blank">charter</a> that formalizes our definition of success in terms of "who we include and how they succeed" rather than "<a href="https://www.washingtonpost.com/opinions/2019/10/17/forget-varsity-blues-madness-lets-talk-about-students-who-cant-afford-college/" target="_blank">who we exclude</a>." We adopted an entrepreneurial <a href="https://president.asu.edu/read/higher-logic" target="_blank">operating model</a> that moves at the speed of technological and social change. We have launched initiatives such as <a href="https://www.instride.com/how-it-works/" target="_blank">InStride</a>, a platform for delivering continuing education to learners already in the workforce. We developed our own robust technological capabilities in ASU <a href="https://edplus.asu.edu/" target="_blank">EdPlus</a>, a hub for research and development in digital learning that, even before the current crisis, allowed us to serve more than 45,000 fully online students. We have also created partnerships with other forward-thinking institutions in order to mutually strengthen our capabilities for educational accessibility and quality; this includes our role in co-founding the <a href="https://theuia.org/" target="_blank">University Innovation Alliance</a>, a consortium of 11 public research universities that share data and resources to serve students at scale. </p> <p>For ASU, and universities like ASU, the "new normal" of a post-COVID world looks surprisingly like the world we already knew was necessary. Our record breaking summer 2020 <a href="https://asunow.asu.edu/20200519-sun-devil-life-summer-enrollment-sets-asu-record" target="_blank">enrollment</a> speaks to this. What COVID demonstrates is that we were already headed in the right direction and necessitates that we continue forward with new intensity and, we hope, with more partners. In fact, rather than "new normal" we might just say, it's "go time." </p>
Sallie Krawcheck and Bob Kulhan will be talking money, jobs, and how the pandemic will disproportionally affect women's finances.
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Manly Bands wanted to improve on mens' wedding bands. Mission accomplished.
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