William Gibson said that the future is here — it’s just not evenly distributed. That certainly seems true for entrepreneurs and venture capitalists. While there is plenty of breathless reporting about the latest startups to come out of Silicon Valley, the truth is that startup growth is relatively stagnant in many parts of the country and for large segments of the population. It’s no secret that startup founders in the U.S. are overwhelmingly white and male, and many have family wealth to fall back on. If you live in the wrong place, didn’t go to the right school or just don’t fit the traditional model of what successful founders “look like,” accessing venture capital can be a huge challenge. Samsung NEXT executives met with a diverse group of entrepreneurs, policy experts, nonprofit leaders and financial lenders to discuss what can be done to level the playing field and democratize entrepreneurship.
Redefine what an entrepreneur looks like
Many VCs may have a preformed notion about what a successful entrepreneur looks like — and if you’re a woman, or a minority, or both, “You are not the model of success they’ve seen,” says Siggi Hindrichs, principal investor at Samsung NEXT. What’s more, many potentially talented entrepreneurs who aren’t white or male don’t see themselves as someone who might potentially start a company: they don’t have an internal “model of success” either. “Unless you’ve seen someone that looks like you do that, you’re not going to think to do that,” Hindrichs says. “In many cases, unless you’ve been exposed to an option, you won’t consider it an option.”
Democratize entrepreneurship education
Leadership consultant Lisa Pearl suggests that early education might be a key to building such an internal model of success for women and minorities. “This is something you can start really early in school,” she says. “Teaching kids how to be entrepreneurs — how to come up with ideas, and get them from idea to execution.” Giving kids access to VC concepts early on might give them the confidence to navigate that world when they are older. Steve Hollingworth, President of the Grameen Foundation, agrees change is needed to promote entrepreneurship through public education. “Otherwise we’re just perpetuating our inequalities for future generations.” Charlie Germano, senior director, IT security and operations at Save the Children in Washington, D.C., agrees. In areas where his organization serves young women, he says, “You can draw a straight line from education to opportunity.” Social entrepreneur Paul Harrison notes that community colleges could also help prepare students to start companies and access VC by helping them meet venture capitalists. Today, if you don’t come from a big-name business school, he said, “You have to both have a great idea, and catch up with 10 to 15 years of networking before you get started.”
Diversify venture capital portfolios
Because prejudice can be subconscious, it’s important for VC firms to track how many startups led by women or minorities they back — and to proactively reach out to underrepresented groups, says Gus Warren, managing director of Samsung NEXT Ventures. It’s a practice his group has just begun. “We’re looking, and we’re tracking it,” he says. This kind of active self-auditing will pay off, Warren adds. “Your earnings will be better, your ideas will be better” with more diverse teams, he says. “There will be more collisions of people from different backgrounds to come up with different solutions.”
Reinvent venture capital
Entrepreneur Jessica Stuart bootstrapped her business, Long Story Short Media, and was able to grow it into a success. Now, she says, she wants to apply for funds to take her business to the next step — but VCs aren’t interested because these types of businesses don’t typically generate the type of returns venture capitalists expect or require. Venture capital needs to expand their scope to include opportunities for people like Stuart, Warren says. “There’s an opportunity for a different kind of VC that funds small, profitable companies to expand, rather than bet on vaporware that may or may not win big.”
Add mentorship to VC
“Sometimes someone has a dynamo idea, but they might not ‘speak the language’ of VC,” saysHindrichs. Samsung NEXT offers funding to startups but will also mentor them to shape their ideas and show them the ropes — something more VCs need to do, Hindrichs adds. “Money isn’t everything,” adds Arti Patel Varanasi, president and CEO of Advancing Synergy. “You need the money, but are there other components that can make [an entrepreneur] a better, stronger individual and more conversant on venture capital? If you write that person a check, you should also mentor them.”
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Article produced in partnership with Samsung NEXT, Samsung’s innovation group that works with entrepreneurs to build, grow, and scale great ideas. NationSwell has partnered with Samsung NEXT to find and elevate some of the most promising innovators working to close the opportunity gap in America. Click here to meet the finalists.
Maggie Farrand typifies many nonprofit executives. She’s happy about the level of donations to Pathfinder International, a Boston-area reproductive-rights nonprofit where she is the senior officer of digital media. But Farrand knows that to keep the contributions coming, she must engage current donors in a meaningful way. That’s why Farrand attended the 2018 Collaborative, a three-day conference in Boston hosted by Classy, an online fundraising platform for social impact organizations, in June. She joined more than 1,200 attendees who listened to talks, participated in workshops, and connected with other nonprofit leaders and peers. Their goal: to better understand how to increase giving and optimize operations so they can best handle sweeping technology-driven changes, as well as answer the call for more diverse and equitable workplaces. They’re contending with those matters at a time when donor retention is more challenging than ever. “Eighty-two percent of donors are not coming back after their initial gift,” Classy CEO Scot Chisholm said in the opening keynote address. “We think things will get worse before they get better. More donors are giving on websites where the organization doesn’t have visibility or control over the relationship, and therefore not allowing for any kind of supporter allegiance.” But there’s hope, according to Chisholm: “One-third of donations on Classy are made from mobile devices, and we’re seeing that over 60 percent of mobile traffic to Classy campaigns is coming from social media.” If nonprofits can harness mobile and social, as well as explain their missions with clarity, joy and purpose, then they’ll be able to meet donors where they are, increase engagement and sustain charitable programs, he said. As fundraisers navigate a changing philanthropic landscape, four defining themes emerged from the sessions and workshops of the 2018 Collaborative that can serve as a helpful guide: cohesion in the nonprofit workplace; diversifying fundraising methods; modernizing with technology; and establishing meaningful relationships with donors.
CREATING COHESION
As Black Lives Matter and other movements shine a spotlight on racial inequality, it’s safe to say many organizations still need to treat all of their employees equally. The conference session “Awake to Woke to Work: Building a Race Equity Culture” saw four nonprofit executives highlight their efforts to foster equality. “White folks are having to deal with the issues of racial identity, which for them is a shocking experience but is what people of color have experienced for a long time,” said Chris Cardona, a program officer of philanthropy at the Ford Foundation. “White people don’t have a way to turn it into lessons of experience and empathy.” But Cardona and his fellow panelists offered several suggestions to put employees on equal footing. For one, it’s particularly valuable for executives, especially white leaders, to be vulnerable, according to Building for Mission CEO Tamika Mason. Vulnerability leads to openness, which leads to a willingness to learn about race, she said. “It empowers an organization,” she added. Kerrien Suarez, director of Equity in the Center, urged nonprofits to formally recognize the role of employees who are charged with diversity, equity and inclusion (DEI) in the workplace. “The emotional labor of this work is high,” she said. “The person in this role should be compensated; it requires funding. It’s best to have DEI as a line item in the budget.” While equity inside the office means organizations must follow rules, dealing with donors outside the office can be trickier, said Brianna Twofoot, the vice president of organizing leadership for Leadership for Educational Equity. Her solution? She won’t let her Mexican-American heritage get in the way of fundraising. “I don’t have time for that problem to be solved,” she said. “I will figure out a way to react to that room, and figure out how to get that money.” Janelle Coleman, director of the annual fund for St. Francis House, a homeless shelter in Boston, said the discussion panel validated the effort and nuance that’s necessary as her organization starts its DEI efforts. “The world is so divided, so we have to do everything we can to make sure we have an inclusive workplace,” she said. From left: Tamika Mason, Brianna Twofoot and Kerrien Suarez spoke about their efforts to operationalize equity in the workplace during a session called “Awake to Woke to Work: Building a Race Equity Culture.”
DIVERSIFYING FUNDRAISING
With donors able to choose from a slew of philanthropic causes, several conference sessions examined how nonprofits can vary their fundraising efforts to reach all types of donors, including socially responsible corporations and individuals who first want to see proof of good. Elaine Martyn, vice president of relationship management for the Private Donor Group at Fidelity Charitable, stressed the importance of understanding the circumstances and ways of large donors so that nonprofits can personalize fundraising efforts. She recalled an instance when she had received a $100,000 gift from a donor who was worth $100 million, and Martyn asked the woman why she made her “work so hard” for the donation. “She said, ‘You’re the one organization I want to give this to, but I also want to make sure every gift has an impact.’” Similarly, Ewing Marion Kauffman Foundation’s Public Affairs Vice President Larry Jacob recommended that nonprofits perform due diligence when seeking gifts from corporations. Nonprofits need to be clear, he said, about what the donation will do: where it will be earmarked and the intended result. (Disclosure: the Kauffman Foundation is a paid partner of NationSwell.) Nonprofits should benefit from partnerships with corporations as millennials integrate their personal charitable values into their leadership positions at work, according to Danielle Silber, director of strategic partnerships at the American Civil Liberties Union. These companies want to demonstrate what they stand for, she said, and will work with nonprofits that best align with their goals. Even though nonprofits work in a crowded field, it is possible to attain year-over-year growth by implementing the right technology, said Stephanie Herron, chief development officer for Shriners Hospitals for Children. A fundraising platform enables both small donations and the occasional large ones. Shriners Hospitals, for instance, has accepted multiple $25,000 credit card donations through Classy, she said. Martyn also urged nonprofit leaders to personally donate to their own organizations, enabling them to see how donors are treated.
MODERNIZING IN A TECH LANDSCAPE
Extending the conversation about diversifying, Box.org Executive Director Bryan Breckenridge said nonprofits should look differently at their relationships with the people behind technology. For instance, fundraising leaders should learn the names of their organization’s top three technology vendors so they can approach them about opportunities, he told attendees. Katie Bisbee, chief marketing officer and executive vice president of partnerships at DonorsChoose.org, agreed, saying tech vendors have a “huge megaphone” that can easily amplify a nonprofit’s work and mission. Don’t be shy to ask the vendor to participate in a case study; the vendor can promote its technology and the nonprofit can illustrate its efficiency through the platform, she added. And don’t be afraid to compare strategies with other nonprofits, Bisbee said. DonorsChoose.org benefits from her sharing data and success stories with organizations such as GlobalGiving, Kiva and Charity: Water, and she consults with 20 other nonprofits. One such example of information sharing came at the Collaborative, when Jim Carter III and Hamse Warfa revealed their successes with the nascent technology blockchain. Carter, co-founder and vice president of engineering for Giving Assistant, recounted how a week after he established a bitcoin account for the education nonprofit Pencils for Promise, he was overcome with joy when learning the organization had received a $1 million bitcoin-only donation from an anonymous donor. His coding work for four other organizations has helped them collectively receive $4.2 million from the same donor. “This isn’t a replacement for other payment methods,” Carter said. “I’m not saying ‘stop accepting credit cards.’ That would be ludicrous.” But by accepting cryptocurrency, nonprofits open the doors to a new world of donors who use only that form of money, he said. Warfa, co-founder and executive vice president of BanQu, detailed how blockchain can empower farmers around the world by giving them an immutable financial transaction history that will improve their chances of securing microloans. On that same front, charitable organizations can take advantage of blockchain by having all of the data points — financial, health and education — of a refugee on one platform, instead of relying on several. Accepting cryptocurrency can increase a nonprofit’s donations, said Jim Carter III (center, with Sarah Sloat, left, and Hamse Warfa) during a session on the power of blockchain technology.
BUILDING MEANINGFUL RELATIONSHIPS
Technology, however, will have little effect if nonprofits can’t tell a convincing story about their work. Several Collaborative speakers espoused the power of storytelling, reminding attendees that a social media platform and marketing are only as good as the stories behind them. Tyler Riewer, the brand content lead at Charity: Water, travels the world to hear — and later tell — the stories of the people who benefit from his organization’s work. He recommends that other nonprofit storytellers “create a sense of relatability” in their outreach to donors. The way that an organization solves a problem can “seem so far away” to donors, but if they see how the problem affects them, they will make that personal connection, he said. A story also has to be authentic, according to Derek Hubbard, an external communications specialist at Southwest Airlines. “You have to tell stories from the heart,” he said. “It has to be true to who you are. People can see right through stories if they’re not authentic.” Carilu Dietrich, chief marketing officer of Classy, said nonprofits often struggle with telling stories about people facing obstacles because they’re unsure if those details will make potential donors uncomfortable. But by taking an incremental approach — from detailing the obstacle, to relaying the potential for hope, to outlining the actual path forward — nonprofits will have a compelling story to tell, she said. Nonprofits also have the ability to test campaigns by creating different story angles and sending them to different audiences, Dietrich said. Ultimately, donors have to believe they can add a chapter to an organization’s story, she said. “Make people feel as if they can do something.”
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This article was paid by and produced in collaboration with Classy.Through the power of its fundraising platform, Classy serves customers who are tackling the world’s greatest challenges. Classy also hosts the annual Collaborative conference, a three-day immersive experience where today’s changemakers come together to co-create the future of social entrepreneurship.
As more people champion movements like Black Lives Matter or the Women’s March on Washington, many have started to realize that being ‘woke’ — the idea of being aware of social problems — may also be alienating others within their own movement. “I often think when we become involved in social justice work, we begin to operate as if we’ve always been this knowledgeable on multiple topics and identities and forget something woke us up. Nobody was actually born woke, ” Brittany Packnett, co-founder of Campaign Zero, a police reform initiative, and vice president of national community alliances for Teach for America, tells NationSwell. “There was someone there to teach me and use language to invite me in instead of making me feel ostracized.” Language has always complicated the progressive movement, garnering attention in recent years as a handful of leaders were denounced for not using the right terms or for not being sensitive enough to minority groups. In March, author and feminist Chimamanda Ngozi Adichie was singled out for not being inclusive when discussing trans women. She defended her words, telling The Guardian, “This is fundamentally about language orthodoxy. There’s a part of me that resists this sort of thing because I don’t think it’s helpful to insist that unless you want to use the exact language I want you to use, I will not listen to what you’re saying.”
Focusing too narrowly on progressive language can limit the spread of social movements, says activist Linda Sarsour.
So how do you become more inclusive with your words? Packnett, a 2017 Nationswell Summit on Solutions panel speaker, says to keep it simple and use the same language as those who are trying to “wake up” to social issues — even when you’re frustrated.
“I understand when people don’t have that amount of patience,” Packnett says. “But when that happens, we have to tag other people in who are emotionally able to be more forgiving, to be more patient and to open up the language to call people in, instead of calling people out.” In October, Linda Sarsour, co-chair of the 2017 Women’s March, told a room full of activists at a conference about inspiring social change at the Brooklyn Museum that progressives can be too “intellectual.” “Sometimes I’m sitting in spaces and people are trying to explain to me ‘hetero-patriarchy’ — and I get it and keep having those conversations — but I always say if my Palestinian immigrant mother in [Brooklyn] doesn’t know what you’re talking about, then we got a problem,” she says. “We have to remember we’re organizing people with people who have high school diplomas, who may have sixth grade literacy levels. If we’re not reaching most lay people… then we’re not doing a good job.”
During the buildup to the great housing bubble of the 2000s, I watched the dream of owning a home slip from my grasp. Prices were growing more unreasonable by the day, and I knew I’d collapse under the wacky mortgage plans available to a reporter, on a reporter’s salary, possessing neither the discipline nor the extra scratch to scrape together a down payment.
Thankfully, the bubble eventually burst, prices plummeted and I wriggled my way into the market. But there are millions of other aspiring homeowners in America who are still shackled to their landlords because they either don’t have the money for a down payment or can’t afford a mortgage in situations where the loan can represent up to 97 percent of the purchase price.
Enter PRIMARQ, the world’s first residential real-estate equity exchange — a soon-to-launch venture of San Francisco entrepreneur Steve Cinelli. Can’t afford a down payment? Let investors put together the capital you can’t, without relinquishing all your clout as a homeowner. By letting “co-owners” buy shares in your home, you’re able to put down a bigger down payment, which means you end up carrying less debt and can get a loan free of mortgage insurance, which is commonly tacked on for down payments of less than 20 percent. “I think the market is overly dependent on mortgage-debt financing,” Cinelli says. “The application of debt has gone way too far.” MORE: Phoenix Just Became the First City to End Chronic Veteran Homelessness. Here’s How
Investors can bet on housing without having to deal with the actual house. They’ll get their money back (plus profits if there are any), under one of several circumstances: when you sell your home, when you decide to buy back your shares, or when the investor sells his shares back to the PRIMARQ exchange itself, which offers a “liquidity guaranteed” 90 percent of their value. So, if an investor puts up $10,000, and then wants to cash out for any reason before you sell your home, they’ll walk away with no less than $9,000 (unless the home price drops) — and it doesn’t affect you either way.
Not all homebuyers and not all houses can qualify for PRIMARQ funding. If there’s a mortgage involved, the buyer has to meet strict credit-score criteria, and the home has to have a certain expected price appreciation — meaning it’s got to be a decent property in a good location. That doesn’t necessarily rule out homes in lower-income neighborhoods, but it does stand to reason that unless those neighborhoods are deemed “up-and-coming,” the homes there might not qualify for PRIMARQ.
But once those burdens are met, the company has designed a program that Cinelli says complies with existing regulations and is working to convince banks that more equity in the mix makes a better-quality loan — and that it’s not necessarily a risk for borrowers to invest less of their own money in their home. If mainstream lenders get on board, it should mean more people have greater access to the housing market, which has only in the past year or so begun to rebound from the Great Recession it helped cause.
So how does this work, exactly? Without getting too deep in the weeds, PRIMARQ has created investment units, or shares, known as “Q’s”; each one is valued at $10,000. Through a broker, you, the potential homeowner, would list shares for sale in your desired property. Investors then make bids for them (minimum $25,000), based on a variety of factors, including the amount of equity capital being sought versus ownership to be shared, and how much the property is expected to appreciate in value. Then, PRIMARQ works with you to apply those funds to your purchase, and provides quarterly portfolio management reports to the investors.
Q’s are bought and sold just like shares on the Nasdaq, so investors can trade them anytime during your ownership. Once you sell, you hand over your investors’ share of the profits and pocket the rest. Or, if you sell your home at a loss, investors take their share of the hit as well. AND:This Hero Isn’t Just Alleviating Homelessness; He’s Preventing It
Cinelli hopes this kind of “liquidity in a historically illiquid market” will not only beef up America’s less-than-impressive rate of home ownership (65 percent) but also help prevent the next crash, by deleveraging some of the many debt-crushed mortgages out there. Back before the New Deal in the 1930s, buyers put 50 percent down on a house and paid the rest of it in two years. But in a push to expand ownership to more Americans, President Franklin D. Roosevelt established the Federal Home Loan Bank System, government-backed banks that paved the way for the onslaught of home lending that commenced in the coming decades. This worked fine, until the frenzy that was the housing bubble of the 2000s came along. Global investors flooded the market with easy cash. Complicit lawmakers, mortgage brokers and real estate agents rammed exorbitant home loans down the throats of hapless (or irresponsible) Americans who by that time had grown so comfortable with borrowing up to their eyeballs that many didn’t stop to consider how they’d actually make the payments on a half-million-dollar house in the ’burbs. The crash was both inevitable and colossal. “We saw the result of the overleveraged problem, over the last handful of years,” Cinelli says. It got him thinking, “Why is housing devoid of [outside] equity?”
To be sure, the PRIMARQ model involves risks for both investors and homeowners — not the least of which is a gaming of the system by nefarious investors, says David Reiss, a professor of law at Brooklyn Law School in New York who researches and writes about the American housing-finance sector. While Reiss calls PRIMARQ a “supercool idea” for all the aforementioned reasons, he could imagine various ways for unsophisticated homeowners to get fleeced without proper consumer protection regulations (the program has not yet been reviewed by a government regulatory agency). Unscrupulous investors could demand fees or increased equity in exchange for agreeing to help fund a second mortgage, for example. By participating in PRIMARQ as a homeowner, “you are not the master of your own destiny,” Reiss says.
Indeed, PRIMARQ homeowners aren’t exactly as free as they would be on their own. For one thing, they’re generally not allowed to rent out their place. Certain kinds of refinancing would also require the sign-off of the investors. They also get some say in the choice of homeowner’s insurance, how the property is marketed for sale, and the final sales price that is accepted. Investors further have the right of first refusal for a home at market value, which may discourage a seller who thinks he or she can get more than that. (Homeowners, too, have rights of first refusal for the equity.) Beyond that, there are ample ways for the deal not to pan out for either party. The homeowner could trash the place or fail to fix the leaky roof, tanking the value of the property (which PRIMARQ’s contract would label a “default” of the agreement). Or the market could again take a dive, which means investors take a loss just as if they’d bought Facebook stock.
But the system also provides a way for investors to get in on what can be a hugely lucrative bet, without taking on the same level of risk involved in actually purchasing a home. Investors don’t have to pay insurance, property taxes, homeowner dues or repair costs. Instead, they’re “passively” partnering with the owner-occupant, who — in theory — has a vested interest in keeping the property in good shape.
At this point, PRIMARQ’s entry into the $17 trillion market is too small to make much of a dent. There are currently some 350 to 400 investors on the platform and about 30 transactions in progress about a month out from the company’s formal launch. If it grows substantially, Cinelli sees the equity-over-borrowing model becoming a stabilizing force, helping homeowners avoid getting sucked into big mortgages, making them less likely to wind up in foreclosure, should financial problems arise. “Our goal is to really change the overall paradigm of housing finance,” Cinelli says. “The fundamental problem is that with debt as the only third-party capital available, lenders overlend.”
There is inherent value in bringing outside capital into an arrangement now monopolized by the banking industry, Cinelli says. It spreads out the players and the risks and those with stakes in the game, which at least in principle should strengthen the whole system. MORE:Yes It’s True. Subsidizing Housing for the Homeless Can Save Them — And Taxpayers’ Money
