- Joseph Heller is the founder and CEO of The/Studio Technologies, a Silicon Valley venture-backed startup created to democratize manufacturing and supply chain for small- to medium-sized businesses.
- Heller recounts his upbringing as a half Black, half Jewish student, and how his background informed his decision to be an entrepreneur.
- His fear and resentment of being seen as inferior motivated him to pursue new business ventures throughout high school and college, but he soon experienced the discrimination and racism of the industry.
- He details the toxicity of the startup community, tangible ways Black entrepreneurs can take risks, and how others can challenge the status quo.
- “African Americans, though among the original inhabitants of the United States, have missed out on every economic cycle since the formation of the nation,” Heller tells Business Insider.
- Visit Business Insider’s homepage for more stories.
While venture capital should be the flywheel for investing in ambitious Black founders (who can then reinvest back into their communities and lead the way for other Black founders), the VC community is unfortunately not that accelerator right now. I’d know.
This is my story of how I became an entrepreneur and raised an $11 million Series A from a leading Silicon Valley VC.
As someone that is half Black and half Jewish, I was an outcast from the start.
From the day I was born, I created quite the stir in a very traditional Jewish family. From my earliest memory, I was the only Black kid in my preschool summer science class, where my “best friend” told me his parents said he couldn’t play with me because I was Black.
I was one of the only Black kids in my honor classes in public school, probably the only Black kid in the state science fair, one of only a handful of Black people at my private high school — and there were only 80 Black students out of 5,000 my freshman year at UC Berkeley.
Being the only Black person in the room is draining. It’s accompanied by deep assumptions of inferiority — and every Black person understands this feeling.
This is why there has been an outpouring of support for the movement that has succeeded George Floyd’s death from all professional African Americans who have “made it.”
There is a reason that Obama, Oprah, Michael Jordan, and Kenneth Chenault (one of only three African American CEOs of a Fortune 500) have been complaining about discrimination.
All of the Black CEOs and VCs that I am connected to on LinkedIn who have usually stayed silent on this issue are voicing their frustrations with racism.
Robert Smith, America’s wealthiest African American (with a net worth of $5 billion), investment guru, and manager of private equity firm Vista Equity Partners said that he “faced discrimination based on [his] race as a young man” — and that he still does.
People should really think about what that means: The wealthiest Black person in America says that he had to endure racism and he still does. He has no financial incentive to complain about this problem now and is only doing it because it’s a reality. This is nothing in comparison to the type of discrimination and lack of opportunity that poor Blacks find themselves facing.
Read more: I worked for Refinery29 and the microaggressions, racial bias, and toxic environment I experienced almost made me quit journalism
One of the reasons I made the decision to be an entrepreneur in high school was that I knew I’d never fit into a large corporation.
I knew that working for one would be an endless stream of soul-crushing episodes where I was the only Black person in the room.
It’d mean spending more time thinking about how I was perceived, how I could fit in — and less on how I could add value to an organization. So I decided that I would create my own company with my vision of the world — and my rules.
My family was middle class, but I was surrounded by wealth from both my mother’s side of the family and the private school that I went to. From an early age, I knew that “Black” meant being poor and uneducated — and “white” meant money and privilege.
Every ounce of my being resented people looking down on me and I promised myself that I would create a successful company one day where I — and my employees — didn’t have to endure that.
Since then, I’ve basically never really had a “job.” In high school, I started a web design business. In college, I created a startup which resembled something like the first Etsy. And after graduating from college, I went to China where I started a traditional import and export business.
From there, I started TheStudio.com with the vision of democratizing manufacturing and supply chain for SMBs.
I didn’t have any VC contacts and I don’t even think that I knew that raising venture capital was an option.
So I literally poured every dollar that I made from my import and export business into The/Studio.
In four years, I bootstrapped the company from nothing to a 10-figure revenue business.
We built proprietary software to manage our supply chain; and I set up offices in China, Philippines, and Romania.
I never thought about the company as a lifestyle business. I always believed that democratizing manufacturing and supply chain could create an Amazon or Alibaba-like outcome.
I finally realized that in order to do that, I needed to leave China and come back to the US to figure out how to raise VC money.
I applied to the prestigious startup incubator Y Combinator and we were rejected. I applied for the next season and flew to San Francisco for the final interview. I will always remember exactly where I was when we got the phone call that we had been accepted into YC.
In the end, I decided that the 7% ask from YC was too rich, given that we already had 10-digit revenue numbers and a profitable business.
A college friend — now an entrepreneur and formerly a VC — thought that my company could definitely raise money without YC and encouraged me to find another way.
Read more: As Black Harvard Law School students, we’ve encountered racism at Harvard and elsewhere. But anti-Blackness goes far beyond our privileged Ivy League experiences — it’s deeply rooted in American law and policy.
This was the start of the hardest period in my lifetime. It took us 18 months and over 150 rejections before we finally raised VC money.
I knew just that one friend who was previously a VC in Silicon Valley; he made a few introductions for me and coached me on how to raise money. From there, I took meetings with literally anyone that would agree to meet with me.
It was an extremely stressful period because I was remotely running a company with over 100 employees in four different countries and pushing our marketing team to spend more money — and our sales team to close more deals — so that our growth rates would attract VCs.
But we were a bootstrapped company, so I had to make sure that we managed growth while being able to pay the bills each month. We were literally on the edge for 18 months.
I was actually quite surprised that almost all of the VCs were white men.
Everyone was always very friendly — and nobody ever made any overtly racist comments. But it caused flashbacks of everything that I had left behind when I moved to Asia to start my own business, the condescending feelings that you get as a Black man being in the room with all white men.
My back-of-the-napkin math on how everything played out also supports what I felt at the time.
Around 80% of the funds that I spoke with were pitches to a white partner — roughly 120 funds. I got zero term sheets from every last one of those firms.
I pitched around 30 firms where the partner was someone with an immigrant background and got five term sheets from those firms.
My success rate with white partners was 0%, whereas my success rate with partners with immigrant backgrounds was 17%.
I honestly don’t believe this was a coincidence.
Here’s how the problem plays out with venture capital: the general partners of the fund hire people that they know. Forty percent of VCs went to Harvard or Stanford.
As an outsider, you either believe that people that went to Harvard and Stanford are the only ones qualified to be VCs, or you believe that it’s a close-knit country club that values exclusivity over meritocracy.
Another problem with VCs: They end up sourcing deals from people that they know in their social circles with similar backgrounds.
This means that most of the money goes to other white males, which dominate venture capital, creating a closed feedback system.
Again, the data backs this up looking at the founders’ backgrounds for companies that get funding: “Out of the 9,987 founders included, only 9% of startup founders were female, 17% identified as Asian-American, 2.4% as Middle Eastern, 1.9% as Latin American and just 1% identified as Black,” according to MarketWatch.
If you give $50 million to a white, male entrepreneur who is well known in the VC circle and the investment doesn’t pan out, nobody will say anything. This happens all of the time.
There are tons of dumb or untenable ideas that get funded by VCs like WeWork, MagicLeap and my favorite, Juicero, which raised over $120 million. (They were famous for selling a $400 juicing machine which made the same thing you could if you just squeezed their packets with your hand and didn’t buy the machine.
The incredible thing is that some of the most talented VCs in Silicon Valley were in on Juicero’s deal. I’m certain that a Black person would not have been able to raise $120 million with such little scrutiny.
VCs meet thousands of founders a year and will only do a handful of deals.
They are programmed to look for a reason to say no, and given the unconscious bias that people have toward Black people, and the fact that Black entrepreneurs are generally not in VC networks, it’s very obvious why only 1% of VC funding goes to the Black community.
Now, I do give VCs credit for making an attempt to become more diverse, albeit with outside pressure. It’s not easy to accept that you’ve had privilege and to go out of your way to try and distribute power to people that don’t look like you and have different backgrounds.
I’ve traveled around the world and conversations of ethnic and male privilege are hardly conversations that the elite of other countries would entertain.
In fact, I think this very unique American, liberal quality of challenging the status quo is extremely encouraging from an entrepreneurial perspective.
Besides it being the right thing to do, VCs are missing out on huge opportunities by not having more diverse partners and sourcing deals from a more diverse group of entrepreneurs.
I’m encouraged: For the first time, this may be the catalyst to encourage a few brave funds and corporations like PayPal and Softbank to prove that not only is diverse investment the morally right thing to do, but it is financially advantageous as well.
Now as far as African-American founders, I do think Black people have a responsibility to take more risks. I’ve found that a lot of highly educated African Americans would rather take the cushy job at a well-funded startup or at Google or Facebook then risk their own business. I feel the logic is they’ve fought their entire lives to get where they are and that they’ve become quite risk averse.
I understand that. There was a point in the process when I was raising money where, frankly, I thought I was the dumbest person on Earth for ever thinking that my company could raise VC money.
Read more: 5 conferences that are helping black women and women of color overcome gender inequality in tech — and how to land a coveted spot
The stress got to the point where I didn’t want to live anymore.
But I kept pushing on, even when I knew that it would have been much easier if I were white.
If you look at the history of Black Americans, they’ve had to fight to prove they were good enough to be in the military, politics, baseball, the Olympics, golf, football coach offices — and there were often laws that actually restricted them on top of social difficulties.
America has a very real problem with assuming that African Americans are inferior — and every time, African Americans prove America wrong and excel. We’re at another one of these moments with Black entrepreneurs. VCs have put up barriers — some conscious, some unconscious — and they will be proven wrong again and shown that Black people can be great entrepreneurs too.
Hopefully, this is the last frontier, and I’m the last generation that has to prove themselves, because frankly it’s getting old.
Besides Native Americans, Black Americans have been in America longer than most immigrant groups including most Europeans in the US and yet have been treated worse throughout its history. If we can work to get African Americans to the point where they can fairly compete in this new technologically-driven economy, then there is hope for literally everyone else in America.
The coronavirus pandemic has changed the pathway to the American dream. You must now truly either be highly competent in STEM or have the ability to think like an entrepreneur.
If you don’t possess these skills, you become a slave to technology and are forced to work for Uber, Lyft, or Instacart — life as a digital serf.
Alongside this social revolution lies another hard fact:
African Americans, though among the original inhabitants of the United States, have missed out on every economic cycle since the formation of the nation.
They are at extreme risk of being left out of this shift to a technology-based economy, too.
Every American in 2020 should care about the intersection of these realities for two reasons:
- It is an undeniable fact that institutional racism has excluded African Americans from the financial success of this country. We should not be proud of that. But we have the opportunity this year to be proud of being a country that leveled the playing field in a single generation after treating them so poorly for centuries.
- Not only are African Americans at risk of being excluded from this new technology-driven economy, but so is every other ethnic group (including whites) if they are not from privileged backgrounds. If we can improve the condition of the most disadvantaged group — African Americans — then we can copy and paste that formula for everyone else for economic equality across races.
Otherwise, there is a real risk that America becomes a nation of a few hundred-thousand digital oligarchs. The rest of us? Digital slaves.
Joseph Heller is the CEO and founder of The/Studio Technologies, which operates TheStudio.com and SuppliedShop.com.
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