Request for Feedback: an “opportunity fund” for underrepresented founders

Hello Hacker News, looking for feedback on how we could expand our "funding for bootstrappers" model to better serve underrepresented founders. Suggestions, comments, critiques, all very much welcome here. Thanks.

I agree with the thoughts and suggestions already expressed in this thread. It's great that you guys are thinking about this and want to make a difference but I will also add that I've looked at the team in Earnest Capital and there is zero diversity, which for me is a huge problem. That may be part of the reason why your portfolio/deal flow is mainly white male-owned companies. As a black female founder building a product targeting women, looking at your team structure, I would not consider applying to your fund because I wouldn't be convinced that you will understand my product/the need I'm addressing. Having a diverse group of individuals in the investment team is key because at your current state, you won't be able to quickly spot or identify with the nuanced experiences that minority founders face.

I personally think that the first step you need to take is improve on the diversity of the team or else you will still run into the same problems you're currently facing.

Also, reaching out to communities that put diversity at the heart of what they do would be a good step to take. I am based in London and there are a handful of communities with outstanding but overlooked founders - happy to share them with you if you want.

Happy to help in whatever way I can to make this a reality!

Love what you're trying to achieve here.

My main worry is how you can do this at a non-net-negative return for your fund while also not coming across as predatory to the people you're trying to help.

> We often talk about ‘bootstrapping’ but very few founders actually build a business with literally no outside capital, savings, or help. In our personal experience, from asking lots of founders in private, a large portion used their own accumulated savings from a high paying job, had a spouse that covered the bills, had a windfall or inheritance, or relied on loans and help from family members. Every one of these is systematically harder in some way for founders of color, female founders, LGBTQ founders, and founders from underprivileged geographies. Note, none of these are insurmountable and we all know folks in every one of those categories who has successfully bootstrapped a business, but bootstrapping as we know it is systematically tilted against underrepresented founders in a way that we believe justifies a countervailing strategy.

You seem to be arguing (and I'd agree) that underrepresented founders find it much more difficult to get to the point at which Earnest (and others) would normally invest. What with them not having access to the considerable personal or F&F capital necessary to get there.

So it seems like you'd have to invest earlier, when there's more risk.

Now, I'm happy to believe that - because these founders are underrepresented - you can find 'better' founders overlooked by others.

But still, at that early stage, the risk will be significantly higher than at the P/M fit, post-revenue stage.

So I'd love to hear how you plan to offer terms that won't be called out as predatory (or somehow taking advantage of underrepresented founders) by others?

Some thoughts that spring to mind:

The first step to becoming more diverse is acknowledging the lack of diversity.

To get diversity more effort needs to happen in reaching out, most people don't do this because it requires extra work. As you mentioned, many people feel these things are not for them. Or perhaps they lack the confidence/skills/bravery to take things or even to enquire about the investment.

I saw the founders of Code Untapped give a talk the other week. They run hackathon/meetups and they are always experimenting and changing the times of them to try to reach more people who otherwise might not be able to attend.

And if you want to reach a diverse audience have diversity in your team, easier said than done, I know. But if you do things like Venture Partners, you could make a point of only having Venture Partners who are minorities. But also be prepared for white males to kick up a stink if you do this <--- I see this a lot!

I don’t have much input on the underserviced founder description. As someone in Florida where we literally 2-3 real VC’s, I consider our market underserviced regardless of race, gender, creed. But I understand and support helping any Founder, whatever the angle for identifying them.

Regarding your underlying criteria here: “We expect founders to find a way to build and launch a product, get some amount of revenue traction, and have a roadmap to build the company profitably without relying on too much additional outside capital.”

This resonates with me and I would like to provide some fruit for thought. I am actually in the process of launching a startup studio with the investment thesis of:

<$50k for startups with large TAM’s (>$b) that can get product market fit in less than 90-days of the first $1 invested, and that can generate +EBITA within 12-months of the first $1 invested for $1-3m Seed.

Here is feedback on my model and thesis. It may help you refine yours and if I can be

I am going the studio route because I believe you need distributed teams. (specifically senior management, dev (support), design (brand/product)) in order to gain economies of scale in order to build such disruptive ideas efficiently.

I call this concept a “Venture Lab” because unlike a studio I want outside founders to join with their ideas. So imagine an accelerator married with a studio.

Here are some things to consider when your focusing on profitable startup building:

Speed is the key. The longer it takes to build, the more burn. Hence my requirement of product market fit super fast. I define product market fit as the ability to generate revenue organically or through profitable customer acquisition models.

If your going to be profitable fast... you have to be lean. Many vc’s want “great teams”. Unless the team has wealthy parents or some other means, they need to get paid. Therefore using precious cash. It’s a conundrum.

Furthermore most founders have never spent tens of thousands or hundreds of thousands or millions of dollars that they are responsible for. It’s really different when your signing the check. If you can’t afford a great CFO who is doing a burn analysis and showing you your runway every few days you can quickly crash and burn. Your certainly not going to build a great product if your constantly running out of cash and fundraising (what I call “scrambling”).

So to recap: Speed > Lean > Cash/Resource/Time Management

Hence why I feel we (experienced distributed team called “the Lab”) have to be active in the venture building with the Founder.

The model has thousands of years of evidence of working: war fighting. Whenever you see numbers of soldiers deployed to a conflict, only 10% are actually war fighting. The rest are support, supply chain, logistics, etc. supporting the 10%. Same concept.

So the gist of my feedback is Don’t just write a check to underserviced founders, because their going to need a lot of support to: have a plan.