By Rob Lalka, Albert R. Lepage Professor in Business and the Executive Director of the Albert Lepage Center for Entrepreneurship and Innovation at Tulane University.
Today we debut the findings of the third annual Greater New Orleans Startup Report, which presents data gathered in the first quarter of 2021. With so many exits this year, 2021 will surely be remembered as a watershed moment for the New Orleans startup ecosystem. Many of these deals happened later in the year, so they are not yet reflected in our data, but the 2021 Startup Report is a fitting beginning to our understanding of the State of Our Startups.
One estimate tallies the exits in the last six months — which, again, all came after our data collection this year — at upwards of $2 billion, an incredible series of wins after so many years without exits. GNO, Inc., provided this helpful compilation earlier this week:
Hopefully, hometown success stories – especially the recent Levelset and Lucid acquisitions, for $500 million and $1.1 billion, respectively – will be a prelude to many more, as investors look for the next great high-growth venture, while these experienced and accomplished teams mentor and support the next generation of great ventures. Here at Tulane, we’re hiring our inaugural Chief Innovation and Entrepreneurship Officer, and “connecting to, fueling, and recharging the innovation and startup community in Greater New Orleans and the Gulf South region,” is written right into the job description.
As Levelset’s first employee, Gretchen Lynn, put it, “This is an opportunity for more people to have access to venture capital because [New Orleans] is on the map now in a really big way.” And as Patrick Comer said when he received the 2018 Tulane Distinguished Entrepreneur of the Year Award, “I tell everyone who comes to work at Lucid, we have two missions: One of course is to build a successful company, and we’re going to do that, we’re going to make that happen. If that’s all we’ve accomplished, we have failed. We have to build a community and an infrastructure in Louisiana, that ten more companies — that are growing as fast, and faster, and even get bigger — can be established because of the work we’ve done to date, so that all boats are rising with the tide.”
The Lepage Center team is excited to share even more good news beyond these success stories, based on what we have learned from the GNO Startup Report data.
Even before most of these marquee transactions, we found a marked increase in equity financing activity (such as venture capital, angel investing and convertible debt) for Greater New Orleans startups. Specifically, we saw a 21% increase in access to venture capital for companies that responded to our survey in both 2020 and 2021. We’re also noticing greater amounts of capital raised (57% of survey respondents have raised over $1 million compared to 42% last year) and increased investment from outside the Greater New Orleans area into our early-stage companies.
We owe gratitude to Benson Capital Partners, which raised $50 million last year led by Mike Katz and Caroline Crumley, and to Revelry Venture Partners, a seed-stage fund launched in August 2020 by Gerard Ramos and Peter Liu. Not only do funds like these provide capital to local startups, but they also help validate the region’s investment opportunities for outsiders.
This increase in venture activity is a good thing, but are all entrepreneurs benefiting equally? In last year’s report, we saw that Black, Indigenous and People of Color (BIPOC) founders receive equity investments less than half as often in the earliest round. Did this trend persist in 2021?
In fact, we do see improvement in BIPOC access to equity investment since last year, with 13% increases in access to angel investment and venture capital and an 8% jump in access to convertible debt. This is certainly promising. Much has happened since early 2020 that could have influenced this trend, most notably reactions to the murder of George Floyd and a desire, on the part of investors, to make a difference at this time in history. In July, Crunchbase reported, “funding to Black entrepreneurs in the U.S. hit nearly $1.8 billion through the first half of 2021 — a more than fourfold increase compared to the same time frame last year.
Yet, as that same article noted, much more is needed: “Black startup entrepreneurs still received only a tiny fraction — 1.2% — of the record $147 billion in venture capital invested in U.S. startups through the first half of this year.” When we put the data in perspective, recent progress matters, but we still have a long, uphill road yet to climb.
The Lepage team also looked at investment in female-founded companies, finding that while women receive traditional bank loans at similar rates as men, they lag greatly behind men in angel investment, convertible debt and venture capital. Women founders utilized equity financing at approximately half the rate of their male counterparts.
Nationwide, gaps in funding to female founders are well known, and Crunchbase shows that global venture funding to female-founded companies fell significantly in 2020. The reasons for this and for the gaps our data revealed are complex, but it is clear that the pandemic has disproportionally impacted women in the workforce.
In March 2021, McKinsey reported that 23% of women with children under 10 years old were considering leaving the workforce, compared with just 13% of men in the same group. According to a U.S. Chamber of Commerce survey from August 2020, “The number of female business owners who ranked their business’s overall health as ‘somewhat or very good’ fell 13 points during the pandemic. By contrast, the number of male business owners reporting a ‘good’ business health status only fell five points.”
There are also longstanding inequities at play. Access to angel investment, in particular, often depends on “who you know.” Female entrepreneurs also might be overlooked due to pattern matching, as investors choose to invest in companies that closely mimic prior successful investments.
At a national level, we also know that BIPOC women receive disproportionately less venture capital than women in general. Project Diane reported at the end of 2020 that only 93 Black women nationwide have secured $1 million in investor backing for their businesses – ever.
From a business standpoint, the Greater New Orleans business community needs to face what these inequities cost us. In a community that is full of incredible female entrepreneurs and BIPOC companies, we are surely missing out by not funding them, especially since studies have shown that diverse teams perform better than homogenous ones.
We have some reasons to hope. In particular, we must acknowledge the New Orleans Startup Fund’s good work to this end: its 2021 Impact Report noted that 46% of its companies are BIPOC-owned and 32% are woman-owned.
But for the sake of our community and our economy, all of us at the Lepage Center hope that this data prompts renewed solution-seeking to these entrenched problems. As usual, our entrepreneurs said it best:
“I love New Orleans and will never leave, but I wish there were more female-founded companies scaling locally.”
“New Orleans has a long-standing reputation of being behind the rest of the country, but it is rapidly evolving and catching up. There is a modernization and shift from the thought process of ‘it’s not what you know, but who you know’ to relying on industry expertise.”
And finally, “This metro could be a true leader when it comes to women and Black Americans in high-growth entrepreneurship.”
This last point suggests a better future for the New Orleans ecosystem. As we celebrate a truly watershed year, I hope we can seize the opportunity and ensure greater access for all, so that all boats rise and we truly become the city we have the potential to be.
The Lepage Center will host a virtual panel discussion titled “Gender Gaps in Equity Financing: The Data on New Orleans Startups.” The event is scheduled for noon on Wednesday, November 17, and will include Tara Hernandez of JHC Properties +, Danielle Jackson of digitalundivided, Peter Liu of Revelry Venture Partners, Shelly Porges of Beyond the Billion, and Lydia Winkler of RentCheck. The event is free and open to the public. Register at: https://bit.ly/2021startupreport
The full 2021 Greater New Orleans Startup Report is available at: gnostartupreport.com