Do You Feel Rejected By Silicon Valley Establishment? The Huge Role Geography Plays In That
In this six-part series, Moguldom tries to get inside the head of Miami tech entrepreneur Brian Brackeen, CEO of facial recognition firm Kairos. We want to know how he thinks, and what it takes to grow as a tech startup founder. This is Part 3 of the series.
If the private tech market is in a bubble, geography may be playing a bigger role than it has been given credit for.
Facial recognition may not have been a household term before, but it is now thanks to the new Apple iPhone X, which uses your face as a security feature. The most expensive and technologically advanced iPhone ever is expected in stores Nov. 3.
Brian Brackeen is all over the technology. He has raised more than $5 million in venture capital, managing explosive growth at Kairos, his Miami facial recognition firm.
Kairos is the only facial biometrics company in the world offering both facial recognition and emotion analysis tools for developers.
These days, Brackeen spends a lot of his time mentoring entrepreneurs, and raising capital is often at the center of those discussions.
“While there are very few blacks in venture capital, there are a larger numbers in private equity, pension funds and hedge funds. I’d like to see those people do more,” Brackeen said.
Brackeen talked to Moguldom about the huge role geography plays in tech startup funding, valuations, and more.
Moguldom: Do you feel rejected by the Silicon Valley establishment?
Brian Brackeen: (Kairos has) been very successful and I think if we were based in San Francisco or anywhere in the Valley, we’d probably have higher valuations and a different story. I stopped begging for the adulation. I stopped taking trips to the West Coast. I go there for our customers but I’m not going there just to pitch investors anymore. It’s too much to tell the story of Kairos and tell the story of Florida and tell the story of minority entrepreneurship. The bar gets set higher, higher, higher. Telling that story to a New York-based firm where they spend their winters in Miami anyway is a lot easier.
A lot of firms are doing this — skipping (Silicon Valley) altogether. I’ve seen minority firms raising in Africa. I’ve seen minority firms raising in Europe. I think soon … people will simply fly over California to find their capital, and then fly back. Because when you can get (capital) outside the U.S., they simply see you as an American company. And it has a cachet. We tend to do well in that environment. Downward pressure (is) on valuation due to standards. In China in particular, you’re seeing some fluffiness in valuation as well.
Moguldom: Silicon Valley blames the pipeline and other things for its diversity problems — the “it’s-not-us” mentality. When they do get the actual capital to a diverse group of founders, do you feel their term sheets are dirtier, as they were (historically) with home and auto loans?
Brian Brackeen: Probably, and some of that has something to do with us.
Moguldom: What percentage of government funds should be invested into African Americans?
Brian Brackeen: Government funds from a state or city should be directly proportional to the races of the folks that have put into that fund. So if you’re CalPERS (The California Public Employees’ Retirement System — one of the largest in the state — is an agency in the California executive branch that “manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families”) and 18 percent of the folks are minorities, you should be making 18 percent of investments in those same communities.
Moguldom: Can an organization like CalPERS or Yale and Harvard say that they care about diversity if the VC fund doesn’t have any black partners or doesn’t invest in a black entrepreneur? Essentially they are investing in perpetuating inequality on a mass scale. Do you believe they can say they care about diversity without checks on the VC relationship?
Brian Brackeen: One of the problems with the West Coast approach is they’ve said that they’ve got a responsibility to get a certain return, independent of what makes that return (for them). On certain issues — we saw that on apartheid for instance — they were very specific about removing investments that were supportive of those things. Other groups have looked at historical lending, or work that banks have done with slavery and other areas, and removed those investments.
Q: Do you feel that the focus of the diversity problem as it relates to black people specifically should be at the pension and endowment level, similar to the successes folks saw with divestment related to the apartheid? Should a bigger focus be on where the money is coming from, and holding those big multimillion dollar institutions accountable?
Brian Brackeen: It’s literally possible that you could solve the entire problem with that approach.
Moguldom: Excluding seed-stage funding, does the private tech market feel like it’s in a bubble with frothy evaluations, an increasing amount of down rounds and dirty term sheets?
Brian Brackeen: Yes. This is where geography plays a huge role. Evaluations, theoretically, should know no geography. Right? it’s based on how good the company is and what the going rate is. However, valuations in the Valley vs. New York vs. Miami vs. Chicago are all completely different. There’s a success story here locally called Modernizing Medicine. It’s nearly a billion dollar valuation now — and they’ve raised $300 million of funding so far. They got turned down by a number of local angel groups because … the valuation was too high, among other things. I think that the problems you discussed — frothy valuations, dirty term sheets — are acute in Northern California. I think they are less so — but still a problem — in Southern California, and then every state you come east, less and less, save New York, which is a bit of a different scenario.
Moguldom editor Dana Sanchez contributed to this report.