Good morning and Happy Tuesday. Welcome to all those joining us for the first time this week. If you aren’t subscribed yet, you can join the crowd of intelligent, curious investors below. 

Instead of taking a deep dive look at an equity crowdfunding offering, we’re going to shake things up a little bit this week. Having brought in so many new faces over the past few weeks, we wanted to use today as an opportunity to expand on our mission and explain what exactly we’re all about.

For a number of reasons, the way startups have traditionally raised capital is fundamentally broken. As you’ll see, using equity crowdfunding as a solution to chip away at these problems is what drives us and is what we have become so passionate about.

Let's get to it.
Building a more diverse startup ecosystem
Venture Capital - an industry that has rewarded few and limited many
In 2019, U.S venture capitalists invested more than $136 billion. On top of that, angel investors added another ~$25 billion.
  • Despite providing roughly $160 billion, obtaining early-stage funding remained extremely competitive. So competitive, in fact, that it was estimated less than 1% of all startups received angel funding and less than .10% received venture funding.
While early-stage investment has soared over the past decade, the funds have been far from equally distributed. The lack of funding awarded to entrepreneurs possessing certain traits, both endowed (gender & race) and acquired (education, geographic location, etc.), can predominantly be explained by the demographics of those making the investments. 

Where the problem starts - investor diversity (or lack thereof)
Tasked with identifying the most innovative ideas, businesses, and founders; early-stage investors, by their very nature, are often the earliest adopters of change. Yet even as leaders of change, they’ve remained stagnant in one particular area – investor diversity.

Women hold over 40% of positions at venture capital firms across the country, but only ~10% of them occupy a decision-making role. And of the hundreds of thousands of angel investors in the U.S., only 22% of them are women. While women tend to place a substantial emphasis on the gender of the founder, men do not.
  • In other words, women are more conscious of breaking down barriers for female-led startups in efforts of creating a more diverse ecosystem. In the male-dominated industry, this has had a profound effect on the types of founders that have received early-stage backing.
In addition to the notable gender bias, there also exists a significant presence of racial inequality among early-stage investors. Accounting for approximately 80% of venture capital partners and 88% of angel investors, white individuals disproportionately control the startup world.
  • Only 3% of partners at venture capital firms and less than 1.5% of angel investors are black. This compares to 73% of the U.S. population identifying as white and 13% as black.
Perhaps even more concerning, an estimated 40% of VCs attended either Harvard or Stanford. To put that into perspective, only .2% of the entire population pursuing higher education at the undergraduate or graduate level will do so at Harvard or Stanford.

The consequences of similarity
I won’t bury the lede here: companies founded solely by women receive less than 3% of the total capital invested in venture-backed startups. Even worse, black and Latinx founders receive less than a combined 2%. And if you didn’t already see this coming, no school yields more venture-backed founders than Stanford. Coming in at third on the list, Harvard is edged out only by Stanford and MIT.

The evidence is quite clear: investors prefer to invest in, and work with, people like themselves.
  • Referred to as homophily, or the tendency for people to seek out or be attracted to those who are similar to themselves, the severe overrepresentation of white males among early-stage investors has created an extremely biased startup ecosystem.
Despite persuasive financial studies that have linked higher investment returns to more diverse founders, funding has remained unevenly distributed. Research has shown time and again that diverse leadership generates better financial performance, stronger innovation, and higher levels of startup success.
  • Teams with more than one gender and/or more than one race or ethnicity represented have been found to produce more than 30% higher multiples on invested capital (MOIC) at the time of an exit. Still, white, male founders have continued to garner the overwhelming majority of early-stage investment.
Diversity among investors, and consequently founders, continues to trend in the wrong direction. Many VCs have promised to be a part of the change, but few have made tangible efforts.
  • The bottom line is this: early-stage investors have failed to adequately represent the demographics of the American population. And as a result of their inability to create a fair and equitable startup ecosystem, they have foregone the superior returns achievable from backing more diverse founders.
The difference that difference makes
As put by organizational theorist, James G. March, groups that are too much alike find it harder to keep learning because each member is bringing less and less information to the table. Homogenous groups are great at doing what they do well, but they become progressively less able to investigate alternatives.
  • As March famously argued, they spend too much time exploiting and not enough time exploring.
Scott Page, political scientist at the University of Michigan, argued that intelligence alone is not enough at the group level. Intelligence cannot guarantee you different perspectives on a problem.
  • The reason that grouping only “smart people” together produces a less-than-ideal result is because the “smart people” tend to resemble each other in what they can do.
When decision-makers are too much alike – in worldview and mindset – they easily fall prey to groupthink. Homogenous groups grow insulated from outside opinion, and thus, more convinced that the group’s judgment on important issues must be right.
  • In a decision-making setting, groupthink has the effect not of opening people’s minds, but of closing them.
Diversity contributes by more than just adding different perspectives to the group. It importantly makes it easier for individuals to say and do what they really think. It expands a group’s set of possible solutions and allows the group to conceptualize problems in novel ways.
The bottom line: it’s essential to good decision-making.

Creating a better way to build tomorrow's future, today
For too long, a rising tide has not lifted all boats. In what has become the most prosperous startup and small business ecosystem in the world, significant inequality has emerged. Where less than 10% of investment has gone to underrepresented founders, opportunity has been passed over. And where venture capital has discredited the decision-making of women and people of color, biases have been created.
  • When we fail to bring more diverse investors to the table, we are failing to invest in diverse founders. And when we fail to invest in diverse founders, we are failing to realize the full potential that these diverse minds have to offer.
The way startups raise capital is structurally flawed. We don’t have all the answers to fix the broken system, but we do know this: we cannot continue to do the same things and expect different results. If we want new outcomes, we need new funding models.

We believe that equity crowdfunding has the ability to be a part of this change. The power of retail investors has been seen, and the genie isn’t going back in the bottle. Driven by individual investors rather than institutions, we have entered a new era of investing.
  • The cost-effective fractionalization of ownership that technology has enabled is propelling a capital markets transition from a tiny number of gigantic balance sheets to a gigantic number of tiny balance sheets.
Through equity crowdfunding, we believe that individuals from all walks of life can together create an unstoppable community that funds tomorrow’s future, today. In order for equity crowdfunding to work the way we believe it can, investors will need education and guidance. It is our mission to empower this community and be a part of this changing landscape. We’ve got a long way to go, but this is what drives us.
Want me to take a deep dive look into a particular offering, ask any questions, or just reach out and introduce yourself? Shoot me an email at Otherwise, I'll see you next week.
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