No Pipeline Problem: Backstage Capital’s Detroit Plans Spark Excitement

In September, Backstage Capital, a venture investment firm seeding early-stage startups led by women, people of color, and members of the LGBTQ community, launched a $36 million fund to help support black women founders.

At the same time, managing partner Arlan Hamilton said the Los Angeles-based firm would run accelerators in four cities: London, Philadelphia, Los Angeles, and a fourth city that would be determined by a public vote. Earlier this month, Hamilton announced the winning city: Detroit.

Detroit is “a rising standout for entrepreneurs in the Midwest,” the firm said in a post on its site. “Innovation and technology in the city are booming, and Detroit startups are attracting capital from Silicon Valley as well as local investors and government.”

We’ll take a closer look at the region’s rate of inclusiveness in investing. But first, more on the local accelerator program.

Monica Wheat, founder and partner at Venture Catalysts, will oversee Backstage’s Detroit accelerator. The intensive program will last about three months, and each participating startup must have a founder who is a member of one of the “underestimated—we don’t call it underrepresented”—groups Backstage serves, she adds.

Six companies (yet to be announced) will participate in the Detroit program, which gets underway next March. Each startup will get a $100,000 investment in exchange for 5 percent equity, Wheat says, and there will be a “redesigned” non-traditional demo day event at the end to showcase participants’ work.

Backstage got “an insane response” to its call for applicants across all four cities, Wheat says, drawing more than 1,800 applications for 24 spots. She goes on to say that the enthusiastic interest in Backstage’s accelerator indicates the lack of diversity and inclusion among the country’s venture-backed startups isn’t a pipeline problem, as some investors have maintained, but an access and representation problem.

“Connection [to investors] is the biggest thing—it holds a lot of underestimated people back,” Wheat continues. “Founders running scale-up companies just haven’t gotten the exposure.”

“Detroit deserves it,” says Paul Riser Jr., managing director of technology-based entrepreneurship at TechTown Detroit, of Backstage’s local accelerator. TechTown hired Marlin Williams to focus on increasing diversity in its startup community about a year ago, and Riser says his organization has seen an increase in women and people of color in TechTown programs as a result.

“Our ecosystem deserves it and our entrepreneurs absolutely deserve this,” Riser maintains. “I think this is even more than a testament to the entrepreneurial DNA of our great city—it’s a reminder that we have strong allies throughout the country who also recognize the advantages of being in Detroit.”

While that may be true, Detroit also experiences the same funding inequities that other tech hubs do. It can be hard to get a clear picture of the overall investment in local startups, as the numbers vary greatly depending on who’s reporting them, but what the data reveals is that the investment coming into Detroit and the rest of the state is largely bypassing a large swath of  entrepreneurs.

Of the $179 million in venture capital invested in Michigan startups in 2017, a scant $11.4 million went to eight companies led by a woman, person of color, or member of the LGBTQ community, according to state venture capital data. That’s slightly more than in 2016, when $6.8 million was invested in 13 local companies led by a diverse founder. Just nine percent of Michigan’s VC-backed startups were led by an underserved founder in 2017, compared to 17 percent in 2016, according to the state’s report.

National data released Friday from  digitalundivided, which shepherds “high potential Black and Latinx women founders through the startup pipeline,” presents an equally dismal picture. Its ProjectDiane research reports are designed to get a snapshot of funding levels for underserved demographics. The latest report covers companies started by Latinas. It found that of the more than $400 billion in venture capital invested in U.S. startups since 2009, only 0.4 percent of the money has gone to Latina founders—despite the fact that they represent 17.1 percent of the country’s female population.

According to an interactive map on digitalundivided’s website, there are zero venture-backed Michigan startups led by a Latina. California has the most with 29, and New York is next with 13. States with large Latinx populations, such as Florida and Texas, reported surprisingly few Latina-led startups: four and five, respectively. Valeska Toro, founder of Bronx-based Sola Travel, says there’s a simple reason why California and New York have relatively more of them: those states are more intentional about support. … Next Page »

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Sarah Schmid Stevenson is the editor of Xconomy Detroit/Ann Arbor. You can reach her at 313-570-9823 or sschmid@xconomy.com. Follow @XconomyDET_AA

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