Five Things That Can Help Democratize Entrepreneurship

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.”
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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,” says Hindrichs. 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.”

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.

What’s the Outcome of Combining Science with Business Savvy? Transformative Ideas

There’s plenty of startups chasing energy innovation, but the part that’s often forgotten is the scientists behind these solutions, who pore over research for years and are permanently fixated over microscopes. These researchers are the foundation of our future — but they’re also unequipped with the business acumen or the political wherewithal to transition their work into commercial ventures.

But if you’re one of these budding scientists (and not Elon Musk) looking to save the world, the Resnick Institute at the California Institute of Technology may be your next stop. With a $30 million endowment, the newfangled program accepted its first class of postdoctoral fellows earlier this month.

“Energy is a challenging thing to develop infrastructure for, so it’s not really suited for the venture mindset,” says Neil Fromer, the executive director of the program. “But there are innovative ways to fund early-stage ideas.”

Plucked from around the world, the four fellows will focus on transformative energy solutions that are typically ignored by venture capitals looking for a sound return on investment, but have the potential to change the world. Such ideas include green chemical synthesis, fuel efficient vehicles and energy conversion research on batteries and fuel cells, according to a press release.

While there’s no shortage of bright ideas and big solutions, the tricky part is translating the dense language into a sexy, business pitch for potential investors. The Caltechstaff will not only work with students on developing their work into potential commercial ventures, but with the help of their own funding source, the pressure is off to produce immediate results.

“In some ways we’re trying to reclaim the thought leadership on this issue,” Fromer tells Fast Company.

While Caltech is not home to the only sustainability institute, by focusing on the intersection of science, business and technology, it may be the one that can save the world.

MORE: Get Schooled on How to Earn a Computer Science Education for Free

This Venture Capital Firm Bets on College Students

In this country, we used to talk about ballooning credit-card debt. Now the bigger money worry? Student-loan debt.
As more students graduate with a crippling amount of it (the total amount of student loan debt now tops $1.2 trillion, according to the Consumer Financial Protection Bureau), Silicon Valley is rethinking the way in which we ask people to pay for college.
As it currently stands, borrowers carry all of the risk while the government lender is only responsible to make up for unpaid balances through taxpayers around two decades later. Private lenders are only responsible for paying a collection agency to chase the unpaid balance and schools receive tuition regardless, all the while a borrower could go into default and ruin their credit for the rest of their lives. And for low-income students, this risk is even greater.
Instead of placing the entire burden on students, financial executives at venture capital firm 13th Avenue Funding believe that education loans should be perceived as equity, placing bets on a student’s potential achievements and earnings.
Two years ago, the New York-based firm offered four students at Santa Barbara’s two-year Allan Hancock College $15,000 for tuition to become a part of a “cohort” before transferring to a four-year institution to earn their bachelor’s degree. The students leave college without the possibility of defaulting and are expected to pay a small percentage of their salary each month if they make more than $18,000 a year post-grad. If they should surpass an annual income of $25,000, they’re required to pay back five percent of their income for the next 15 years.
Granted, borrowers do run the risk of paying back more than they received — but the money is used to cover other members of the cohort who are unable to repay the loan. And any additional remittances are used to fund new scholarships for future cohorts.

“It’s pooled venture capital,” said Casey Jennings, chief operating officer for 13th Avenue. “It’s sharing risk.”

The 2012 experiment, which is the first of its kind in the United States, was backed by four of the VC firm’s founders as well as two board members. The firm put together enough money to support a second cohort of seven students last year and hopes the model will be successful enough to continue.

While the idea is unique, it’s actually similar to that of investing in any small tech startup in Silicon Valley. You run the risk of failing — more often than not — but the chance of success can be worth it. The challenge therein lies with convincing higher education professionals to take the gamble on the concept of “income sharing” agreements.

“It’s really painful,” Jennings said. He continues to meet with college administrators to make them the “investors,” but has found no school wants to be the first to take a chance. “We talked to a bunch of colleges. They’re like, ‘It’s interesting, but come back when you get another college.’ “

If the 2012 experiment succeeds, it shows that students — especially those with low-incomes — can be an untapped market for investments. When it comes to funding those low-income students, Jennings added, “the payback for getting that group to go to college is unfathomable.”

After all, having a more diverse group of college graduates is something that you can’t put a price tag on.

MORE: Ask the Experts: How Can We Keep From Drowning in College Debt?

New York Enlists Venture Capitalists To Help Keep People Out of Prison

A surprising initiative in New York City has wealthy investors opening their wallets not to start-ups in Silicon Valley, but instead to a program that prevents recidivism for people just released from prison.
Last December, Governor Andrew Cuomo introduced New York’s Pay For Success Program, which links private investors with social programs that need funding. Investors can expect returns if the programs meets specific performance standards, according to the National Journal.
One such program receiving funds through Pay For Success is the Center for Employment Opportunity (CEO). This organization trains recently-released prisoners to search for jobs, find temporary paid work, and hold down steady employment. CEO has reduced the recidivism of its participants by up to 22 percent, according to a recent study by MDRC, a non-partisan social policy research organization.
Through Pay For Success, investors have put up enough money for CEO to serve an additional 500 people every year. If CEO reduces recidivism among its clients by at least 8 percent, or increases employment by at least 5 percent, then investors get their money back, or even more if the program does better. Part of the investor payout will come from the Labor Department, and part will come from New York State.
Pay for Success is a way to reform public spending so that it aligns with the public good. New York spends about $60,000 per inmate per year, and 3.6 billion dollars a year on its prisons, according to The National Journal. By funding CEO, New York state officials hope that public money can be used to prevent citizens from returning to prison.
The outcomes of the program look pretty good: Investors are motivated to have social programs work efficiently and effectively, and social programs have more money to do their work. And in addition to financial profits for investors, there’s another bonus: Tracy Palandjian, CEO of Social Finance, says, “They all say what excited them is this is a vehicle that will allow them to invest in people’s lives actually improving, and that’s a source of return.”