Saturday, September 21, 2013

The State of Latino Startups: Exploring the Challenges

In this second post in a series on Latino startups, Oxford SBS Seed Fund co-founder Mark Hand explores some of the obstacles that Latino-run and Latino-focused startups face. Read the first post in the series here.

Startup struggles, generally speaking

If there is one topic that entrepreneurs love to talk about more than any other, it is be the trials and tribulations of being a founder. You work impossibly long hours; you wake up with cold sweats knowing that every moment you’re not working on your idea, your competitor is. You spend more time managing people than you do with the product that you wanted to build; you are constantly reminded by more ‘reasonable’ friends and family members that you are sacrificing prime earning years to chase a dream. Money is always in short supply, and no one--no one--can ever truly give you the peace of mind that you are doing it right.

In nearly one hundred conversations about Latino startups over the last eight months, I’ve also heard and identified a handful of other hurdles specific to Latino startups. Some of them are relevant to Latino founders; others are particular to startups whose primary customers are Latinos.

Latino founders' uphill fight for funding?

Latino founders, just like their non-Latino counterparts, point to the lack of high-risk capital as a significant barrier to the growth of Latino startups. Unlike in conversations with white founders, however, hints at racial bias among funders are pretty common in conversations with Latino founders. Few accuse venture capital investors of outright racism. Instead, they make two arguments. The first, voiced by at least one venture-funded entrepreneur, is that venture investors have the same subconscious racial bias that Chicago Booth researchers discovered among hiring managers in Boston and Chicago. Venture capital (VC) investors retort that if they see a strong team with a good idea in a growing market, they don’t care about someone’s race or country of origin. In fact, Silicon Valley is so dependent upon foreign talent that they now lobby ferociously for immigration reform.

The second, related argument is that the nature of many VC investors’ networks is such that black and Hispanic entrepreneurs are excluded not due to racial bias but because of the nature of social networks. In a recent conversation about the opportunity for a Latino-focused startup fund, one VC asked me if I was saying all VCs were racist. “No,” I said, “We’re lazy.” When some VCs proudly trumpet that a resourceful entrepreneur will find the right introduction to them, they are trusting their network to complete the first round of vetting of potential startups. In the aggregate, such a closed-network approach to deal-sourcing means out-of-network ideas are shut out until someone (a “broker” in network theory) connects them.

Before they approach VCs for scale-up funding, however, Latino founders point to another gap in funding. Unlike founders from well-connected, wealthy backgrounds, Latino founders have fewer wealthy friends and family members waiting in the wings to pump $20,000 into their startup. One Latina founder told me that, as the most educated and successful member of her extended family, asking her family for money would be laughable; instead, she is expected to be the one with a steady job providing cushion for everyone else. In this way, Latina founders, already carrying much of the weight of the growing Latino startup community, may be loaded down even more than their male counterparts by familial expectations. 

The Latino market: large, nuanced, tough

What of startups that are not run by Latinos but focus on the Latino market? They too, face special struggles both in financing and execution. In seeking financing from VCs, Latino market startups struggle to get attention from investors rightly inclined to fund what they already know--e.g. tech, life sciences, solar, mass market retail, defense. Why educate yourself on a new, unproven market, exposing yourself to even greater risk? The answer, of course, is that not only are Latinos a large and growing group of upwardly mobile young consumers, but they are early adopters of new technologies and bellwethers for shifts in consumer trends; but as Antonio Altamirano points out, this case has yet to be made in a clear and compelling way.

Even given funding, Latino-focused startups face a special challenge: the Latino market may be huge, but it is incredibly nuanced and diverse. Most obviously, Latino market startups have to balance the needs of English-dominant and Spanish-dominant customers; the fluently bilingual customer support and content creators required to do this are tough to find and harder to retain.

Yet both Latino founders and those interested in the Hispanic market are plowing ahead. One example of such forward momentum is Manos Accelerator, which has recently accepted their first cohort of Latino startups. In our next article, we’ll take a closer look at a few of the Latinos and Latino-focused entrepreneurs blazing the trail--if you know of a few, send them our way!

Mark Hand (@markchand) is the cofounder of the SBS Seed Fund, a student-run startup fund within Saïd Business School at the University of Oxford. He spent two years with Gray Ghost Ventures investing in early-stage companies in the US and India. Mark is currently researching startups in the US Hispanic market. Photo by Phil Roeder from Wikimedia Commons.