For Black CEOs in Silicon Valley, Humiliation Is a Part of Doing Business
(Bloomberg) -- Will Hayes has grown accustomed to an awkward start to business meetings. On numerous occasions, venture capitalists would confuse Hayes, the head of software company Lucidworks Inc., with another man on his executive team. The investor would introduce himself, extend a handshake to the other guy and say, “Good to meet you, Will.” It’s strange because they don’t look alike. Also, Hayes is Black, and his deputy is White.
This happened so many times, in dozens of meetings over many years, that Hayes and his longtime colleague, Keith Messick, say it’s no coincidence. Such unintentional instances of racism, they say, have become a routine—and insidious—part of doing business at a Black-led company in Silicon Valley.
Protests over the death of George Floyd at the knee of a White police officer in Minneapolis are triggering a global conversation about race. Technology companies and VCs have responded in recent weeks with messages of solidarity, offers of mentorship and more than $300 million in contributions or investments toward minority groups. Inside company chat rooms and video-conference meetings, workers are challenging their employers to hire and fund more people of color, who are woefully underrepresented at tech companies.
Black entrepreneurs say they are encouraged by the movement but deeply skeptical that the industry will change. Interviews with 20 Black tech leaders depict a position of power that can sometimes feel powerless. Repeated assumptions that they’re not in charge of their own companies, a common experience among Black chief executive officers, can instill a lingering sense of self-doubt. They describe a career of subtle slights or outright discrimination in which they face regular inquisition about their credentials and peculiar suggestions to hire a White business partner to make investors more comfortable. One says he carries around a notebook emblazoned with the logo of his alma mater, Stanford University, to fit in.
Adding to the insult, Hayes finds himself at a distinct disadvantage in meetings that open with a case of mistaken identity. Venture capital is based on relationships, and investors aren’t typically primed to write a check when they feel unsettled. “You see it in the body language, you see it in the lack of questions and engagement,” says Hayes, 39. “They can’t wait for this meeting to get over.”
For nearly four years, Hayes would attend investor meetings alongside Messick, the former chief marketing officer at Lucidworks. VCs are trained to look for patterns in startup founders, Messick says, and there aren’t many Black Mark Zuckerbergs. “Years and years of a Black guy and a White guy walking in the room, and the White guy is the CEO,” Messick says. “Whether malicious, whether negligent, it was always awful.”
The roots of racism extend deep in Silicon Valley. Leland Stanford, the founder of the area’s preeminent university, ran for California governor in 1859, just before the dawn of the Civil War, declaring, “I prefer the White man to the negro.” More than a century later, in 1974, the founder of one of the Valley’s seminal tech companies, William Shockley of Shockley Semiconductor, appeared on the television show Firing Line. There, he asserted that African Americans were socially, intellectually and genetically inferior to White people.
Thirteen percent of the U.S. population is Black. Yet, from the infancy of the internet in 1990 to the unicorn era of 2016, 0.4% of people who received venture capital were Black, according to a study by Harvard University. The problem with that funding gap isn’t just that it’s unfair, entrepreneurs and researchers say. It also puts in perspective the Valley’s penchant for products that appeal to a narrow slice of the populace and in some cases—such as in artificial intelligence or health care algorithms—discriminate against people of color.
For Black founders, the challenges manifest well before the business even gets off the ground. Entrepreneurs often start by drawing from their own savings accounts and asking family and friends to invest. Black families in the U.S. have an average net worth of $17,600, about a tenth of that of White families, according to Federal Reserve research. “A ‘friends and family round’ doesn’t exist for Black founders,” says James Norman, who established and runs a tech startup, Pilotly Inc. “You come from a different place.”
Norman and other Black entrepreneurs find themselves needing to establish authority in ways their White counterparts don’t. “We can’t come in the room wearing a hoodie, not using our words properly, not sitting up, not looking you in the eye. We’re not going to be taken seriously,” Norman says. He decided to invite his friend, a White man who graduated from the Massachusetts Institute of Technology, to presentations with prospective investors. Having him there gives the meeting “a good start,” Norman says. “Ultimately, I’m the one pitching.”
Black-led companies need to be much further along before VCs take them seriously, Norman says. That forced him to be more disciplined with finances than the typical tech startup. “Knowing my access to capital is not going to be the same as everyone else,” Norman says, “I have to approach my money management differently.” Norman’s company sells software to measure audiences’ reactions to video used by Amazon.com Inc., Netflix Inc., NBC Universal and ViacomCBS Inc. Norman has raised $1 million from investors over the last five years, and the company is profitable, he says.
In the interviews, Black startup leaders declined to identify offending investors, partly because they say the problem is systemic and also because they feared speaking out would harm their fundraising prospects. Many expressed hesitations about talking publicly, and several requested anonymity because they didn’t want their race to overshadow their credentials.
Those concerns speak to another perception Black founders must work to overturn: a common assumption that their company caters exclusively to Black people. Sheena Allen, founder and CEO of the mobile banking app CapWay, has faced that question before. “I say, ‘No, this is banking for people who are looking for an alternative banking option,’” says Allen, who has raised a little over $1 million from investors. “There are people of all colors and all races who are looking for a better banking option.”
Barry Givens can still remember the high he felt coming off the stage at TechCrunch Disrupt in 2013. He presented a prototype for a sort of SodaStream for cocktails, called Monsieur, to a rapt audience of young geeks. Givens can also remember the humiliation he experienced afterward, when he was approached by event security. They wanted to talk with him about the disappearance of another attendee’s backpack.
Aside from the color of his skin, Givens has the pedigree VCs typically expect to see in a startup founder. He has the experience at Disrupt and a degree from a top 10 engineering school, Georgia Tech. Yet, he found himself constantly defending his credentials to investors. They would ask if he had engineering experience, whether he outsourced the work, how he constructed the prototype. “You’ll spend an entire pitch meeting validating that you’re smart enough to build it,” Givens says. Back home in Atlanta, well-meaning friends—mainly other Black entrepreneurs who faced similar challenges—suggested that Givens add a White man as a co-founder.
That message hit particularly hard in 2015, when Givens and his co-founder Eric Williams, who is also Black, brought some of their employees to Churchill Downs Racetrack, home of the Kentucky Derby. They were at a VIP suite to celebrate the first big installation of one of their bartending machines. Guest after guest walked past the pair of executives to greet their White employee, offer their congratulations and ask how he got the idea for the product. The mood dimmed once the well-wishers realized their gaffes. “It went really quickly from ‘I have a drink in my hand, and I want to network’ to ‘I just want to get out of here,’” Givens recalls.
Givens managed to raise $4.25 million for Monsieur and sold the company in 2017. Now he’s a managing director in Atlanta at the startup accelerator Techstars, as well as at a fund called Collab Capital, where he invests exclusively in Black-founded companies.
The racial makeup of venture capital is similar to the rest of the tech industry. About 3% of investment partners at VC firms are Black, according to a survey by Deloitte and the National Venture Capital Association, a trade group.
One test that many VCs apply to prospective investments can create barriers for entrepreneurs who come from different backgrounds. Chris Bennett, who runs an education startup called Wonderschool, says an investor once asked in an offhand way, “Who do you know that I know?” Bennett, a transplant from the East Coast and an African American who was the first in his family to attend college, realized he had no connection, and that was a dealbreaker. “It was a little hard to hear,” Bennett says.
After that, Bennett decided to prioritize networking. He enrolled in business incubators and attended countless startup mixers. Two years ago, Bennett hooked Andreessen Horowitz to lead an investment in Wonderschool. “For some people, you don’t have to work to get a network,” Bennett says. “I had to force my way in.”
Elliott Robinson, the only Black investment partner at Bessemer Venture Partners, says he has watched other investors at his previous firms seemingly grade Black founders with a different rubric. Robinson says he’s treated differently by his peers in the industry, too. Investors tell him they can’t fathom what it would be like to have a Black person on a startup’s board, he says. “That’s a real conversation I have multiple times a year,” Robinson says. “I’ve had multiple investors say this, but I’ll never forget the first time.”
In recent weeks, being Black has become an asset for the first time in his career, Robinson says. CEOs and boards are calling to ask for his advice on how to respond to the social-justice movement sweeping across the globe. He tells companies to diversify their workforces and resist the urge to recruit based on whether someone is a “cultural fit.” The trope is often used as an excuse to discriminate. Instead, Robinson encourages companies to search for people who can add to the culture.
Hayes didn’t start Lucidworks. The company was founded in 2007 by a team of White men. By 2013, the company was struggling to find customers for its service, a search engine for retailers’ and other businesses’ data. Lucidworks hired Hayes that year from Splunk Inc., a rising corporate software company, and promoted him to CEO in 2014.
His first two fundraising rounds were challenging, according to Hayes and his apparent doppelgänger, Messick. The recurring confusion about who was CEO, and the embarrassment and apologies that followed, certainly didn’t help. “I usually remember the room and the look on the face,” Hayes says. “The energy would drop dramatically.”
This sort of mixup is so common for Black CEOs that one woman says a group of VCs assumed one of her interns, a young White man, was the head of her company. The woman asked not to be identified over concerns that speaking publicly would hinder her ability to raise venture capital in the future.
For Hayes, each fundraising effort required more than 50 meetings, an unusually high number. Hayes managed to raise $83 million in his first few years and achieved his biggest financial triumph last year. He raised $100 million in a single round for the business. Lucidworks estimates it’ll be on track to generate about $85 million in revenue next year.
Floyd’s death introduced a new and highly personal management challenge for Hayes. He had been advised for years to keep a low profile on racial issues, for fear of being labeled the “angry Black man CEO,” he says. Then, late last month, people were urging him to address the protests. “If I was talking about this two weeks ago, the backlash would be severe,” Hayes says. “Now, all of a sudden, we need a statement.”
After considerable reflection, Hayes wrote a long email and sent it to his employees early this month. He told a story about an encounter with the police when he was 12 years old. He was riding home from a dentist appointment on his skateboard when an officer threw him against a wall and pointed a gun to his face. He told another story about a sheriff who shot his friend three times in the back as he exited his car. Hayes called for a “massive overhaul” of policing and the justice system.
Hayes says he was encouraged by the response. Many people from Lucidworks contacted him to voice their support, including a conservative salesman at the company who said he was enlightened by the memo, Hayes says. Two employees told him they read it aloud to their families to help their kids make sense of the protests. However, two other employees complained to human resources, saying, “All Lives Matter.”
A passage from Hayes’s staff-wide email stands out. “Maddeningly,” he wrote, “our nation has now become so polarized, the simple phrase ‘Black Lives Matter’ is seen as a political dog whistle, rather than a desperate cry to bring attention to a dire situation that many people choose not to see.”
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