The Importance of Backing Diverse Proptech Founders

The Importance of Backing Diverse Proptech Founders

[Editor’s Note: Below is the full text of our 225th Weekly Transmission, originally delivered direct to the inbox of more than 600 GEM members on August 31st, 2022.]

Demographics are changing rapidly in the US, and business leaders are scrambling to ensure their organizations reflect these changes. As the focus on diversity, equity, and inclusion (DEI) sharpens, it’s important to understand that these pursuits should not be viewed as purely altruistic.

Companies that prioritize diversity, equity, and inclusion outperform their competitors in earnings before interest and tax. According to a recent McKinsey report: “Companies in the top-quartile for ethnic/cultural diversity on executive teams were 33% more likely to have industry-leading profitability.

The report also found that, “Companies in the top-quartile for gender diversity on executive teams were 21% more likely to outperform on profitability and 27% more likely to have superior value creation.”

The younger generation of consumers is diverting their dollars to businesses that demonstrate diverse, equitable, and inclusive values. Work teams that are more diverse consistently outperform their homogenous counterparts 87% of the time. It’s clear that in addition to addressing social issues, DEI efforts are also good for business.

A DIVERSE UPBRINGING
As a Filipino American growing up in a predominantly White community in the San Francisco Bay Area, I dealt with racism many times. I also saw other forms of bigotry stand in the way of people’s goals.

I grew up in a real estate family that operated a San Francisco-based real estate brokerage founded by my aunt, Virginia Buban, in the early 1970s. Virginia never married or had children, so I was like a son to her and was her broker-in-training. I worked open houses, answered phones, and watched her intently as she interacted with clients, absorbing everything I could.

I witnessed firsthand the obstacles my aunt had to endure. Being an immigrant, being a person of color, being a woman in a male-dominated industry—all of these barriers set her up for failure. But she overcame those challenges. And I believe she was able to do so because of her traits, not in spite of them. Being marginalized is extremely trying and, at times, can create despair and heartache. But it also brings out courage, grit, and tenacity: the very qualities that make successful entrepreneurs.

Those experiences with my aunt, combined with my lived experience as a minority and my decades of industry experience as a real estate broker (and now venture capitalist), have taught me that there are four essential traits a startup founder needs to survive and thrive:

  1. Extreme resilience
  2. Highly competitive nature
  3. Unconventional problem-solving
  4. Rapid adaptability

Unsurprisingly, entrepreneurs from marginalized communities tend to possess these attributes in spades. This is what inspired me to start Twenty Five Ventures (25v).

25v’S WHY
Two years ago, I set out on a journey to find and invest in other entrepreneurs like me—people who’ve faced bigotry in its various forms and who’ve been judged for being different. Our fund doesn’t just target non-White founders. We aim to invest in businesses headed by people from all demographics, including race, creed, gender and gender expression, sexual orientation, ethnicity, national origin, religion, and lower socioeconomic backgrounds. The fund was started by three partners who are minorities themselves—people who have walked in the shoes of the founders they invest in.

While I believe that a strategy to invest in diverse businesspeople can be profitable, we also seek to address the astounding disparity between VC funds funneled to White male founders versus marginalized founders. A recent NPR article underscores the inequity of private equity (PE). It highlights both the need for diversity on the equity side and the lack of investment in diverse companies.

“When [just] 16% of investment partners at VC firms are women, three percent are Black, and four percent are Latinx, it’s not shocking that women founders have received [only] 1.9% of venture dollars so far in 2022,” said Rebekah Bastian, the CEO and co-founder of OwnTrail.

The article further illustrates the gulf between investments in minority and non-minority founders. WeWork founder and former CEO Adam Neuman announced a new startup and was quickly given $350 million by a major VC firm.

In contrast: “Black-founded startups in the US raised less in Q2 2022 in aggregate ($324 million) than Adam Neumann received in a single check from Andreessen Horowitz,” said Bastian.

One white founder received more VC funding than all Black entrepreneurs did in the same period!

DEI IS THE PATH FORWARD
Many American corporations continue to struggle with diversity, especially at the highest levels of leadership, and their bottom lines are suffering as a result. That’s why it’s so important to invest now in young companies and startups that make DEI a foundational part of their organization. After all, it’s easier to build a diverse company from the ground up than to “retrofit” diversity and inclusion into an established, rigid corporate structure.

I wholeheartedly believe that successful DEI within PE has proven that diversity is a winning strategy. Diverse founders bring individual resilience, a highly competitive demeanor, and a passion to think outside the box—all traits that are often nurtured in marginalized and diverse communities, and that are essential to adapt in today’s market.

25v exists to make it so that within proptech—a sector with immense potential for underrepresented founders to make their mark—increasing wealth and financial independence for a segment of the population is increasingly possible.

My aunt grew her business to a multimillion-dollar brokerage that had 52 agents with land developments and housing projects across Northern California. What she didn’t have was access to resources and a network that would have helped her scale the business. Her company might not have qualified for VC funds, but the questions remain: What if founders like her did have access to funding and networks? What if PE and VC firms were actively seeking to invest in entrepreneurs like her? How would her trajectory have changed? Given wider influence, could her unique worldview have more positively shaped a real estate industry notoriously skewed against diverse and marginalized homeownership.

It’s time we find out how diverse voices change the calculus of proptech’s future.


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