Marceau Michel’s idea for a new on-demand staffing company, Werkhorse, was good enough to win a startup pitch competition and a coveted spot in a tech incubator in Portland, Oregon, two years ago. But no matter what he did, Michel could not seem to land the funding he needed.
As he met with mostly white investors, he had a sneaking suspicion that he was not getting a fair hearing. “I ran into that glass ceiling of being a Black entrepreneur,” he said. “I kept having the goal posts pushed out on me.”
He was told he should first try to obtain more money from family and friends. Or to offer more proof that his idea would really work. Or to reach out again a little later.
After months of frustration, Michel unleashed a material cri de coeur: a T-shirt bearing the phrase Black Founders Matter and an upraised fist. There was no plan behind it, and he had little time to devote to selling the shirts. He set up an e-commerce system on Shopify to automate their sales and turned his focus back to Werkhorse.
While he wasn’t paying attention, the shirts changed the course of Michel’s career: They were the catalyst for a new investment fund dedicated to Black-owned businesses that the accidental venture capitalist sees as entwined with racial justice.
Even with the pandemic upending the economy, Michel raised $1 million for the fund over the course of a month this summer. Those contributions arrived as protests proliferated across the country in response to the death of George Floyd, the Black man who died after a Minneapolis police officer knelt on his neck for more than eight minutes.
The fund’s $10 million goal is modest compared with those set by Silicon Valley investors — the median size of all venture capital funds this summer was $100 million, according to data by Pitchbook — but Michel plans to put its resources into companies that he views as strengthened by the obstacles they must overcome.
Black startup founders face far more difficulty raising money than their white competitors. The Ewing Marion Kauffman Foundation, a charity based in Missouri that promotes education and entrepreneurship, surveyed more than 500 founders and found that outside investors and lenders put up about two-thirds of the money that white startup owners use to start their businesses, while Black owners had to put up more than half themselves. On average, 17% of the funding to white startups came from investors, compared with 1.5% for Black founders.
“I see the pain, the frustration, of: ‘Can you see me? I am viable,’” said Philip Gaskin, the foundation’s vice president for entrepreneurship, who works with Black business owners to help them raise capital. “The inequities have been there for a long time.”
Several groups, like Black Angel Tech Fund and the New Voices Fund, already focus specifically on supporting Black business owners, and they are far larger than Michel’s modest operation. New Voices, for instance, has dedicated its entire $100 million heft to funding startups owned by women of color. And in this moment of heightened attention on racial equity, the venture capital community at large has been rushing to pledge additional support for minority-owned businesses.
But rarely is a fund started by someone like Michel. He does not come from great wealth or even startup success. Instead, he is turning the frustrations he faced with his first company into a way to help others overcome the same challenges.
And more than most venture capitalists, Michel can relate to the business owners he is seeking to support. The son of Haitian immigrants, Michel grew up in Queens in a family that was financially secure but that had little to spare on speculative investments like Werkhorse.
“My parents came from poverty, so they had turned over a leaf of being stable and raising me in a stable environment,” Michel said. “They didn’t have the capital to give me to invest.”
But even as the typical barriers Black startups face were stalling Werkhorse, Black Founders Matter was gaining momentum.
Rick Turoczy, a founder at the Portland Incubator Experiment, where Werkhorse was based, put the Black Founders Matter shirts on his blog, Silicon Florist. So far, Michel has sold about $10,000 in shirts.
Michel began to tell his story to local business publications, and it resonated. “There weren’t many voices, Black voices, that were asserting themselves in this space,” he said. “I happened to be one that someone caught wind of.”
A report in Black Enterprise Magazine was spotted by the mother of a reporter for TechCrunch, who then contacted Michel for an article. “That was the interview that changed the future of Black Founders Matter, because she asked what I wanted to do besides sell T-shirts,” he said. Without hesitating, he blurted out an idea about starting a venture fund for Black-owned startups. When the reporter asked how much money he would raise, he picked a number — $10 million — and was surprised when it became the headline.
Michel’s advisers — including Turoczy — saw an opportunity for him.
“They said: ‘We love what you’re doing and we want to help,’” Michel said. He put Werkhorse on hold, and the Portland Incubator Experiment’s leaders introduced him to the managing director of a Portland-based venture capital fund, Rogue Venture Partners. Michel spent six months at Rogue absorbing the customs and procedures of venture capital investing.
By March 14, 2019 — his 35th birthday — Michel was ready to share a pitch for a venture fund. He presented it to a packed theater in Portland for the incubator’s annual pitchfest: Pie Day, the crowning event of Portland’s startup scene.
Michel explained to the crowd how the hurdles that Black business owners face make their businesses more resilient and safer for investors. He pointed out that only 1% of investment in tech startups went to Black entrepreneurs, and that although Black women owned 12.5% of all businesses in the United States, they got only 0.02% of investment. And he highlighted examples of Black founders who had excelled — and made boatloads of money for the investors who dared to help them.
“Investing Black is financially viable,” he told the crowd. Then he announced the creation of the Black Founders Matter fund.
Stephanie Kelly and Jason Saunders, a white husband-and-wife team of startup investors, were drawn to the potential of the companies Michel wants to support. “If you look at the return on investment there, it’s stratospheric compared to the broader venture universe,” Saunders said. “It’s kind of the other end of the spectrum from the Bay Area tech bros who have an idea and get $100 million.”
Even though the Black Founders Matter fund hasn’t handed out any money yet, Michel has already steered funding to one project. In June, he and Himalaya Rao-Potlapally, a venture capital consultant who has become a partner with him in the fund, announced that they had invested $40,000 in a Black-owned startup publisher called A Kids Book About. Saunders and Kelly put up $25,000.
The publisher produces books to help children and parents talk about difficult subjects like bullying and divorce. Jelani Memory helped found the publisher after writing a book for his own children about dealing with racism.
He had such a hard time raising money at first that he found ways to minimize his costs, such as using a print-on-demand service that produced a copy only after a customer had paid for it. That meant Memory’s business was profitable almost from the start.
“When people really start seeing the metrics, there’s going to be a landslide in that direction,” said Saunders. He said he and his wife were eager to take part in the $10 million fund.
Recent months have provided Michel’s fund with obstacles, but also a renewed sense of purpose.
After the onset of the pandemic, “everything went dead” for the fund, Michel said. “I felt like, maybe this isn’t the right time to be doing this.”
Then came Floyd’s death in May. Suddenly, Michel’s idea was not a whisper on the fringe of the venture capital industry but part of a broader discussion on racial equity.
Michel began attending protests in Portland, which has had some of the country’s most visible demonstrations, and spoke at some of the gatherings. He believes ending police brutality is just the first step toward racial equality.
“If police officers are not killing Black people anymore, does that mean that Black lives are inherently better?” he said.
Without better opportunities for Black Americans to build wealth, Michel said, “we’re still locking them out of prosperity.”