Most startups fund their earliest days with money from friends and family, as well as angel investors. But what if your friends and family are not wealthy—and, in fact, are more on the struggling side of the equation?
That’s the stark reality for many entrepreneurs, especially those from diverse backgrounds. The average white household has more than seven times the wealth of a black family and five times that of a Hispanic family, according to 2016 data.
To tackle the early funding conundrum, social enterprise accelerator Village Capital created an initiative called VC Pathways to help early-stage African American, Latinx and female founders get on a solid path to raising money. First launched last year as a pilot in Washington, D.C., in conjunction with The Rockefeller Foundation, it more recently ran in Philadelphia, Chicago and Atlanta, with partner UBS. Each cohort included 10 startups.
“Something important was missing from the ecosystem and we wanted to see how we could help,” says Director of US Ventures at Village Capital Ebony Pope, who created the program.
The program is aimed at founders who are too early stage for the usual three-month Village Capital program, but who have a prototype and, perhaps, a pilot underway. There’s a one-to-two-day training during which entrepreneurs receive the most important parts of the usual Village Capital training. But the focus is on setting milestones for important points in the process, from friends and family fundraising up to an IPO.
Specifically, entrepreneurs receive several milestones to reach over three months. To help achieve those goals, they’re paired with an angel or local investor, with whom they met regularly. A typical milestone might be “I will sell 100 units at my current price point to prove initial marketplace interest and survey 25% of my customers to learn what is working/not working with the current product.” Or, “I will hire a VP of sales.”
Each local program works with a different organization that acts as a supporting partner. For example, in Philadelphia, the partner is Ben Franklin Technology Partners, a public-private partnership that invests in early-stage companies. In Chicago, it’s ImBlackInTech, which works with black & Latinx founders of emerging tech startups and technology professionals.
Ultimately, according to Pope, not every entrepreneur will decide that pursuing venture backing is the right move, and that’s ok. “We want them to understand what it looks like to build a venture-backable business,” she says. In other words, the goal is for founders to learn an important lesson that generally takes some entrepreneurs a while to figure out–whether they have a business with the potential for high-growth or an enterprise that is promising, but not potentially of interest to VCs.
The VC Pathways program was conceived last year when folks from Village Capital and Rockefeller Foundation got together to hammer out a solution to the friends and family/angel conundrum. As they talked to more founders from diverse backgrounds, they learned some eye-opening lessons.
For example, while most founders couldn’t name a single angel investor in their professional network, angels clearly were more favorably disposed towards entrepreneurial referrals coming from people they already knew and trusted. Since Village Capital had access to a great many angels, they decided they were in a good position to design a program targeting this group of founders. Local partners also facilitate introductions.
So far, two companies that participated in the program have raised seed funding. One is Qoins, an Atlanta-based startup whose app helps people put aside money to pay for credit card and student loan debt. After attending the Atlanta session earlier this year, cofounders Christian Zimmerman and Nate Washington (pictured at top) raised $750,000 from 14 angels; their second investor was one of their VC Pathways mentors. “I ended up getting introduced to one guy who introduced me to another guy who introduced me to his friends,” says Zimmerman. “It was a domino effect.”
Village Pathways recently published a report about the experience and lessons learned. The three main takeaways are:
– Capitalize on “local loyalty” by facilitating warm introductions between diverse founders and angels in their community
– Create a common language for investors and entrepreneurs, and to give founders a “gut check” not he state of their business
– Empower local organizations to create meaningful events and connections for entrepreneurs in their communities
Anne Field is a New York-based journalist who writes about social enterprise and impact investing. A version of this article originally appeared on her Not Only For Profit blog on Forbes.com.