editione1.0.2
Updated February 11, 2023Mara Zepeda (Zebras Unite)
Astrid Scholz (Armillaria, Zebras Unite)
Central to the need for change in venture capital is the need to think more holistically about the impact of companies, including their footprints on the environment and influences on the societies they have been designed to serve. Historically, this has tended to be more of an afterthought, rather than purposefully built into the creation of venture-backed companies that strive for hockey stick growth at all costs. We caught up with Mara Zepeda and Astrid Scholz, two of the founders of the Zebras Unite movement, to explore the possibilities of another way. We learned how they have built a founder-led, cooperatively owned movement of 6,000 founders across six continents, who are creating the culture, capital, and community for the next economy.
Interviewed June 2021
Johannes Lenhard (JL): The first time I came across Zebras Unite was in the 2019 New York Times article, where you and the other founders stepped forward with a very unconventional message to the VC and startup community, saying that the system they built does not work for most people; we need to rethink how this whole world is structured. What motivated you to do that and what brought you to that point where you believed we needed to do something differently?
Mara Zepeda (MZ): Before starting Zebras Unite, we were founders ourselves and we had experienced the problem from the side of being an entrepreneur. We saw how limited the capital was, and we all hit a wall that many founders do. All four of us Zebras Unite founders are systems thinkers. Rather than bemoaning how frustrating our situations were and rather than taking it personally, we then began to ask ourselves if perhaps this is a failure of the system itself. Reframing the question gave us a more expansive and wider lens through which to examine existing capital. We came to learn that it does not serve most entrepreneurs and we desperately need alternatives.
Astrid Scholz (AS): One thing to remember is that the four of us were all successful leaders and achievers in our respective domains before becoming entrepreneurs. In my case, I had a great track record raising money for my ideas from philanthropic sources, and all of a sudden I hit a wall when talking to VCs. I was the same person, my salesmanship was the same, but the milieu I found myself in had changed. This was borne out in the questions I was being asked that had no bearing on the quality of the business we were building, our traction, or our potential. The questions were easily recognizable as being in service of the prevailing pattern matching in the VC industry.
JL: Let’s actually go back for a moment: what exactly is a “zebra” and what does it have to do with diversity and inclusion?
MZ: In 2017, we penned this manifesto, “Zebras fix what unicorns break,” in opposition to what we saw with unicorn companies that were generally looking for a massive, outsized return that benefits a small number of investors. They are focused on hockey stick growth at all costs. They tend to be very engineering heavy, and they will marginally throw crumbs at some philanthropic cause, but they are not interested in community benefit and shared prosperity. We know what the unicorn is.
With zebras, we see a completely different psychographic of founder. These are founders that were not interested in getting exorbitantly wealthy and they were motivated instead by shared prosperity and having both profit and purpose. They tend to work at multiple altitudes. On the one hand, their company might be solving a specific problem. They are also systems players and working on systemic solutions as well. They are mutualistic and cooperative. Rather than have a dominant monopolistic market share, zebras are interested in how they cooperate with one another, or with the communities they serve, in order to have strength and advantage through cooperation, not competition. Unlike a unicorn, a zebra is real. We see a lot more zebra companies in the wild than we do unicorns, which is a fantasy animal that occurs once in a blue moon.
AS: We often get asked this question about how zebras relate to diversity and inclusion. That’s a bit of a red herring, if you can pardon that metaphor. Zebras come in many different stripes, and we observe that the types of founders that tend to either be systemically excluded from mainstream venture capital or are actively charting a different course for capitalizing and growing their companies from the get-go tend to be led by people that have live experiences and insights that differ from white, cisgendered males educated at a few elite universities. So zebras are to startups what all the other ice cream flavors are to vanilla—see what I did there? VC: vanilla capital.
Erika Brodnock (EB): Thinking not just about the entrepreneur-side of things but also about the money, what funding alternative do you want to provide and how does that link with increasing diversity in the startup world?
MZ: If we want to see more diversity in entrepreneurship, we need more diverse funding mechanisms that align with the needs of diverse founders. Diverse founders very often are not coming from the same pattern-matching structures that venture capital is pattern matching, which is largely affluent white men with educational privileges. When we think about the psychology of diverse founders, they have a different relationship to money. Many are not motivated by hoarding, but by sharing, and are interested in giving back to the community that has helped them to succeed. They have a reciprocity and mutuality mindset, and many are interested in creating community and place-based impact. What we are attempting to do is ask about the founders’ values and design capital that aligns with those values.
People have asked us if we are going to start a zebra’s fund, but often when investors want to make social impact, there is an egotistically driven idea of starting funds to be the savior of the industry. We are more interested in how we can influence how funds are created, so that investors have some more creative ideas for how to deploy their capital in ways that achieve different types of returns and serve different types of founders. Much of our work is about education and meeting with investors to say, “What if you make some recoverable grants over in your philanthropic arm? What if you design your capital stack to include revenue-based financing?” We help navigate them towards a capital stack that itself is more diverse. To diversify founders, you must diversify the capital stack. To diversify the capital stack, you must educate investors about why it is in their interest and that it is not that hard. Eventually, we will likely have a fund. Currently, if we decided to start the capital fund we would raise a million dollars, and it would be the hardest million dollars to raise. Instead, we are in talks with $100M funds to help them think about how to diversify their portfolio. It is a far greater use of our time.
JL: Can VCs be rescued? Is the current way of thinking about diversity and inclusion the right thing or do we need more radical systems-level thinking? How do you teach that?
MZ: The tokenization of Black and Brown communities and women to try to shoehorn them into ventures-style returns is not in alignment with anything. They are slowly beginning to realize that there must be a better way. I have hope because demographically, history is on our side. The next generation of people coming up will not tolerate this extractive, winner-takes-all model of making very few very wealthy. Every single young person that I know is not only not interested in it, but they have the discernment to judge people that are in it for rapacious, capitalistic wealth hoarding. When you look at what they want from employers, when you look at the environmental catastrophe that they are facing and how many of these companies are enabling that, and when you look at the way that they have been raised in the shadow of Black Lives Matter and Indigenous rights movements, the next generation will be a forcing mechanism for a number of these VCs.
We are in this bridge generation. We are trying to say things like, “We are trying to save you from yourselves.” It is profound to see investors that do reach this place of enlightenment. When many of them already have philanthropic arms, it is just a question of having both sides of the house speaking to one another. (The Omidyar Group provides an example of how capital can be deployed all the way across the financial system and how grants can be used to catalyze entrepreneurs.) The question now is, how can philanthropic money work towards more social impact companies? How can those companies receive different types of investments? I do have hope. A lot of it must come from trust building and relationship building with these investors, which takes time, but it is certainly not from telling them “you are idiots.” That is not a winning proposition. Building sincere relationships with investors, recognizing how little exposure they have to the founder experience and to diverse perspectives, and bringing them along from a place of compassionate accompaniment are the best things we can do.
AS: An institutional investor I respect likes to point out that there is no accreditation or license for VCs, literally anyone can become one. There is no code of conduct or any kind of proof that you know what you are doing. And it shows! How few VCs have actually been operators themselves and have built companies? So there is a huge opportunity for learning, education, and seeking more authentic relationships with the entrepreneurs that do not look like them. Similarly for the LPs, the people who invest in VC funds and other vehicles: many wealth and asset owners literally cannot relate to the founder experience, and so there is again an opportunity to educate and craft experiences that help them relate. One of the things I liked to do, back in the days before the pandemic, is have people play an interactive board game I created where they navigate a stylized course from idea to Series A in the persona of an entrepreneur who is not like them. The visceral reaction people have to the journey of, say, a Black entrepreneur, or a [Native American] woman along the same path as a white man, is truly enlightening. People get shout-out-loud enraged about the injustice of the system, and I do think there is potential in creating these sorts of visceral learning opportunities.
EB: Quite a few people have said to us that they do not want to be the charitable case. They want access to the same amount of money and opportunity. It is not just about giving them something, it is also about giving them the same as all the white men with Stanford degrees have had for many years. How do you address that?
MZ: It is not so much that philanthropic capital needs to go to the diverse founder, instead it is that they need to be participating in the ecosystem and field building. Philanthropy could go to education, cooperative models, or advocacy campaigns so that pension funds are freeing up capital. Philanthropy can be a very powerful lever towards systems change in the ecosystem. It is not about giving the check to the founder, it is about giving the check towards organizations that are working at a systems level, so they can start to bridge the blood-brain barrier between. Philanthropic capital can be creating different conditions for more entrepreneurs to succeed. The psychographic founder that we tend to serve is not coming from the place of what is in it for them, growing a company and then exiting. The people that are part of our movement recognize that users, employees, and community are creating value. If you think about value creation in a multi-stakeholder way, traditional venture capital does not serve you because you cannot include those stakeholders easily, other than giving them nominal amounts of equity.
If you come at the value creation, you can say the value is created with this group of people, and the capital that I would need to go and pursue should be in alignment with the values those people have. Venture capital does not do that. We need people that are pushing the Sequoias and the Andreessen Horowitzs of the world. However, the expectation is that if they get the venture capital, then they have a billion-dollar exit. We can have a much higher number of Black women that are receiving venture capital, and then need to create the conditions to ensure that they are able to get the billion-dollar exit, so they can tell us a success story at the end of the day that aligns with LPs expectations. To do that, you must create the market conditions for a Black woman to have a $3B exit. That is where Zebras Unite wants to help and would like to play. Yet, every dollar of venture capital you are taking, you are making a promise that you are going to 10X or 100X that. For every one success story, you have 99 failures. We are asking, how can 100 entrepreneurs succeed on their own terms with the capital that they need? If you have a venture mindset, you are saying, “I believe that I am the one who is going to make this exit, and I don’t care if the 99 others get left in the dust.” The zebra mindset is just a different one that says systemically, for the sake of our community’s economic development, the environment, and the next generations, we need to figure out how more people can succeed at this game on their own terms. It is a different mindset.
JL: What are concrete next steps that you are taking as Zebras Unite?
MZ: We have over 25 chapters in cities from Amman to Mexico City. Each one of those chapters is rejecting the Silicon Valley status quo. We are excited to see that there are entrepreneurs and investors that are taking a stand and saying, “Keep the Bay at bay. We do not need Silicon Valley to come and infect our entrepreneurial communities.” I am excited about the cultural wisdom that is going to come from our chapters because each one is so unique.
In terms of innovation, we are working with investors that are thinking holistically about much more meaningful systems change to address this larger sub ecosystem of problems. We are finding those investors, philanthropists, and people that think on a systemic and holistic level, rather than band-aids. Here in the US, the wealth gap for Black and Brown entrepreneurs is just so extraordinary. The Inclusive Capital Collective (ICC) is an initiative that is being incubated under Zebras Unite. It includes 100 BIPOC fund managers in the country, and we are incubating a co-op of them inside of Zebras Unite. The thinking is that this cooperatively owned infrastructure will then start to generate generational wealth in these communities, because rather than be a non-profit, they will be a co-op, which will then allow them to own the means of production of their own capital. We are very interested in layering alternative ownership structures on to these new innovative models so that people are not just bucketed and non-profits.
AS: The Inclusive Capital Collective is also a great illustration of how we are going about mobilizing more capital to founders of all different stripes. Rather than creating our own fund, we are building distributed infrastructure to serve hundreds of, in the case of the ICC, mostly BIPOC, fund managers and entrepreneur support organizations. Instead of slowly building from our own Fund One, to Fund Two, to Fund Three, we can thereby support a range of types and sizes of innovative capital vehicles and their managers, and create leveraged opportunities for them. We believe we can mobilize larger volumes of capital faster this way, and plan to do a lot more of this sort of collective design of capital and entrepreneur support ecosystems all over the world. Stay tuned!
Evgeni Kouris (New Mittelstand)
Ines Schiller (Vyld)
Evgeni Kouris and Ines Schiller believe there is huge potential to build a new, sustainable economic backbone in European economies, in the form of medium-sized (or family) businesses: New Mittelstand. We sat with them to explore this approach and the New Mittelstand vision, which is focused on combining the best traditions of medium-sized companies with the agility and futuristic redesign principles of startups.
Interviewed June 2021
Johannes Lenhard (JL): You had your own startup before New Mittelstand (NM) was founded. What motivated you to start this organization?
Evgeni Kouris (EK): It started in a personal crisis, which was related to the meaning of venture capital. I had idealized the startup ecosystem as I went and moved to Berlin in 2012. I quit both my careers as a musician and a consultant of BCG. At the time, the startup path and innovation with venture capital seemed like the ways to create a better future and innovate radically. To some degree, it was right, but the problem that I encountered there is that you may start with great purpose and vision, but venture capital is not necessarily helping you to get there. It rather requires a lot of experience to not divert from the original path. Money has a lot of influence. Venture capital structures are very clearly exit and monopoly oriented. So, in the unlikely event that your startup succeeds, the result is only advantageous for a few people involved: “win-lose principle.” I started looking at other models of entrepreneurship that do not require this kind of exponentiality and can scale and be successful long term for many people: “win-win principle.”
Erika Brodnock (EB): What is the ethos you are following and how is that connected to a new way of being and of doing business?
EK: The ultimate question for us is, do we have our own vision for the European way of doing entrepreneurship? The Silicon Valley startup methodology was not invented in Europe. It is very successful so far. You can see the Asian adoption of that mindset too. If you look in Europe, and especially Germany, what is going on here? We always talk about family and middle-sized businesses or “mittelstand,” which are the backbone of the economy. In the US, there are only two kinds: large or small—grow or go. It is different in Europe. You have three types of companies, and the ones that are providing most of the jobs are the middle-sized ones. They are also driving industrial innovation. The 2019–2020 numbers showed rapid decline over the last 15 years in radical product innovation, in this field where you would typically expect that innovation to happen. Startups were completely overhyped. So, there is a major issue with the traditional family businesses that needs to be addressed. Otherwise, we will lose that edge that normally was driving the German or European economies. That is one of the reasons why I initially founded the transformation initiative, New Mittelstand. It quickly became a community and movement of like-minded entrepreneurs who define themselves as New Mittelstand. It has been my complete focus since then.
The startup has become a zebra on its own. We are a for-profit and for-purpose company, even though many people expect these initiatives to become non-profit. We want to set an example of doing things differently here. We want to find a new way of doing a family business ourselves. What is missing in Europe is this diversity oriented and bottom-up way of doing entrepreneurship. We call it New Mittelstand because it is a new way of old business, a new definition for the 21st century. We are open to learning from startups and learning from all kinds of methods to do radical innovation, but you cannot forget your roots. What values do we want to maintain? Diversity, freedom, democracy, and all the values that we really love. They are just unique and have a lot of history. We cannot forget these while moving into this radical technology innovation, evolution, or disruption. This is the challenge. As we used to say, it is about keeping your roots intact, while still having the wings to fly into this new future. This is really challenging for traditional companies, especially the ones who have been around for generations.
JL: Ines, from the perspective of a startup founder, what does NM do differently and how does that reflect your “ethos”? What is attractive in NM for you?
Ines Schiller (IS): When I started Vyld, I was not only thinking about the “what”—a radically sustainable product (our ocean-saving tampons made from seaweed)—but also about the “how”—the way we do business to bring this “good” product into the world, because for us the end does not always justify the means. We wanted Vyld to be able to grow and thrive in the same healthy way that we want our seaweed to, integrated in regenerative circular systems that are non-exploitative and designed to last. So I did a lot of research on alternative ways of doing business and, besides other inspiring sources like the steward-ownership model and the feminist business approach by Jennifer Armbrust, NM and the zebra startup movement are very promising and empowering vehicles for us to incorporate these values into our company’s DNA. We can use them like templates without having to (re)invent everything ourselves. I appreciate the work of Evgeni and the others very much, as they do a great job illustrating the fact that there are already alternative ways of doing business that actually work. I think it’s very helpful that they are doing this as living examples!
JL: How are you addressing what kinds of diversity are in the New Mittelstand sector?
EK: In the German language, diversity is narrowly defined and we want to look more broadly. We consider New Mittelstand to be a positive vision for entrepreneurship in Europe. We need to find ways to do things where we have natural advantages in Europe and need to learn from what US and China ecosystems have done very well. What are our advantages traditionally? We have a lot of cultural diversity, which we need to leverage to our advantage. For example, in my VC-backed startup Gamewheel we started communicating in English from day one. Five years later, we have traffic from all over the globe, but not many people from traditional family businesses understand our site because it is in English. I thought, why do we always start in English? We have very different languages here in Europe and very different cultures. Startups are monocultural vehicles to great monopolies. Cultural diversity is more hindering, because it is more expensive, legally, culturally, to scale. You need different teams on the ground, and you need different models. Startup business models require a high degree of standardization. Family businesses, on the other hand, are regionally rooted. Yet they also experience a “family innovator’s dilemma.” They have an advantage of being regional, but they have the disadvantage of family-driven monoculture, because they traditionally try to find a successor from the family itself. Over the generations, this creates tunnel vision for the way of thinking and culture. This is not enough.
With New Mittelstand standards, we want to combine the best of both worlds. How can you be closed and open at the same time? How can you be focused on a particular type of culture or portion of the market, while still radically innovating? How can you find other things where your unique cultural DNA could be of value? How can you combine that with technology or startup innovation? This makes European innovation challenging and tough because you need so many discussions to decide. There are bottom-up structures, which are sometimes inefficient. We need to figure out how to leverage these structures and make it more effective for people. That will be our biggest advantage. After the internet economy that many European companies have missed, there will be a purpose economy. A new generation will require us to be more purpose oriented and have a triple bottom line, such as with UNSDGs Sustainable Development Goals. This new generational demand will be in favor of companies who embrace their culture, the DNA, the history, and also care about the next generation. What do I do to make the next generation look good for the next generation after? This is where Europe can shine, or the diversity culture can shine.
JL: Ines, what role does diversity (of different kinds) play for you?
IS: As a female and usually white-passing founder, I experience the consequences of a lack of diversity in the industry on a daily basis. Our economy suffers a lot from overemphasizing the importance of typical startup business models, but it loses so much by ignoring the vast majority of business models, ideas, founders, geographies, etc. This monoculture in business is as unhealthy as it is in nature. As a trained marine and field guide, I see the dramatic impacts that biodiversity loss has on our natural environment. I think we can really not overrate the importance of diversity for healthy systems—businesses or societies are not different from ecosystems, in fact as we are part of nature, our systems collapse in the same way that ecosystems do from biodiversity loss. We focus so much on “more of the same” logic, e.g., founder’s profiles coming out of the “good and right schools,” the “well-balanced, senior teams,” and “proofs of concept,” that we prevent ourselves from true innovation. But we are facing existential problems on this planet, and we will not solve them by following the same logic that brought us here. We need to think way more holistically and integrate other perspectives if we want to tackle this crisis complex. I call it a complex because for me the same mindset that enables gender inequality and the oppression of womxn enables the unpunished exploitation and destruction of nature. A very hands-on example in our own business is the way we talk about our products—usually they are called “feminine hygiene products” and marketed towards women, but not every womxn menstruates, not everyone who menstruates is a womxn, and periods are nothing that needs “hygienic” treatment, they are just natural. That’s why we use the more inclusive terms, menstruators and period products. Language matters indeed!
EB: How do you propose funding this new way in this new system? How does it differ from the traditional way of VC funding?
EK: For many family businesses and Mittelstand companies, independence is one of the biggest motivating factors, which they have successfully kept for generations. Some never leveraged a lot of external capital or they have kept their shares mostly in the family. They try not to raise external funding and dilute the shareholding in a way that it becomes uncontrollable or less controllable by the family. They are well funded and are very independent in the way they do things. We are looking into what we call “qualitative investing”—it requires a different capital structure, and investor and founder profiles. Jointly with our partner organization Zebras Unite, we are working towards acceleration of alternative capital structures for such a qualitative economy. Investing in zebra startups is, on the one hand side, purpose oriented and on the other hand side it is profit oriented. Zebra founders are focused on balancing the social, monetary, and environmental aspects, and hence zebra investors expect less exponential growth and more positive impact.
JL: Ines, what role does venture capital play for you? Are you already engaging in alternative ways of funding?
IS: We are just at the beginning and far from being a Mittelstand company, and as we have an innovative, R&D-heavy product, we need outside investment to come to a point where we can grow organically. That’s why we are looking exactly for this type of “qualitative investment” that Evgeni describes, one that is in line with our regenerative business approach. In general, I think it’s really urgent for investors, but also the economy as a whole, to understand that the VC hypergrowth model, with its reliance on fast, blitzscaled* growth, is just not a good idea on a finite planet. To be very clear, for us as a profit-for-purpose company, the VC model just doesn’t make sense. We don’t want Vyld to be a vehicle for investors making tons of money, but instead a tool for realizing our vision and creating positive impact. The decision-making power should not be coupled to the amount of money someone put into the company, it should always stay within the company. That’s why we’re using the steward-ownership model, which prohibits absentee owners from making decisions that are contrary to the actual company purpose (like extracting a lot of money that could be used for more impact). This is not an easy way and there are still many open questions like whether there is even enough of this mission-aligned capital out there for a R&D-heavy enterprise like ours, but we are willing to take that risk as following the conventional VC logic would just feel like a poor compromise.
EB: Purposeful can sound charitable. What are the impacts of making it seem as though it sits in the philanthropic social bucket? How can we shift away from the negative connotations that some from capitalist backgrounds associate with philanthropic investment?
EK: Qualitative investing is when purpose and profit orientation are balanced. Patagonia is a famous successful example, the company is profitable and purpose oriented. They accept less monetary growth to maximize the positive impact and to focus solely on company purpose. Many new generation founders want to combine profit and purpose orientation, and do not see that as a contradiction. New Mittelstand is a natural evolution of family business culture—the oldest way of doing business in a sustainable and balanced way. Balance is a core value to create a win-win economy rather than trying to get everything out of the company and maximize on profits.
Traditional family businesses are leaner and often focus on profitability from day one. They still need to have capital and partnership to scale. Frosta, a New Mittelstand company focusing on frozen foods, is in a third generation of their business. They have been financing sustainable packaging development since the beginning of the century. No one wanted to pay a premium price for it ten years ago, so the company struggled financially for a long time. Normally, in venture capital, they would stop, but they kept going. Now, they are leading sustainable packaging with their plastic-free products. These are the typical New Mittelstand stories we share, which inspire. We are searching for good entrepreneurship that is purpose driven and it does not matter where you come from. You do not need to have gone to a good school, have an MBA, or a good network. It is about doing the right things in the right way and having something special there.
EB: Sitting on the other side of the fence, they do matter. As a Black female entrepreneur that does not have the “elite” (Oxford, Cambridge, Harvard, Stanford) degree, I am treated differently. In an ideal world, it would not matter. There is a mindset and education shift that needs to happen on the part of the people that are doing the overlooking. What are your thoughts? The world you have outlined is an ideal one in which I could thrive, not because of the color of my skin, but because of the quality of my business. How do we get from here to there?
EK: There are two verticals we are building based on the New Mittelstand vision: an online magazine and a transformative community. The online magazine helps us share the stories about diversity, radical innovation, and sustainability. One of the issues in traditional Mittelstand is lack of female leaders: according to a recent study, only about 11% of management and board members are female. If you consider origin and cultural background, you will end up with almost no representation at all. We want to grow and support the next generation that is taking charge on an even broader definition of diversity. It may take some time because it is about succession, and it takes years for existing families to rethink that and to make this decision. Jointly with Zebras Unite, we are working on alternative capital structures and to share inspiring stories of zebra entrepreneurs, relevant to transforming existing businesses.
Traditional family offices are often still very conservative. That money does not support the purpose-oriented narratives their brand identities indicate. We think this is inconsistent. So, the other vertical is focused on transformation with help of our community. The next generation wants more diversity and sustainability, new digital experiences, etc.—all this requires evolutionary and radical change at the same time. We developed a transformational framework to help next generation leaders to find orientation and necessary guidance, and share experiences in various circles and collaborate. We treat the culture of a traditional family firm as a product of entrepreneurship and apply new agile and iterative methods to develop it further. Often, we need to experiment in radical ways and there is an increasing interest to do that. But there is also an open debate. How far do we want to go? Some family businesses are going back to their roots in a negative sense, saying, “We do not want radical change, because we calculated it is not going to be good for us.” This debate is difficult, but we need to have the debate and move it into transformative action. This is the value our community creates and our positive impact.
JL: This is where politics comes into the conversation.
EK: If you ask Mittelstand companies and family businesses, what is the biggest hurdle for them to do innovation? They will say bureaucracy. The second-biggest issue is access to talent. In changing the way the capital is allocated, we need to figure out ways to do that without increasing bureaucracy. We need to direct the capital to the right people based on quality rather than traditional benchmarks and historical numbers. There is never going to be enough historical numbers, if we do not change radically and take some risks. I hope that these independent capital owners will be more likely to take risks, because at the end of the day, they want to say they did something good with it. Even if the business does not work, the purpose was still right. This is the balance of purpose with profit. The question is, what is the right ratio?
Manan Mehta (Unshackled Ventures)
Kesava Kirupa Dinakaran (Luminai)
Unshackled Ventures is working to support immigrant entrepreneurs in the US. Immigrants, historically and across geographies, have started and grown businesses that build enormous opportunities for employment; yet, immigrants face many challenges, particularly in the US, when it comes to their ability to work. Visa hurdles on top of everyday discrimination, as well as potential language and cultural barriers, make it far too difficult to start new businesses without assistance. We spoke to Unshackled’s founder Manan Mehta and one of his portfolio-company founders, Kesava Kirupa Dinakaran, who came to the US at 19 and started Luminai (formerly DigitalBrain), a customer-service automation platform, in 2020. Kesava’s story, intimately intertwined with Unshackled’s mission, is the perfect example of how important it is to help immigrant founders overcome the administrative barriers they face.
Interviewed February 2021
Johannes Lenhard (JL): Manan, your investment thesis is completely focused on immigrants. How did that come about? Why do you focus on that specific, outstanding niche, and why do you believe in fostering this specific kind of diversity?
Manan Mehta (MM): Eight years ago, I attempted to start my first business with a co-founder who had an H-1B visa (a work visa for the United States). I am native-born and raised here in Silicon Valley—little did I know that his H-1B would shackle him to his employer. Nine months into tinkering and moonlighting, immigration became a major hurdle. His inability to transfer his visa made it much harder for us to raise outside capital and for him to work full-time. It was truly a chicken and egg problem that cost us too much time.
Over the past eight years, some of these dynamics have shifted, but the fear of not having work authorization to work on a startup is very frightening for a lot of immigrant entrepreneurs. It was through my journey as an American-born citizen that I was free, but as an entrepreneur with a co-founder on a visa, I had to learn that immigration affected me too. I had never thought about it once in my life up until then.
Every night we would go to these co-working spaces—a prime example of the type of entrepreneurial talent our country attracts. After hours, you would see so many immigrants working. You could smell ethnic cuisines heating in the microwave, hear countless numbers of non-English languages, and you could tell this was not their full-time day job. What I came to realize was that this population of entrepreneurs were immigrants, and it was significantly larger than the population of native-born people working at night.
It makes sense, immigrants who have left their home country by choice are inherently more entrepreneurial than native-borns. These people are often more ambitious, have more drive, and more purpose. Immigrants are the most financially successful entrepreneurial group in the United States (more than 50% of tech IPOs have an immigrant founder). I do not think that has changed. In fact, one of the richest people in the world, Elon Musk, is an immigrant. This is something that is very appealing when you are talking about venture capital and creating upside.
Unshackled is not a not-for-profit: we invest in people who truly want to make both an economic and social impact. It is important that we align with them on both those philosophies. It was that intersection that brought us to start Unshackled.
Erika Brodnock (EB): My parents are immigrants, and listening to this from the perspective of being first-generation, it is incredible, because I know how much they struggled. What do you do at Unshackled to support immigrant founders?
MM: Many immigrants come with ambition, not with money. For immigrants who leave their home country by themselves, accessing the networks of influence is extremely hard. Our goal at Unshackled is to be a scalable source of friends and family capital, who will take the full risk with founders financially. We are very fortunate that our investors are comfortable with taking the full risk. We have shown there is a strong population of entrepreneurs who could use this support and accelerate with it.
The second thing we do is provide immigration support. I’ve learned in the United States there’s a difference between immigration and being an immigrant. Immigration can be solved in time, with a thoughtful strategy and government filings. But being an immigrant is a lifelong journey. Unshackled unlocks the immigration journey early on to support entrepreneurs during the ten to fifteen years it takes to build a startup. Over the last six years, we have done 150 filings on behalf of our funders. We are excited to share that 100% of our founders have secured work authorization and/or a green card through our efforts.
The third way we support immigrant founders is through access to influential networks and resources. Our team helps immigrants indoctrinate themselves into these ecosystems where people are described as “adverse selection.” We show how these immigrant founders are a net positive. As a result, our ultimate role at Unshackled is being the strongest and fastest on-ramp to the highway of venture capital. Kesava is a prime example of how fast an immigrant can move if given a chance.
JL: Kesava, let us talk about your story of being an immigrant founder. Can you share your experience of when you arrived? What have you been building and what were some of the biggest challenges?
Kesava Kirupa Dinakaran (KKD): I grew up in the southern part of India, where most of my family are all coconut farmers. There is a good thing to it, which is you get to drink coconuts all day and live on a farm. But the other side is everybody follows a very standard path: finish high school, get married, have kids, live on the farm, life moves on. I have seen people go through that path, and I thought I was going to do something similar to this world around me.
When I was 11 years old, I stumbled upon the Rubik’s Cube and started getting really good at solving them. I walked into my first ever Rubik’s Cube competition, and I was surrounded by CEOs, musicians, artists, engineers, and doctors. I was blown away for the first time, and I realized I did not have to follow the same path that my family took. I realized if I continue to participate in this community, then I will see that there is so much more to do. I ended up breaking multiple Guinness World Records and was the captain of the Indian National Team. From 11 to 17, that is all I did.
Because of the Rubik’s Cube community, I was introduced to a high school called the United World College. It is a high school that brings together people from 70 different countries to work on international peace and understanding. I went to this high school surrounded by people my age wanting to really change the world. Through this journey—from a very traditional family where, unfortunately, a lot of them still struggle to survive, to the Rubik’s Cube, to a full scholarship at the high school, to cycling across countries from Europe to Asia—I realized that anything was possible.
My journey continued when a foundation from the US flew me out for a ten-day summit called Three Dot Dash. After I finished, as someone who loved technology, I wanted to visit Silicon Valley. In April 2019, I came out to the Bay Area for five days. I crashed at a friend’s room at Stanford, and I was blown away. I thought, “This is my type of people.”
When I was back in India, I realized, “What am I doing here?” This is where we hacked the system. My mentor set up a fellowship so I could come to Silicon Valley on a tourist visa for two months. In that short period of time I learned so much. I ended up rejecting a college scholarship so I could continue learning and working on projects in Silicon Valley. Then, I completely ran out of money.
Every weekend, there are hackathons in Silicon Valley where you could end up making $5K building a product. At one of these, I met my now co-founder, Dmitry Dolgopolov. While we could code and build websites over a weekend, our immigration status denied us from high-paying jobs. Instead, we ended up hacking these hackathons and living off of it for six months.
At one point, the company that sponsored a hackathon said they liked one of our products and asked if we could ship it to them. They wanted to sign an annual contract. That was the only customer that was willing to sign a sales agreement and it got us into the whole startup bug. At one point, we realized living off of hackathons is not the most sustainable way of life. It was time for us to raise money. We had zero connections in Silicon Valley and were just trying to make our way through it. We sent about 200 emails to investors we followed on Twitter, got three responses, and all three passed immediately. We thought, “This is crazy. We have a story to tell and they were not even willing to listen.”
This is where the crazy stuff happened. Unshackled had a form on their website to be considered, and we thought, “Who is going to look at a form? This makes no sense.” But the site promises that they will definitely get back to you. We ended up filling the form. Two days later, one of the people at Unshackled got in touch.
The first meeting with Manan was the first time I felt respected. I felt that he was listening to me. At the end of the call, they were very sincere and said, “You are the kind of people who we bet on.” Over the next three weeks, we met and discussed the business. Finally, on February 13, we got $250K. Where I am from, that is more than my family has ever made in their life. It was quite wild. That put us in a place where we could rely on a community of founders and people. Unshackled was there to support us, but we were still on our journey of figuring out what we wanted to do.
This is when things start moving. Unshackled is a signal for other people in many ways. We had applied to an accelerator called Y Combinator (YC) and we did not get an interview. The second time we applied with a slightly different idea, and we got an interview. They never asked us about the idea itself. They said, “You moved from India to Silicon Valley at 19—how? This makes no sense.” That evening they said, “We like you guys. We would like to fund you, but we think your idea should change.” We iterated, learned, and went to Manan and Nitin, who told us to jump into it with the new product in customer support.
The catalyst for raising a seed round was primarily because of Unshackled. We put together a document on Notion of 100+ investment firms, and they connected us to each one of them. This is what we mean by breaking into venture capital. In a matter of three weeks or so, we raised $3.5M to grow the team. Now we are six people and living this dream we have always wanted to live. The timeline was less than a year, as a result of initial access and our hunger to move fast. I came here on a tourist visa, then my status switched to O-1, which is something I never would have thought to be possible without the team at Unshackled. Changing my immigration status was a big relief because now I can keep growing the dream and not have to worry about anything related to me being here.
EB: Manan, what is your biggest challenge with immigrant founders? How do you deal with visas and other policy issues that could potentially stop you in your tracks from unearthing such incredible talent?
MM: We just went through the Trump administration, and if we can get through that, we believe we can get through a lot of immigration changes. During this period of challenging rhetoric, there was a boom in immigrants seeking more help from stable platforms. We still had 100% success on immigration after four years of Trump. The policy, the rhetoric, and the politics of it served as tailwinds for the Unshackled thesis. It accelerated us—the “why now?” became clearer to people.
That being said, the biggest challenge that we will always face is finding people like Kesava. We know there are more people like him and know there are similar stories. How do we become that first email and not the email after 200+ emails? By getting to a point of further reach, it gives somebody like Kesava a little bit more inspiration. Our responsibility at Unshackled is to share the example to immigrant entrepreneurs, so that more immigrants will try a little bit harder to break into the venture ecosystem. Our responsibility is to match the aspiration of wanting to start a company with the inspiration of doing it. Regardless of our funding, this gives entrepreneurs a much higher jump-off point.
The challenge for us is always can we serve and scale the market efficiently enough? Can we deliver our promise on a daily basis? Thus, we have to truly amplify entrepreneurs’ time and resources at the stage they need it the most.
Aunnie Patton Power (Impact Finance Pro, University of Oxford)