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
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