Exit the Debt Cycle and Increase Inclusion
By Abhinav (Abs) Ghirdar, Founder, CEO Appy Pie
It’s the not very secret underbelly of tech – startups are still overwhelmingly white and male, and progress has been painfully slow for minorities trying to make inroads into the industry. While entrepreneurial endeavors continue to attract robust capital, a renewed focus on diversity can only increase economic gains and revenue performance.
The silver lining? Technology is laying the ground work to re-make technology startup culture, and may now be the answer to helping underrepresented populations break through the startup culture barrier and secure their well-earned seat at the tech table.
The $311 Billion Windfall
Let’s look at the numbers: U.S. startups landed a staggering $311 billion in venture capital in 2021.
Part of the issue? No surprises – VC firms, and the dollars available for startup investment, are predominantly controlled by white men.
At first glance, the breakdown suggests more diversity than is actually the case: According to data Richard Kerby at Equal Ventures (from the book Post-Corona), only 58% of venture capitalists are white men, while 20% are Asian men, 11% Asian women, 2% Black men, 1% Black women, 1% Latinx men, and less than 1% Latinx women.
However, white men control 93% of actual VC funding, according to Scott Galloway. The James L. Knight Foundation found that only 1% the wealth management industry is controlled by women or minority fund managers.
This leads to some shockingly non-diverse results: just under 17% of founders are Asian, 1.8% are Latinx, and only 9% of startup founders are women, according to RateMyInvestor. Black and Latinx founders received a scant 2.4% of VC investments in a 2020 report from Crunchbase.
How Tech Can Be the Answer to Investment Diversity
Opening the doors to technology innovation for minority entrepreneurs is two-fold:
- Exiting the venture fund debt cycle
- Removing the tech barriers
These two steps sound counter-intuitive and improbable, but they work together to make “tech startup” an achievable goal across gender and ethnic divides.
Exiting the Venture Fund Debt Cycle
So much ink, airtime, and web space is devoted to the topic of venture capital that it’s hard to think “startup” without automatically thinking about VCs. Because startups require capital, and very few people have access to large chunks of money without backing from a VC.
But raising venture capital is hard. For minority entrepreneurs, nearly impossible.
And, that capital must be repaid, with interest and management fees.
For example, if a startup manages to secure $10 million from a VC, the startup pays a 2% management fee of $200,000. At some point, the management fee will be lowered, but then there’s the 20% carry (average profit participation). If there has been a $10 million gain on the original $10 million investment, the startup pays the VC firm $2 million. Some VC firms charge more.
These can be staggering numbers for a startup.
Using Tech to Bootstrap Instead
Bootstrapping sounds like clueless and out-of-touch advice that the privileged few love to heap on people with big ideas but no access to big buckets of cash.
Adding tech to the mix just sounds like more ignorance of reality, not to mention the expense.
Traditionally, that has been true. But machine learning and AI can tear down those walls.
For example: low-code and no-code app development.
The Low-Code/No-Code Answer
The app market is huge: U.S. consumers spent $170 billion on apps in 2021, up from $143 billion in 2020, according to Statista. And Statista expects the app market to generate more than $613 billion in U.S. revenue alone by 2025.
But for people with no coding experience, app development can seem like a pipe dream.
Gone are the days when an entrepreneur would have to invest heavily in IT resources for app development, which traditionally takes eight to 12 months and up to $300,000.
Low-code and no-code development can help make app development exponentially faster at a literal fraction of the cost.
Faster app development means faster deployment and monetization—giving entrepreneurs quick access to capital that can help them grow from a person with an idea into a company without needing to raise VC funding.
No-code also reduces the cost of ownership, with application data stored on a secure cloud so startups don’t have to worry about finding budget to spend on servers, maintenance, and IT staff. And, of course, it shrinks the need for expensive, highly skilled human capital and allows the would-be entrepreneur to DIY more effectively, faster and with better outcomes.
According to Forrester Consulting, 100% of low-code enterprises received ROI from their low-code adoption.
The 80% Tipping Point for Tech Startups and Monetization
The use of low-code/no-code app development has jumped to 75% from a meager 45% in the span of two years, according to Devops Digest 2021.
Moreover, Gartner predicts that by 2024, 80% of technology products and services will be built by those who are not technology professionals. Extrapolating this percentage means a significant reduction in capital costs and debt acquisition.
Read that again: 80% of technology products and services will be built by those who are not technology professionals. Reducing time and financial outlay in early-stage startup translates to greater speed to market, less debt and the door opening to greater representation in the startup ecosystem than the typically VC-funded entrepreneur.
In a healthy and competitive marketplace, reducing barriers to launch and reliance on debt will create a robust entrepreneurial universe in which traditional patterns of dominance will fall away, encouraging participation across ethnic and gender lines.
About the Author
Abhinav (Abs) Ghirdar is a bootstrapped serial technology entrepreneur. His company, Appy Pie, is a Google ranked #1 no and low code solution platform. It offers free educational training and resources for low and no-code technology as well as a family of low and no code app, website and NFT creator tools. www.appypie.com
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