Startups are constantly in the race for funding to propel their expansion. Benzinga spoke to Kate Hernandez, principal at Detroit Venture Partners, for insight on future trends for startups as well as challenges for those looking to enter the VC world as a career.
Detroit Venture Partners focuses on early stage tech companies while also backing other VCs like Zigg Capital and Ludlow Ventures with funding.
Founded in 2010 by Quicken Loans Chairman Dan Gilbert, Detroit Venture Partners was an early investor in StockX, 100 Thieves, Bloomscape and Fincity, which was recently acquired by Mastercard Inc (NYSE:MA) in an $825-million deal.
Hernandez focuses on existing portfolio management, refining the funds that Detroit Venture Partners supports, direct deals and serving on the boards of companies in the Detroit Venture Partners portfolio.
Benzinga: Let’s talk about you, your background and how you got here.
Hernandez: After college, I spent some time in the banking world and working on my own startup focusing on providing credit access to minority groups. While preparing to go back to school, I happened to assist a professor on a paper focusing on Detroit and Dan Gilbert’s real estate deals, and did a summer internship with Detroit Venture Partners.
After graduating from Harvard Law and Business School, I made my way back after graduation. I absolutely fell in love with the city and the people — and the opportunities here were incredible.
What’s the next trend in startups, either in focus or delivery?
Hernandez: The past few months have changed a lot of people’s worldview — but in venture, we invest for the long-term, not the short-term. So, the question becomes: what is temporary and what is here to stay?
Quarantine accelerated a full move to a digital economy. Many things that we’ve talked about as abstract concepts were implemented overnight — remote work is a perfect example. Working from home and benefits that come from working from home took center stage. Companies can hire from where the talent is; this is hugely empowering. But you lose some valuable things when you are remote. Tools might pop up to help with workforce management, employee engagement and company culture.
What are some challenges that startups with funding — and those looking for funding — experienced due to the coronavirus?
Hernandez: When COVID first hit, everyone went into crisis management. VCs had to focus on existing portfolios and make sure they were sustainable. Following that period, VCs returned to somewhat normal operations.
However, one thing that continues to be an issue is that it is much harder to build trust between investor and entrepreneur in a virtual setting. In-person meetings are crucial to understand team dynamics and gain confidence in the entrepreneur.
We are still moving forward with new investments, but now with longer diligence processes and more meetings than in the past.
If you’re an investor and looking whether to invest or get involved in a startup, what are things to consider?
Hernandez: The jockey, the horse and the race.
Look at the entrepreneur. Are they honest and passionate about their venture? We look for entrepreneurs with no ego who have no problem bringing in smart people who know things they don't.
The horse is the company, the specific solution they are proposing. Is it differentiated? Well thought-out?
The race is the whole industry and competition. Is it a winner take all? Are there a lot of different competitors in the market?
Three-fourths of startup founders who received venture funding between 2013 and 2017 were white, with less than 10% being women. What can VCs do, and what is Detroit Venture Partners doing to help close this gap?
Hernandez: There is a massive diversity gap in entrepreneurship whose symptoms are shown by these statistics. It is preventing entrepreneurs from creating a better life for themselves and their family, it's keeping communities of color trapped in cycles of poverty and it's depriving the American economy from a wealth of innovation-fueled growth.
One issue is underrepresentation at the investor level. In 2019, it is estimated that only 9.65% of decision-makers at venture firms were women, [and] 7% of VCs are women of color. But that isn’t the full answer. It’s a leaky pipeline to tech for these underrepresented groups. There are issues of education, access and culture that come into play long before an entrepreneur walks through our door.
Focus should be put on early intervention: education, STEM, training in computer sciences and community-building initiatives in diverse communities to educate about the opportunities in technology.
In terms of what VCs can do, there are a number of organizations that support diverse founders. SoGal and Women in VC are some I am involved with.
Help out with those organizations. Mentor, give advice and tap into the diverse networks they provide.
DVP also runs unique entrepreneurial residence programs to reach entrepreneurs earlier in their progression: while you have an idea, we take a chance on you.
Keep these initiatives top of mind, be aware of the issue and do what you can.
An area of optimism does exist. Different affinity groups within venture are very supportive of each other. The idea is that we all want the same things and good-intentioned people. Some of these nonprofit groups focus on diversity.
Detroit Venture Capital was named the largest VC by tech investments in the state. What are you doing differently to stay ahead of the game?
Hernandez: Focusing on being a family office. Investing in early stage companies and strategic investments.
To stay ahead of the game, focusing on the city and being involved outside of just pure investments.
Disclosure: Benzinga is a member of the Detroit Venture Partners portfolio.