Startup Funding In Austin, TX Finds Its Way To Minority Entrepreneurs

Austin is known for a lot of things including a booming tech scene and sharp increases in population. But one thing the Texas capital is not receiving (positive) recognition for? Being diverse.

A number of organizations and entrepreneurs are hoping to change that. This story is the first of a three-part Crunchbase News series looking at diversity in tech in Austin and the Lone Star State as a whole.

Let’s be clear that this problem is not exclusive to Austin. Just three percent of America’s venture capital-backed startups are led by women, and only around one percent are led by African-Americans, according to a 2015 White House press release. Additionally, only 17 percent of startups, venture-funded or not, are founded by women.

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For this first article, I interviewed a few minority startup founders about what it’s like to be an ethnically diverse entrepreneur in an industry that’s been accused of, quite simply, being too white.

Joah Spearman, Founder & CEO of Localeur

When Joah Spearman launched Localeur right before SXSW in 2013, the site consisted of recommendations on places to eat and drink for travelers to use. Today, the site features more than 50 cities around the world, has partnered with JetBlue Airways, and it is close to profitability, according to Spearman.

And all that with no venture capital funding.

Spearman, 34, believes that entrepreneurship by nature is intended for a “very small group of people.” But being a black founder puts him in a smaller minority of what already is a minority group, he said. In fact, Austin has a declining African American population while its overall population continues to grow, according to an analysis by the University of Texas.

“I grew up very poor with free school lunches, and I was the first in my family to go to college,” Spearman said. “But I believe my background helped me to have a level of grit, determination and perseverance that founders with a little more privilege might not have.”

In his experience, black founders face an inherent and often unconscious bias when seeking capital. But Spearman has tried to make his being “different” work to his advantage.

“I don’t have to live up to built-in expectations to fit the norm, since I don’t fit that typical white male, Ivy League-educated engineer norm,” Spearman said. “I’m replaying my determination and grit in the form of entrepreneurship and business.”

So far, his strategy has worked. With Spearman’s lead, Localeur has raised close to $3.5 million from angel investors – a group that he describes as robust and diverse.

“My investors include African-American men and women, gay and straight people, white men – the whole gamut,” Spearman said proudly. “I believe my investor base should be as diverse as the global industry we’re serving, which has not traditionally been the case.”

Among those investors are Heather Brunner, CEO of WP Engine; Blake Chandlee, former VP of Global Partnerships for Facebook and current EVP at Outcome Health; Brett Hurt (founder of Bazaarvoice and data.world), and Tyson Tuttle (CEO of Silicon Labs), among many others.

Sabari Raja, Co-founder and CEO of Nepris Inc.

In 2013, Sabari Raja and friend Binu Thayamkery co-founded Nepris, a startup aimed at leveling the playing field for all students in STEM, especially girls and minorities.

While working in the education division of Texas Instruments, Raja realized there was a gap between industry and schools. So she co-founded Nepris, a cloud-based industry connections platform that enables teachers to connect his/her classroom to the real world by exposing them to real job skills and diverse role models.

Since its inception, Nepris has won 18 awards and raised $1.65 million dollars from prominent impact investors like the Michael and Susan Dell Foundation, New Schools Seed Fund, and Village Capital. Today, there are nearly 25,000 teachers and over 20,000 professionals on the Nepris platform. The business has partnerships with companies such as AT&T, Samsung, and GM. Revenue grew threefold in 2016.

As a woman of Indian descent, Raja said she was oblivious to the challenges she might face due to her ethnicity or gender when starting out.

“From day one, I never consciously thought about the bias in fundraising,” she said. “I thought if I do all the right things and work with the right people I will be able to raise money.”

That is until a conversation she had a couple of years ago with a “well-known” female investor.

“She told me that our solution was great and that I was clearly passionate about it,” Raja recalled. “But then she asked if my male co-founder accompanied me to funding pitches. When I told her sometimes, she advised me very seriously – ‘If you have a male co-founder, take him with you. It immediately increases your credibility. You need to ‘Bro up.’”

Raja was shocked by the advice. But she realized quickly that the investor was just speaking realistically after she cited a study finding that a pitch delivered by a man had a 60 percent greater chance of being funded.

“It wasn’t good,” Raja said. “But it was reality.”

For her part, Raja believes her ethnicity and gender has only served to help set her apart from a room full of white male entrepreneurs.

“Sometimes I think I can get people’s attention because I’m different, like when there’s 10 white guys pitching and I’m the only woman,” she said. “So I look at that as an advantage. I just know that I better be ready to be really confident and rock a presentation.”

Raja can only recall one instance when she felt her gender was an issue. Once at a software conference, an older male investor commented on her appearance after a pitch, rather than what her company did.

“I knew the market and what I was talking about,” Raja said. “But none of that mattered to him. He told me what I had going for me was how I looked.”

But despite what she describes as a lack of direct bias, Raja acknowledges that her challenges might be greater if she were of a different race.

“Of course, in tech, there’s [fewer] women in general, although that’s probably less true in edtech,” Raja said. “But I think there’s this stereotype that if you’re Indian you’re more likely to be good in math and science even if that may not be true.”

Francisco Bonilla Kuhlmann, Co-founder and CEO of Altruus

Francisco Bonilla Kuhlmann first moved to Austin from his native Mexico in 2012. Soon after, he co-founded Altrüus, a gift-giving platform focused on giving retailers a new mobile sales channel through its user-paid option, and a highly efficient marketing tool through its business-sponsored option.

So far the company has raised about $155,000 from angel investors, and it is in the process of raising another $750,000 to scale.

Bonilla Kuhlmann said so far he hasn’t perceived any bias from potential investors due to his ethnicity.

“I’ve always been treated super nicely and face the same challenges as any other entrepreneur,” he said. ”I think if you’ve got the numbers, traction and solid arguments, it all works.”

For Bonilla Kuhlmann, the only bias he’s found has nothing to do with race and more to do with business model.

Austin, he’s found, is more B2B-focused.

“Companies are more likely to get funded if they’re B2B, or in the AR, VR, AI spaces,” he said. “It’s much harder to raise funds when you’re focused on the consumer.”

Next up in our series: We’ll chat with Austin-based organizations focused on increasing diversity in the city’s tech scene.

Illustration: Li-Anne Dias