Athletes-turned-startup founders call for a transition from the stadium to the Valley
The privilege of lifting the Lombardi trophy has always been reserved for a small group of men each year, and the Super Bowl proved to be no different. The same goes for the ranks of investors that fund a majority of today’s tech startups. However, the latter is changing and we’d like to see more African-American National Football League players, and minority athletes, get off the sideline and into the investing game.
Both rapper-turned-actor Will Smith and music mogul Jay-Z are leveraging their capital and celebrity to back BlackJet, which enables clients to book seats on luxury jets via a mobile app. Black Eyed Peas frontman Will.i.am is not only a serial investor, but he’s learning to write code so he can develop his own websites. Athletes can follow the example of Ronnie Lott, a four-time Super Bowl champion with the San Francisco 49ers; Lott recently raised a fund, with other African Americans, and has already invested is several successful startups. His son (who is one of the article’s authors) co-founded StraightCast Media after retiring from the NFL.
Diversifying your portfolio can also save you money. All of these investors benefit from what is known as the carried interest loophole. We’ll break it down: while you likely pay 39.6% on income derived from salary towards taxes, your investments face a maximum of 15-20% in capital gains taxes. This is why billionaire investor Warren Buffett reportedly still pays a lower tax rate than his secretary. As one notable angel investor recently explained, “income is a sucker’s game. Carried interest rocks.”
Recent initiatives aimed at encouraging a more diverse pool of startup investors have already increased the number of women who are empowered to be more visible and vocal. Websites like FundersClub, with only a few clicks, enables its members, who are accredited investors (with a networth of over $1 million or yearly earnings more than $200,000), to invest as little as $1,000 in venture funds that go on to finance some of the world’s top startups in exchange for equity. The process of connecting founders with funding is becoming more efficient and transparent than ever before, making it easier for those outside Silicon Valley to get involved.
Investors should continue backing the technologies and teams that excite them. However, an increase in the diversity of investors could influence investing habits over-all. At present, just 1% of all venture-backed startups in Silicon Valley have an African-American founder.
First hand, we’re seeing the situation improve. A handful of African-American investors contributed over 25% of the $2 million dollar seed round closed by one of our startups, SendHub, in April 2012. Kenneth Chenault, CEO and Chairman
of American Express, is backing a startup called Urban Compass, which is led by an African- American founder and months ago announced an $8 million seed round. We are convinced that the best strategy for positioning minority communities to benefit from the wealth and jobs created by the innovation economy is to bring more diverse investors to the table.
This is exactly what FundersClub and others are doing. To date, the website has funded six companies two of which are led by African American CEOs. This is an encouraging trend which suggests that a rising tide of investors may lift more startup
boats, including those led by minority founders.
Professional athletes who want to learn more about the startup game, within a controlled and low-pressure environment, might consider attending an upcoming Demo Day put on by YCombinator or 500 Startups in Mountain View, California. Ashton Kutcher and MC Hammer are regulars. Demo Day is almost equivalent to the NFL Scouting Combine except, the room is filled with less anatomically impressive people and everyone is talking about user traction, instead of forty yard dash times.
Ronnie Lott, who has demonstrated a remarkable level of deft throughout his career—on and off the field—captures our sentiments best. He noted, “Just like Jackie Robinson explored the possibilities of playing in the big leagues, we also need to explore the possibilities of playing where innovation and economics collide to transform the future. We cannot afford to miss this game!”