The day is finally here. Your two minutes of fame begin as you strut on stage in your startup’s freshly printed T-shirt and pitch your vision for disruption to a room full of investors eager for a fund-returning home run. For the last few months, everything you lived-breathed-slept was about working toward this day.
But this day won’t work the same for everyone. Particularly if you are a Black woman. Or over 50. Or you didn’t attend an Ivy League school. Or if you have a non-European accent. Or if you reveal you like to play “hoops.”
If we truly want to address the disparity in investment of young white male entrepreneurs compared to literally everybody else — especially Black and brown founders — we need to reexamine, and possibly discard, one of the most common and glorified rites of passage for founders seeking funding: demo day.
Whether unconscious or not, the process is rife with discrimination and bias.
Right now there are arguably more seed funds than ever claiming they want to be more inclusive, and not just invest in mostly young, white, straight, cisgender male founders.
If that’s true, then let’s be intellectually honest about how demo day’s premise — that it’s creating an equal playing field for attracting investment — is flawed. In an ideal world, a founder would use their time on stage to sell investors on a vision: one where their startup nearly monopolizes a market and moves humanity forward, all while making a ton of money for everyone involved, and that’s all investors would focus on. But the sheer pageantry of it all encourages snap judgments of everything from ethnicity and gender expression to educational pedigree. Whether unconscious or not, the process is rife with discrimination and bias.
To understand where we are now, we first need to understand how demo days came to be. Once upon a time, founders relied almost entirely on warm introductions to investors. If you didn’t know somebody who knew somebody — you were outside networks connected to startup capital — good luck. But as early as 2005, incubators and accelerators such as Y Combinator (among others) came along and made raising capital less reliant on knowing someone. They introduced demo days as we know them today, yet those demo days were still the product of funds investing almost exclusively in young white men. In that environment, nobody had to consider what the experience might be like for someone who differed in even one way — say, being a woman. Those founders simply weren’t even on stage.
Fast-forward to 2019. Incubators and accelerators are attempting to be more diverse, yet you still have an investor calling women-led startups “#MeToo” startups. Be a Black founder and more than a handful of white male investors will somehow believe the founder is building something whose only market is Black people. (By that logic, women, despite being more than half of the world’s population, are apparently niche too.) Then they can argue the founder isn’t addressing a large enough market and dismiss them outright. Business as usual.
The common refrain in Silicon Valley is “the only color investors see is green.” A wealth of evidence suggests that’s false. Fewer than 50 startups led by Black women have raised $1 million or more. Black founders represent 1% of all venture-backed companies. It doesn’t help that some venture capitalists themselves proudly claim they pattern-match. Influential investor Ron Conway openly admitted to being ageist (or, in his own words, “an age bigot”). John Doerr famously spoke about his own pattern recognition when it comes to investing in “the world’s greatest entrepreneurs.” “If you look at Bezos, or Andreessen, David Filo, the founders of Google, they all seem to be white, male nerds who’ve dropped out of Harvard or Stanford and they have absolutely no social life,” he told the Wall Street Journal over a decade ago. “So when I see that pattern coming in — which was true of Google — it was very easy to decide to invest.”
In the few weeks leading to demo day, as a founder, everything becomes about telling a story that makes it very easy for someone to decide to invest. Anything that would weaken that story is iterated upon and rehearsed away — refactored, if you will. But certain things can negatively affect how you are perceived — say, being a woman or being over 30 or being Black — no matter how sharply the graph of your growth shoots up and to the right. And if the perception of investors is that people like you (on the basis of things you can’t change) aren’t wildly successful as startup founders, the reality is your demo day won’t be that way.
Is this tech’s meritocracy?
During my three months as a founder in a well-known seed incubator, I watched a Chinese founder be made to repeat parts of his demo day rehearsal to overcome his accent as a room full of white founders giggled while he struggled to pronounce certain words. Some would argue that was an attempt to protect him from investor bias, but the whole scene — and at a fundamental level, even having to do that — meant something was rotten in the state of startup-land. But apparently he wasn’t that hard to understand to the right investors: Four years later, his company raised $25 million.
Women account for 14%, and Black people a paltry 3%, of investment partners at venture capital firms. If Ron and John represent those driving investment behavior, what might far less successful investors be doing?
Malcolm Gladwell offers clues. In his 2005 New York Times bestseller Blink, he says, “We make connections much more quickly between pairs of ideas that are already related in our minds than we do between pairs of ideas that are unfamiliar to us.” What’s a more familiar pairing to a venture capitalist: a Black female startup founder or a white male startup founder? Reader, you already know the answer.
In Blink, Gladwell introduces the Harvard Implicit Association Test (IAT). The IAT’s website describes the IAT as measuring “the strength of associations between concepts (e.g., black people, gay people) and evaluations (e.g., good, bad) or stereotypes (e.g., athletic, clumsy).” Gladwell explains that “more than 80-percent of those who have ever taken the test end up having pro-white associations, meaning that it takes them measurably longer to complete answers when they are required to put good words into the ‘Black’ category than when they are required to link bad things with black people.”
But most relevant for demo day is Gladwell’s explanation for how IAT results are a “powerful predictor of how we act in certain kinds of spontaneous situations. If you have a strongly pro-white pattern of associations… there is evidence that that will affect the way you behave in the presence of a black person… chances are you’ll lean forward a little less, turn away slightly from him or her, close your body a bit… maintain less eye contact… smile a lot less… laugh at jokes a bit less.”
Doesn’t this sound exactly like behavior that could work against a Black or brown founder presenting their startup at a demo day with an audience of mostly white investors? So why not design a demo day experience devoid of opportunities to pass judgment on the basis of attributes founders cannot change?
I propose a similar idea to strip bias from demo day. Demo day would become a funnel-like process with a few twists. In the first round, investors are given a short summary and a uniform set of metrics for each startup to begin determining if it’s a good bet — things like total addressable market size, revenues, growth, the size of the team, etc. These summaries and metrics are anonymized, however. They omit the names of team members or where they went to college — other common sources of bias. At this point, the name of the startup isn’t even revealed.
Many investors believe a founder’s enthusiasm for their startup comes out during pitches and that that can be a sign of their ability to sell. But ask any woman — enthusiasm can be faked.
Next, if investors express interest at this stage, they can watch a recorded pitch with the previous missing details. Then they can express interest again and real conversations can start. Investors who find a way to abuse this or continue to ignore non-white, non-male founders would just be excluded from the process and that source of deal flow altogether. Doing this would also create an interesting way to track potential bias by, say, being able to track how many Black women-led startups get interest at the anonymized stage that drops off when investors see who is pitching.
When I raised a similar point on Twitter — dropping the requirement for a video on incubator applications — someone remarked this may not actually increase diversity. That’s possible. But why not try?
Anonymizing or fudging information at the beginning of the funding process has merit for promoting fairness. In the 2016 study “Whitened Resumes: Race and Self-Presentation in the Labor Market,” researchers conducted a randomized resume audit in which they sent out resumes in response to over 1,600 job postings. The study focused on Black and Asian applicants. The names and experiences of the applicants were “whitened” from names such as Lamar James to “L. James” and from “Lei Zhang” to “Luke.” Experiences such as “aspiring African American business leaders” were reduced to just “aspiring business leaders.”
For Black applicants who whitened both their name and experiences, they received two-and-a-half times the number of callbacks than they did with original, non-whitened information. For Asian applicants, the callback rate was almost doubled by whitening their names and experiences.
For those who would be against doing something like this, why do investors really need to see founders pitch first anyway? If you’re trying to determine how successful a startup will really be, is a well-rehearsed two-minute pitch really going to show that? Many investors believe a founder’s enthusiasm for their startup comes out during pitches and that that can be a sign of their ability to sell. But ask any woman — enthusiasm can be faked.
Also, some say demo day is a celebration, a graduation of sorts, so it’s needed. This is true, but fundraising and celebrating don’t have to happen at the same event.
Diversity is accepting more entrepreneurs who are not young white men with highly pedigreed work and educational backgrounds into incubators and accelerators. This is happening. Inclusion is ensuring when those entrepreneurs essentially pay the high price to join an accelerator or incubator by handing over equity, somebody has worked to ensure those entrepreneurs get a return beyond being able to name-drop that they’re an alum. And no, nobody is promised investment, but a level playing field isn’t too much to ask for.