At the big city charter school she ran, Ashley Edwards was surrounded by future artists, writers, and engineers who radiated talent and grit. Many of her students were driven to succeed despite encountering racism, poverty, and community violence on a routine basis, she said.
“I’d generally describe them as survivors,” Edwards said of the young people at Newark Prep Charter School in New Jersey. In communities nationwide, young people growing up in Black families and in households with low incomes regularly endure frightening or threatening situations – the kind of stresses that inflict lasting
damage on a child’s mental and physical health.
To help students facing these conditions in Newark and around the country, Edwards in 2019 founded an app-based service called MindRight Health to provide daily mental health coaching geared to youth of color. A team of culturally compatible coaches is on duty every day of the year, offering advice about managing problems big and small – and delivering them via text message. Students pay nothing. MindRight is hired and paid by community health partners like schools and state Medicaid programs.
MindRight is a pathbreaking project, and not only for the students. In launching the company, Edwards became one of the nation’s few Black women to obtain significant venture capital (VC) for a start-up. While investments in health care start-ups are on the rise, MindRight is a rarity in VC portfolios – a firm founded by a person of color to serve people of color.
A Notable Exception
Although Black women have high rates of entrepreneurship, few have access to the significant capital needed to scale their businesses. Edwards became a notable exception last summer by raising more than $1 million from funds and programs, including some pursuing the explicit goal of supporting founders from under-represented groups.
Strategies for Ensuring Diversity and Inclusion
StatZero, Kapor and many other venture capital firms are tackling their industry’s need to support founders representing diverse communities and backgrounds.
The CTIP landscape survey just published by CHCF outlines impactful strategies to improve diversity and inclusion among investors and start-ups. They include:
• Investing directly in start-ups with Black, Latinx, and female founders
An accompanying online database details many real-world examples of these and other strategies in action.
– Diana Williams
The lack of diversity among investors and start-up companies they cultivate has been well documented for years. Little progress has been made. This problem, which reflects the broad demographic misalignment present in many American institutions, gained renewed attention in May when the shocking killing of George Floyd by a Minneapolis police officer sparked protests around the world over systemic racism. Many organizations and industries, including venture capital, are reexamining the role they play in perpetuating inequities—including where previous efforts fell short and what will be required to foster meaningful change.
CHCF is examining the same dynamic within its Innovation Fund portfolio. The fund was launched in 2011 to invest in emerging companies offering innovations that help providers, health systems, and payers give better care to Californians in the safety net, which is disproportionately composed of people of color. A recent analysis of the fund’s 16 investees revealed that the entrepreneurs behind them are disproportionately White. CHCF has committed to diversifying the Innovation Fund investments.
Against this backdrop, CHCF sought perspective from the West Coast Consortium for Technology & Innovation in Pediatrics (CTIP) and the Children’s Hospital Los Angeles (CHLA) Innovation Studio – two organizations dedicated to supporting promising start-ups. The foundation commissioned the CTIP-CHLA team to gather current data on diversity in health care VC and to summarize interventions designed to expand opportunities for founders and investors of color. The findings were significant.
As of August, just 2.6% of all VC funding raised in 2020 had gone to start-ups whose founders identify as Black or Latinx — two groups that represent nearly one-third of the US population. Venture capitalists invested an impressive $87 billion in US firms through August, 2020. And even though women make 90% of health care purchasing decisions in their households, only 2.7% of all VC funding in 2019 flowed to start-ups founded by all-women teams.
‘Warm Introductions’ or Exclusion
Venture capital is a famously clubby field dominated by White men, who tend to invest in people who belong to their networks. An entrepreneur seeking an investment is more likely to obtain a first meeting and subsequent funding from a venture capitalist if they know someone in common. This is a common networking practice known as a “warm introduction” rather than a cold call. Investors also favor start-ups that already have secured some initial funding. Some VC firms see the ability to score those early funds as a prerequisite for granting support. That’s why Black and Latinx founders, who have less access to seed capital and fewer friends and family able to fund early investment, are shut out of many VC deals, thereby keeping the playing field uneven.
You have to have skin in the game or have a personal interest in order to overcome all the obstacles to developing a health care company.
Such practices are not only unfair, they represent a poor business strategy, said Kathryne Cooper, co-director of CTIP. Start-ups with diverse staffs can identify a wider range of problems to solve and market gaps to fill and are more profitable, research shows.
“There are so many innovations being left on the table if you are not investing in different perspectives,” said Cooper. “People who have diverse lived experiences identify different problems.”
Breaking the Cycle
As a Black physician in Chicago who cares for elderly patients of color and people with lower incomes, Eric Whitaker, MD, watched patients struggle because they lacked access to vision, dental, and hearing services. Those categories of care are not covered by traditional Medicare, so Whitaker created a plan that would – Zing Health.
Whitaker found support for his idea at Kapor Capital, an Oakland-based social impact investor. Kapor partner Ulili Onovakpuri helped pen the deal to launch Zing Health, a Medicare Advantage plan focused on serving seniors of color, including those with low incomes. Zing also received funding from an incubator sponsored by the American Medical Association that helps build health tech companies.
Onovakpuri was impressed by the relevant personal experience that Whitaker brings to the problem he wants Zing to solve. “You have to have skin in the game or have a personal interest in order to overcome all the obstacles to developing a health care company,” said Onovakpuri, 35, who is Black.
Health care start-ups generally have a harder time winning VC investment because they have to show their service can reduce costs or improve health—not just garner clicks or downloads. By the time a health care start-up is viable, significantly more research, time, and capital have been expended by the founder than for other types of start-ups. That dynamic disadvantages minority founders who have less access to financial support from investors, Onovakpuri said.
In looking at the demographic balance within her own portfolio, which includes investments in the realms of education, financial services, and health care, Onovakpuri realized she had no health care founders who were women of color. It was a wake-up call. She undertook research that led to new partnerships, and it led her to invest in Curve Health, a telemedicine platform co-founded by a Black woman to help seniors in skilled nursing facilities.
At Kapor, investees must sign a “founders commitment” pledging their own staff will reflect the population they serve. To help fulfill this promise of diversity, Kapor offers technical assistance through its “director of talent,” who scouts for staff from under-represented demographic groups and connects them with Kapor investees.
Valuing ‘Distance Traveled’
StatZero is a Los Angeles-based impact investment firm that aims to eliminate disease, poverty, and pollution. It’s led by Jessica Salinas, one of the few Latinx women in the US who serves as a VC partner.
When evaluating a start-up, Salinas considers “distance traveled,” a metric that assesses a founder’s personal journey as much as their educational background or the extent of seed investments from friends and family. The level of tenacity shown by the founder in beating those odds is a reliable predictor of success, Salinas said.
“It’s hard to get capital if you are first-generation or if you didn’t go to college, because VC is a social capital game,” said Salinas, 32. “It invests in White men.”
Salinas examines the start-up’s executive team and looks at everything from demographics to whether salaries are equitable. She examines whether founders and team members reflect the demographics of the communities their company intends to serve. If they don’t, it raises questions.
She recalled a conversation with a start-up founder that revealed a lack of staff diversity. Within two weeks, the founder made key hires to diversify the team. “We pointed it out just by asking the question,” Salinas said.
Finally, StatZero takes a hard look at whether a start-up might cause unanticipated harm.
“People want their impact to be for good, but it’s important to talk about potential harm, because you can mitigate the risks and get ahead of it,” Salinas said. “Imagine if Facebook had done that.”
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