In this episode of SaaS Half Full, host Lindsey Groepper chats with John Francis, Founding Partner at Stout Street Capital. The micro fund has always focused on investing in underrepresented SaaS founders in the middle of the country, but 2020 brought to light the opportunity to also focus on those founders from underrepresented groups. John shares how 2020 encouraged Stout Street to pivot and support more diverse founders and what later-stage VCs can do to help.
Connection Is Key for Underrepresented SaaS Founders
According to John, Stout Street Capital was already a leader within an emerging trend: the shift of VC attention and dollars to Middle America. It’s been a gradual shift — that is, until 2020.
“What 2020 has really brought front and center is this idea that ideas are not bound by regions,” John said. “If you can fund it, and you have a good founder with a long term vision of growing and sustaining that business, it is going to succeed. There’s this decentralization happening at a global scale.”
Based on this trend, Stout Street was already investing in underrepresented SaaS founders as defined by region, hosting the Unmet Conference to bring together regional investors and founders. But, 2020’s national conversations about race, diversity and equity encouraged John to think bigger. Belonging to a diverse group himself, he knew companies with diverse founders often significantly outperform the general population yet still struggle to secure funding from traditional sources.
The Stout Street team wanted to help bridge that gap by pivoting their Unmet Conferences to offer more opportunities to diverse founders — and expanding on the term “underrepresented.” They’d already hosted a 2020 Unmet conference in Arizona, but Stout Street pivoted to virtually host the first Unmet Founders in November 2020, specifically targeting diverse founders.
What has surprised John the most is how engaged investors were in relationships with founders, even if they chose not to invest — as well as founders’ tenacity through 2020’s leaner times. “Founders throughout 2020 didn’t lose hope,” he said. “They still went ahead with their growth plans, and a lot of them have succeeded.”
What Later-Stage VC Firms Should Know
From the Unmet conferences and his conversations with other founders and investors, John has gleaned good insights for later-stage VC firms looking to investing in more diverse founders:
“I feel like they do need to talk more outside of their own networks because what I see in later-stage VCs is this abnormal risk aversion, where they tend to invest in people they know and pay attention to people who look like them, think like them, and speak like them,” he said. “It’s hard to break into those networks for founders who have a diversity of thought, who are not coming from the same backgrounds as they are. If the VCs are listening to me, I would say you need to open your eyes and open your ears for more diverse thoughts. Listen to people who don’t look like you and who have not done the same things.”
A business case lies within this call to action. As ideas proliferate across the country, and technology and opportunities shift away from the coasts and into Middle America, VCs wanting the Next Big Thing should respond accordingly. John cites the Rise of the Rest movement, backed by AOL founder Steve Case, but he suggests more VCs should investigate what’s happening outside Silicon Valley.
“Companies are getting started in places no one would have thought of,” he said. “2020 has opened the door for even small cities to eventually become large tech hubs. I think that trend is going to continue, and that decentralization of power and talent concentration will accelerate in the next decade.”
For more of John’s insights, listen to Episode 306 of SaaS Half Full.