An Entrepreneur’s Take
In the past week, two of Richmond’s print publications have published articles about New Richmond Ventures in light of the announcement of the closing of their first fund.
From my perspective, neither article addresses what it really takes to get a venture off the ground. I hope that this view, from the perspective of an entrepreneur in Richmond, can help to reframe the discussion so that the community at large can better consider how to create vibrant institutions that will allow us as a city, region, and state to bring great ideas to life.
John Blackwell at the Richmond Times-Dispatch published an article about the fund’s closing that demonstrated a lack of understanding of venture investing and how funds work.
Jackie Kruszewski at Style Weekly published an article in response that portrays NRV as part of a racial- and gender-biased system that is designed to protect the white male establishment by investing overwhelmingly in white male founders.
Both articles fail to get deep enough into the real issues facing entrepreneurs who wish to grow a business by raising venture capital in Central Virginia.
As an entrepreneur that is currently working on a high-growth business in Richmond, and that has been part of multiple venture-backed companies here and in New York, and that is a native son of Richmond who desperately wants our city to succeed as a breeding ground for new ideas and innovation, I’m compelled to weigh in.
Before I get to the substance, I’ll disclaim the following:
- I am male.
- I am white.
- I know Jackie Kruszewski.
- I know the team at NRV.
- I have not raised any money from NRV.
- As someone who is writing on the internet, I have no editor, therefore I’m a fact-checker of one.
The RTD Article
Blackwell’s article is fairly straight reportage of a business announcement for the region. He tells the story of the evolution of NRV with quotes from the partners, directors, and portfolio companies.
The major failure of this article is that it does not fully explain what a fund is, how it works, and why it’s a fundamentally different approach than that on which NRV was founded.
They founded a venture capital fund, then named New Richmond Ventures, and over the next five years, the firm raised about $54 million from investors and put that money into nine businesses.
Blackwell described NRV as a fund at its founding. That is fundamentally incorrect. At their founding, NRV was an investor group. While this is alluded to later in the article, it’s an important distinction that should be made clearer up front. This lack of clarity on the operating model sets up a shaky foundation for the Style article’s assertion of bias on the part of the NRV team.
The investor group or club model, as Blackwell notes, requires an entrepreneur to be guided by the NRV team through a series of pitches to individual investors, who ultimately make the decision on investment. The agency to write the check falls on an individual investor.
By raising a fund, the team at NRV have, for the first time, taken on the responsibility of making the investment themselves. Their burden in this role is to make the investments that fit their fund model, which I understand to be primarily focused on Virginia-based opportunities at the Series A and Series B round of fundraising, and to generate financial returns for financial investors.
The Style Article
Kruszewski writes about NRV’s investment track record as an investor group, their new fund, and general inequality in the VC world to suggest that NRV is attempting to keep wealth concentrated.
The effort misses the mark.
First and foremost, the extreme gender and racial bias that creates funding gaps in investment by VC firms are major problems–for VC firms. There are many scholarly articles and studies to that end, and a 98% male/2% female split or a 99% white/1% non-white split in VC funding is abysmal. However, despite their name, NRV is only just now stepping in to true venture capital wherein the fund managers at the firms make the actual investment decisions. The national underrepresentation of female and minority founders is incredibly real, and VCs are working at different rates to course correct, but when it comes to bringing this narrative to Richmond, the connection is difficult to draw because we fundamentally do not have a VC market.
To compare the new fund to the national market, VC’s invested about $70B last year. A $33MM fund investing $5MM a year is a speck. If the US venture economy was $100, NRV’s will not be a tenth of a penny.
Second, the path to an investment from NRV in any of their formats has always been long as they are not an angel or seed round investor. Generally, they have played in Series A and beyond (here’s a guide on startup funding from Paul Graham, founder of Y Combinator), investing only in companies with established revenues, which can be years and thousands or millions of dollars into the lifecycle of a business. Getting this far requires that entrepreneurs are able to either raise the money from other sources, or they can fund operations out of pocket.
Concentrations of wealth are incredibly unequal (starkly apparent in Richmond), which is a symptom of an economic system that has suppressed women and people of color since its inception. Therefore, the chance that someone gets out of the box, gets a team together, gets the initial capital, puts together a prototype, gets capital to launch a product, gets traction, and then achieves the type of revenue and growth projections that any investor at an A round or beyond look for is also unequal. Richmond’s early stage investment scene could be an article unto itself, which I will not write here, but suggesting that NRV is creating the inequality is somewhat unfair. That’s the equivalent of looking at a marathon in mile 13 and wondering why so many people are behind, when a significant portion of the runners had to start 100 miles before the starting line.
Third, there’s a false equivalency of the demographic data of Richmond’s population being 41% white with the analysis of 89% VC partners being white men. That’s an irrelevant point to make when Richmond represents effectively zero percent of the VC funds raised and invested in the country. While the national stats are damning, there’s no analysis of NRV’s track record, only anecdotal discussion, and there’s also not any evaluation of who’s pitched NRV or interviews with entrepreneurs who were either funded or not.
I would be remiss to publish this article into my corner of the Internet without a couple observations about NRV.
While the Style article misses on a number of fronts, there is a fundamental truth, which is that NRV’s partners are all white guys. That’s how they’ve chosen to build their team, and the above average rate of investment in their fund from women is certainly moving them in the right direction. However, until they have better demographic representation at the partner level, they won’t see the world in any way other than that of white guys, which may bias their investing and perpetuate a damaging economic cycle.
NRV has chosen a model that they feel is right for their team and investors, which, unfortunately, is not one that is likely to create more equity (fairness, not financial) for early stage entrepreneurs in the Commonwealth. They will wait to see who gets far enough in the company lifecycle and try to pick winners from there.
Founders, partners, and managers in most industries are struggling with this issue right now. I can’t solve this here, but I can acknowledge that it will not simply work itself out without many, many conscious decisions as we build teams, boards, companies, and institutions.
Why it Matters
Now, why take the time out of my day to write this? I’ve got a business to build, a growing team, and an awesome opportunity ahead of us. Shouldn’t I just put my head down and get to work?
I’m not writing this post to bash our local press or NRV. I’m writing this because I am an entrepreneur that cares deeply about Richmond, and I want our metro area to develop the institutional capacity to move any individual with an idea and the tenacity to pursue it through all of the stages of growth to success.
How to create this capacity is not yet a conversation that happens in our public arena. It happens in scheduled events, private settings, over Slack, and over beers. Bringing this conversation in the mainstream would be a great public service for our papers and broadcast journalists, as we have no tech or startup press here, and there’s not dedicated coverage for entrepreneurs and the issues that pertain to early stage companies.
As we, and other cities like us, begin to adapt the VC model created in Silicon Valley to our communities, we must be diligent to avoid their mistakes, and this is where we should focus our efforts.
Entrepreneurial communities are not built by kingmakers. They are built by explorers, problem solvers, tinkerers, and troublemakers who develop the capacity, over time and through success, to reach back to those who are just starting and help pull them forward.
When it comes to VC-backed successes, Richmond is not yet capable of extending that hand.