It’s quite clear the world of venture capital has a diversity problem: Founders of color within the U.S. receive the short end of the stick when it comes to amassing venture dollars. The current VC climate is so dire that there are only 105 entrepreneurs of color who have raised at least $1 million. A big part of the issue is just how white and male the venture community remains. When a homogeneous group of investors controls most of the $136.5 billion that are invested annually, the consequences are felt beyond Silicon Valley.
As a Latina investor at an early-stage Bay Area fund, I’ve noticed that one of these consequences is the limited type of startup that tends to receive funding. There is an element of sameness to many of the problems consumer startups were built to solve. These startups largely target one consumer: the HENRY (High Earner, Not Rich Yet) who mostly identifies as white and monocultural. That means that millions of ethnic Americans aren’t being targeted by brands, creating a massive opportunity to look beyond the problems of mainstream, white America. Startups have a chance to build consumer brands uniquely positioned to solve the problems of bicultural Americans. To me, the most intriguing minority community is what I call the Hypercultural Latinx.
The Hypercultural Latinx profile is that of modern Latinx youth who represent the achievements and struggles of having grown up in a bicultural society. At 18 million strong, we are the youngest major ethnic group in the U.S. Given that the average age of a U.S. Latinx is 28 years old (versus age 42 for whites), we have ample years of prime spending ahead of us. The Latinx community’s purchasing power has already soared from $210 million in 1990 to $1.7 trillion in 2017. We will continue to wield growing consumer power as we spend more aggressively and consistently on consumer goods across all sectors, including beauty and consumer electronics.
In addition, Hypercultural Latinx tend to be ahead of the digital curve and generate trends before mainstream America catches on. We are the online and offline influencers of culture, social behaviors, and trends, and the power users of mobile and video consumption. Moreover, this community has a unique relationship to shopping—most of which is on mobile and is centered around friends’ opinions and product reviews.
But despite the Hypercultural Latinx community’s power, some of its unique problems go unsolved. Living a 100% American, 100% Latino life experience means encountering challenges white America doesn’t have to think about. Some of these issues include juggling two languages, experiencing both subtle and overt racism, and having our narrative mostly ignored by mainstream media. Additionally, Hypercultural Latinx never feel quite at home due to the constant tug of war between American culture and Latinx culture. All of these challenges are usually absent from traditional consumer companies. Anecdotally speaking, this means many Hypercultural Latinx feel ignored by consumer brands.
Because the Hypercultural Latinx community has its own values, customs, and life experiences, it needs its own set of startups attuned to this background. Some have started to pop up already. In the pre-seed world, Lelu is helping young bicultural families where one of the parent’s dominant languages is Spanish teach it to their children. Pre-launch company Ceremonia is focusing on hair care rooted in Latinx heritage. The founder plans to use her background as a Chilean raised in Sweden and New York to lend authenticity to her brand. In the later-stage world, video-based digital media brand Mitú has raised $52 million to amplify the content that young Latinx care about, such as TikTok Queen Rosa, Latina Twitter trends, and the drop of Latinx emojis.
Companies target this burgeoning demographic because it can be advantageous for a startup to focus on a niche group of customers. After all, it’s difficult to be all things to all people. It’s the same reason why Fenty Beauty chooses to over-index on Black women customers and Breaux Capital focuses on Black men’s financial needs.
The venture community is infamous for ignoring the purchasing power of Latinx youth. Even though there has been recent conversation around backing founders of color, true progress has yet to be made. Latinx founders still receive less than 2% of all equity dollars invested. When you look at those doing the investing, it isn’t any better: Latinos only make up 1% of the venture capital industry. Given these disparities, it’s hard to imagine that startups targeting the Hypercultural Latinx will consistently receive backing if VCs don’t understand the problems they’re trying to solve. That’s why diversity among investors needs to change. To positively change the narrative of ethnic founders, we need more check writers coming from different backgrounds.
To be clear, funding the Latinx community is not a charity case. I’ve seen that these founders are more likely to portray strong founder traits because of the existing entrepreneurial nature of Latinx people. I’ve found that resiliency, arguably the most important attribute for a founder to have, is a common theme in Latinx culture. They just need someone to take a chance on them.
Ilse Calderon is an investor at OVO Fund, where she specializes in pre-seed investments.