In Conversation with Melissa Bradley

You wear many hats. Tell us about your work.

I have been doing entrepreneurial ecosystem work for over 20 years. I began as an entrepreneur, faced significant challenges because I was a female, and I was Black. I can say it with confidence, because people said it to my face — Including federal agencies. I realized that while I was able to achieve success, there was already significant friction in the marketplace to get there. I probably intellectualized it, and I began to help entrepreneurs. I went from being an entrepreneur, to helping youth entrepreneurs. I worked with entrepreneurs from a policy perspective — serving both in Treasury with Clinton, and the White House with Obama — and did a couple of intermittent stints in corporate America.

Today I am the Founder of 1863 Ventures, which is an accelerator for what we call “New Majority entrepreneurs.” Looking at demographic data, the New Majority is women and people of color, and those are the groups typically excluded from accelerators. I’m also a professor at Georgetown University, and my most recent research is on the cost of Black and brown entrepreneurship. We have found that it costs at least 250,000 dollars more for Black and brown entrepreneurs as it is for their white peers to start a business. We are trying to bring that to light, share that message, and try to help people understand not just why it is important to invest in Black and brown entrepreneurs, but also the cost related to that, so that you can level the correlation, and duration, and outcomes, with that continued friction that Black and brown entrepreneurs face.

As of November of last year, I also co-founded a VC-backed tech platform called Ureeka to provide coaching and capital to small businesses. I co-founded Ureeka with two white male co-founders, and we were able to secure venture capital, then we were off to the races. Then the COVID-19 crisis hit, and we have become the distribution platform for Facebook and Salesforce grant programs as they seek to support small businesses, and now we do all the coaching that comes with that.

1863 Ventures is also in the process of closing a fund. For a long time, we decided not to enter the capital game pretty intentionally, because we thought there were existing institutions, whether Community Development Financial Institutions (CDFIs), banks, or VCs. Then we had to realize that all of those options are still not readily available, and all of those options are still not adequate for many of our companies. A significant number of founders come to our 1863 programs because they need to reclaim the cap table, for example — they took venture capital too early, and now don’t own a majority of the company any more. We’ve certainly also seen debt become a big problem, as many of them are priced out due to higher interest rates charged to Black borrowers than whites..

We did this because we have found that traditional capital markets are taking away ownership from the entrepreneurs, and the cost of capital was too high. Our research showed that Black entrepreneurs spend 1.5–2 percent more on capital than their white peers. Because of this, the options that were out there didn’t work. So for the 1863 fund, we are focused on revenue-based financing, with a small portion available for convertible debt. The idea is to be less cannibalistic around capital and equity. Revenue-based financing is based on what they make over a month, so we find that it is much more palatable for many of our entrepreneurs.

Tell us about the experience of raising the fund. As the protests began, some large investment firms unlocked a lot of capital and rolled out new funds almost overnight. I imagine your experience wasn’t quite the same.

So we actually started before COVID, and too bad we couldn’t finish before COVID. One of the great challenges is the time it takes to raise a fund. Particularly one that does not mimic what everybody is comfortable with. So there are a couple of dynamics at play here.

We mimicked the entrepreneur journey, and started with friends and family. 1863 is a nonprofit, so we went to many of the funders we had conversations with for the past several years, and then moved from the philanthropic side to the investment side, or the program-related investment side. So we had people who understood our work, who had literally seen our work, and there was interest there to continue. We have yet to have any significant institutions on board, but we are getting there now. It took a long time for people to understand what revenue-based financing was.

Investors really did not get it. They did not understand how an entrepreneur who was generating a million dollars could not get a loan. It really wasn’t until our lead investor came to the program and did a series of interviews and focus groups with our entrepreneurs that they got it. When they heard the stories, they understood that it was still about the same systemic barriers that we still literally see play out on television. So that’s been the trajectory. Since the protests, we have of course been getting a lot of requests.

Dealing with large funders who are now willing to spend a lot of money to address racial justice in entrepreneurship has been frustrating for two reasons. They did nothing except put some money on the street, but they did not correlate the proportion of the money needed either to keep the organization afloat, or to change systemic barriers. There is of course nothing in their corporate culture around how their product can be used, how they parse data, how they share data, all of which could help facilitate change. All they have is a diversity and inclusion person.

My greatest fear is that all this money is going to Black and brown communities, and these organizations will expect us to work miracles with the shackles still on us. Just because they gave us more money, it doesn’t mean the doors have opened to the systems and institutions we need to work with. Funders seem shocked by this when they hear it, which is disappointing at best.

The other piece is that people don’t get revenue-based financing, and they just want to copy and paste what has been working for them. Because of this, personally, I’m not sure all these large funds are going to help us, especially if they are putting in these large checks now, before the companies are even getting started. By the time they get to series B, the entrepreneurs will be lucky if they are going to have 30 percent of the cap table.

All these initiatives are interesting, they spark interesting conversation and make interesting television, but people are not willing to disrupt the system. They just want to throw money at the problem, and it is not going to generate the outcomes that we need.

What are the systemic problems that exist in the field of entrepreneurship support?

There’s a lot, but I’ll narrow it down. There are direct and indirect barriers.

One is lack of information. Your go-to places like Pitchbook don’t track race. So many platforms are petrified to track race, but this lack of information undervalues the journey of underrepresented entrepreneurs, and it undervalues the cost. People don’t have an accurate picture, so they just think — well, it can’t be that hard, if Black people could get some investment, the journey is going to be the same. But of course just because there is one institution that is helping, it doesn’t mean there is a whole roll call of people waiting to give you more money, because our social capital works differently.

The other is lack of social capital. One of the indirect costs that makes the entrepreneur journey cost more for Black people is all the free stuff that you get when you go to an accelerator. Most accelerators, we talk to prefer a team. Well, it costs money to have a team, or somebody needs to have money for two people to be fully engaged in an entrepreneurial journey without having a part-time job, or a full-time job. When founders cannot join an accelerator because they don’t have a team, they miss out on free services, and have to pay for lawyers and accountants the accelerator would provide. As a result, they get worse quality advice, they get lawyers and accountants who are shady, who don’t take them seriously, who want to overcharge them, who are not as good as finding the best solutions for them.

The third one is the fact that our journeys are very different. In the world of pattern recognition and the world of trying to scale, having a full-time job or a part-time job is a different pathway that funders don’t recognize, and one’s commitment tends to be consistently questioned. There is also something called the Black tax. Many of the Black and brown entrepreneurs are older — they have families and they are probably doing better than their parents or grandparents. Many of them have some kind of corporate experience. They are the bank when someone in their family gets into trouble or is short on their rent. So the extra capital you need to support the business does not exist, compared to others with more discretionary income. That takes a toll on a business, because we can’t tap into our savings.

Beyond tracking data and doing more research, what else would you say VC funds and other organizations focused on high-scale entrepreneurs can do beyond just putting money on the street?

In addition to tracking the deployment of capital to Black and brown entrepreneurs, it is also important to understand the extra costs in these entrepreneurs’ journeys, and to level set expectations. So based on the research we have, if I get a quarter million dollars, and my white friend gets a quarter million dollars, it’s gonna be a different trajectory. So you can’t expect the same set of outcomes.

It doesn’t mean we are not going to be successful — and that is where it gets tricky. There is a risk that funders throw up their hands and say that it cannot be done. No, it just means our path is going to look different. Both in terms of direction, and in terms of duration. We certainly have enough examples of entrepreneurs who have been funded, who have achieved outsized performance.

You have to be able appreciate this difference in pathways. From a portfolio perspective, this means you have to share not only the bottom line and the top line, but actually share their expenses, and do a comparison, and figure out how a company’s expenses compare to their peers.

Hopefully that leads to both a dollar amount and a set of terms, and rate of expected return that give the entrepreneur enough space, enough time, and enough support, to still achieve the same level of success that is expected of their peers.

What are some good practices that you have seen in helping black and brown entrepreneurs achieve scale?

One of the best, but probably not sustainable crisis response policies we have seen recently was the deployment of capital to small businesses irrespective of race. The regulation was too complicated, too risky, etc. But the fact that companies and charities were willing to deploy tens of millions of dollars to small businesses to at least stop the bleeding was commendable. Not necessarily the amount, but the fact that they were able to move so fast. With a very little amount of money, you were able to save a significant number of companies. The use of free capital, non-diluted capital in small amounts to lots of people was extremely valuable.

The other is you need to give entrepreneurs coaching and support. We have a saying at 1863 Ventures that ‘No one gets capital without coaching.’ We are not investing in companies without appropriate support. Even in traditional VC, portfolio management is relative. If it is a quarterly call, that is really hierarchical and all you are doing is explain why you are on track, who are you going to talk to when you are off track? That is not the same as coaching. Contextual technical assistance to spend money wisely is particularly helpful for Black and brown entrepreneurs, whose social capital is typically not a bunch of other entrepreneurs. Throwing money at the problem is not the answer.

What are the metrics that we should be keeping an eye on to know that we are making progress in making entrepreneurship more equitable?

That is a hard one. The statistics are scary. More than 50 percent of Black small businesses are gone, and it is unclear if they are going to come back. That is just a bad signal that is going to scare many investors and unfortunately it might taint the water and prompt some people to say ‘see, I told you, Black entrepreneurs are not successful.’ When ironically, we have outperformed other companies in the Great Recession — this just speaks to the significance of the vulnerability caused by COVID. So that’s something we need to keep an eye on: of the businesses that closed, which ones want to come back, and how many do come back.

I also think there is going to be some interesting data to see of the 40 million people who are now unemployed, how many of them are going to turn to some level of entrepreneurship because they won’t have anywhere to go. Even if we talk about some of the people at the meatpacking plants, many of the workers won’t go back because COVID is not going to go away, and better for these people to stay at home and get their unemployment checks.

Then, the question will be: if they turn to entrepreneurship, can they achieve a level beyond a lifestyle business? Who comes back? Which sectors do they come back to? What is the velocity with which they come back? What is the scale at which they come back? If you have a million-dollar business, what time does it take to come back to that level?

Of course it will also be interesting to see who is able to exceed expectations, and where will the capital be coming from. This will be blurry because we see an infusion of capital in Black and brown entrepreneurs now — which might last another month before people say they did all they could. So given this false propping of opportunity, how will founders continue a trajectory when the capital runs out? All of a sudden there are a ton of programs focused at earlier stages, but if at later stages, other institutions won’t pop up, these companies won’t be able to subsidize their growth and become high-growth businesses.

You can follow Melissa on Medium at melissa bradley, or on Twitter at @bradleyml.