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Amidst all of the Paul Graham fun from the last few days (Graham says he was misquoted and lied to about the purpose of the interview.  Reading the full transcript, I don't think the substance of his comments changes) an interesting question has gone out:

Do incubators have an obligation to actively seek out female hackers?  http://snipe.ly/...  - what do you think?
It is really odd to me that the question has to be asked, because the answer is very clearly "yes".  Doing otherwise is simple mal-practice. If you find that you are investing only in companies that are founded by the same kind of people, especially if those are the same kinds of people who either resemble you or have been traditionally been at the top of the power structure, you are most likely missing something.

You should be reaching out to minority founders to ensure that you are finding the best people to invest your money in.  What are the odds that only white or asian males have good ideas that can be turned into a good company?  If you answered anything other than "zero", then the odds are strongly that you are thinking with your gut rather than your head.  And that means that you are certainly not doing as well as you could for yourself or for your investors.

You should be reaching out to minority founders because you owe it to society.  There is a long history of discrimination in this country whose effectsare still being felt.  Venture capitalists make most of their money when companies go public; which is to say, venture capitalists make most of their money because society has decided to give certain kinds of business organizations extra protections and tax breaks.  Society has also decided to tax capital gains at a lower rate than others forms of income.  These are artificial benefit created by society with the understanding that society will benefit from the people to whom it provides these extra perks.  Venture capitalists should do their best, then, to earn those perks by ensuring that the benefits of capital are extended as widely as possible. Any venture capital firm that does not have some sort ofRooney Rule is reneging on the deal society has provided them.

At this point, someone will inevitably claim that the market will solve this problem.  If some venture capitalists are ignoring minority founders, then others will exploit that market inefficiencies.  This is obviously wrong.  The inefficiency is caused by prejudices that are almost certainly unconscious, a function of class and social constructs.  As the history of Jim Crow shows us, the market is perfectly capable of ignoring inefficiencies based on prejudices. And while th blindness of Silicon valley venture capital to people who don't fit their narrow preconceptions is significantly different from Jim Crow, the mechanism that can lead to gross market failures is similar.  Prejudice, conscious or not, among the people who control access to capital ensures that such capital is almost always kept from those deemed unworthy due to aforementioned prejudices.  The lack of funding for minorities in Silicon Valley certainly suggests that the market isn't correcting this particular problem.

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Comment Preferences

  •  Tip Jar (1+ / 0-)
    Recommended by:
    Chi
  •  So how do you propose (2+ / 0-)
    Recommended by:
    JeffW, wilderness voice

    to make them do it because they are certainly aren't going to do it on a voluntary basis? If they were it would have happened by now.

  •  As I Wrote Last Night, He's Correctly Pointing Out (5+ / 0-)
    Recommended by:
    JeffW, ferg, denise b, elfling, VClib

    that the moment the venture capital checkbook opens up is way too late to nurture those marginalized populations. It's like setting up affirmative action hiring programs for the orchestra without doing anything at the grade school level to make sure there are soon as many presently marginalized kids acquiring the skills out of which the pool of exceptional talent and creativity arises.

    Gates and his tech peers, he said in the interview, were coding and hacking etc. in their early teens, a period when I was learning advanced instrumental music. We know that that age is the prime window for learning master level instrumental performance, and it might be equally important for becoming a technology expert and innovator or at least some types of them.

    Remember the rule of thumb that it takes 10,000 hours to master a subject, assuming you've got the talent. Well for tech innovation those hours pretty obviously have to begin early in life.

    Now if there's evidence that minority and women tech innovators are showing up in good numbers but are being redlined by venture capital the way we know they have been in routine activities like ordinary business startup and real estate, then yes immediate attention at the lending activity would of course be needed.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Tue Dec 31, 2013 at 06:53:49 PM PST

  •  I work with Disadvantaged Business Enterprises... (1+ / 0-)
    Recommended by:
    bepanda

    ...(DBEs). I don't know how it works on an individual level, but on a business level, all federal contracts are required to have a pre-arranged percentage of the work done by minority-and/or women-owned businesses -- DBEs.

    The thing is, there are so few of them around, the requirements can pretty much dictate how much they're paid for their work. I recently bid out a federal contract that had a 6% DBE contribution requirement (and that's actually low). The only DBEs that would bid were street sign installers. Installing a street sign usually costs about $300. We paid them $1200 apiece. Had to. Otherwise the federally required percentage wouldn't have been made.

    The opportunities are out there. Not enough are taking advantage of it.

  •  Venture capital is often held up (2+ / 0-)
    Recommended by:
    Chi, Richard Lyon

    as a shiny, wonderful thing that is like a fairy godmother, but it's not all benign.

    When a venture group takes over your startup, you get money, but you are also selling a bit of your soul. Some groups are more nurturing than others, but all of them will change where the company is going and they're only interested if there's a big upside where they can sell - generally either to a larger and flush company, or to go public. They want big upside because they take a lot of risk: the successful ventures have to cover many other ventures that were total losses.

    There are lots of companies that might be candidates for venture that elect not to go that route. Venture-fed companies don't usually just become quiet, self-sustaining pleasant entities. They grow, are sold, or die.

    Fry, don't be a hero! It's not covered by our health plan!

    by elfling on Tue Dec 31, 2013 at 11:11:16 PM PST

    •  elfing - BINGO (0+ / 0-)

      This is a critical point. Venture investors don't fund sustainable small businesses that are a nice place for a small group of people to work. Venture capital is rocket fuel that fund companies with explosive growth potential and drive them to success or burnout. As elfling notes venture backed companies grow, are sold, or die. That's the model. Venture backed companies are also very challenging places to work where every employee is an owner and expected to be a star. Employees routinely work 12-16 hour days.

      I have been in the business for nearly 30 years. At one point there was a very successful SBIC program to fund venture capital, particularly in under served communities. The overwhelming majority of venture funds receive no government money so there is no leverage to require any minority outreach. One way to broaden the reach would be to initiate a new SBIC program to fund minority startups and see how it does. If it makes a lot of money the more traditional venture investors will follow. At this point there are no incentives for venture capitalists to look to the minority community for deal flow. The typical venture fund invests in one out of every hundred business plans they review.

      One possibility, that has been used before, would be to make the gains in minority businesses tax free. If a venture fund invested in a minority business, that met certain criteria, when the fund sold its stock there would be zero capital gains tax.

      "let's talk about that"

      by VClib on Wed Jan 01, 2014 at 09:28:03 AM PST

      [ Parent ]

Chi

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