Advice From An Investment Analyst For When A Firm Lacks Multicultural Focus

Advice From An Investment Analyst For When A Firm Lacks Multicultural Focus

Aaron McClendon was on a traditional journey towards building and investing in high growth companies when he started questioning the path he was on.

Challenging the standards in the industry, McClendon reached out to people doing things he aspired to.

That led him to the apprenticeship model, a fellowship with Venture For America, and an offer to join Detroit Venture Partners as an analyst.

McClendon lends unique perspective as a junior investor, helping make investment decisions for certain funds that require group decisions on investments.

Being the only black person in the room is something he’s used to, McClendon told Moguldom.

“At first it was an adjustment, but it’s nothing really new to me,” he said. “I use my platform to provide access to those that wouldn’t normally receive it.”

When McClendon joined Detroit Venture Partners, he searched for — and couldn’t find — a comprehensive network of black men at VC firms, so he created his own list based on certain areas of the U.S. McClendon studied integrated supply mManagement at Western Michigan University Haworth College of Business and earned a bachelor of business administration degree.

He talked to Moguldom about his journey in venture capital.

Mogudom: How did you get interested in venture capital?

Aaron McClendon: Acquiring, operating and investing in multiple businesses has been an interest of mine since learning about Reginald F. Lewis (wealthiest African American man in the ’80s) and Robert Smith (chairman and CEO of private equity firm Vista Equity Partners, Smith was ranked by Forbes in 2016 as the second wealthiest African American after Oprah) early in college.

In particular, venture capital became interesting to me when I discovered I am energized by building things from the ground up and working with creatives to bring their visions to market. My curiosity for venture capital was originally piqued after learning about the $1 billion-plus acquisition of Cruise Automation (a driverless car company based in San Francisco) and $500 million investment in Lyft by General Motors during my time there. After a series of conversations with venture capitalists, I decided I was more interested in being on the “disruptor” side versus the “disrupted” and I felt venture capital was a great way to immerse myself in this new world.

Mogudom: How does a person get to the point where others trust you to invest their money?

Aaron McClendon: Building strong and trusted relationships over time and developing a successful track record in business, investing, and entrepreneurship. Demonstrating your access to a pipeline of high-potential companies to invest in is also very helpful.

Mogudom: What type of technology would you invest in, and why?

Aaron McClendon: At Detroit Venture Partners, we primarily make seed and Series A investments in Midwest-based SaaS (software as a service), fintech, insurtech, e-commerce, marketing, and sports-related technology. We have extensive experience with these technologies and can provide significant strategic value towards them. We also consider companies outside of the region if it makes sense strategically.

Mogudom: What advice do you have for founders from black and underrepresented groups who have been excluded from traditional venture capital sources?

Aaron McClendon: My advice would be to first evaluate whether your company requires venture capital to validate the business need. Your chances of receiving funding improve if you can come in the door with some results and progress to show that your business is solving a real problem or filling a huge gap in the market.

Research and identify investors that have a track record in your industry and then dig into your network to request warm intros to them. If your network is not strong yet, founders often achieve this by completing startup accelerator programs. The purpose of these programs is to connect you with a large network of potential mentors, advisors, and investors from your industry.

It’s OK to start the conversation with investors early without asking for investment. Instead, seek feedback. Build the relationship with investors by keeping them updated with goals and tangible progress you make over time. This is a good way to build trust and a network once you’re ready to raise funding.

Mogudom: What advice do you have for black venture capitalists who have historically not received enough venture capital?

Aaron McClendon: I haven’t started my own fund yet so I don’t know much about that process. My advice would be to tap into high net-worth individuals and institutions that have minorities within their leadership and educate others on your access to great deals.

I also suggest working with other successful VCs first to learn the game while building your track record and network. Try to learn from others that have done it already, like Charles Hudson.

Mogudom: Tell me about your personal journey to becoming part of your team at Detroit Venture Partners?

Aaron McClendon: Simply put, I was on my way down the traditional path until I started challenging the standards around me and questioning whether the path I was taking was aligned with my long-term goals.

I started reaching out to people that were doing things l aspire to do like building and investing in high growth companies. Ultimately, the advice I received was to find people doing the things I wanted to do and help them.

So I decided to follow the apprenticeship model and apply to Venture For America. Through the VFA match process, I was able to interview and receive an offer to join Detroit Venture Partners as an analyst.

Mogudom: How does it feel to be the only black person in the room?

Aaron McClendon: At first it was an adjustment, but it’s nothing really new to me. I’ve pretty much always been the minority, so I just try to make sure I use the platforms I’ve been blessed with for good. Due to my difference, I pay attention to things very closely and I communicate what I do and learn to anyone that will listen – especially aspiring entrepreneurs that are unfamiliar with the concept of venture capital.

I use my platform to provide access to those that wouldn’t normally receive it.

Mogudom: Please add anything you would like to say that wasn’t covered above.

Aaron McClendon: Since I’m new to the game, I can only speak from a junior investor perspective and for funds that make group decisions on investments.

For investors looking to increase the amount successful diverse founders, it’s important to validate the technology and market size objectively. If it fits your investment criteria, the fact that the founders are diverse should be a bonus. If you’re at a firm that does not have a specific minority focus, don’t lead with diversity as the main reason to invest. Lead with why it is a great business/technology and follow with why the entrepreneur will succeed.

Mogudom: What do you want to see happen now and in the future in VC for black people? What’s your wish list?

Aaron McClendon: My wish is that there was more transparency and understanding around investments made in minority founders, minority founders that are actively fundraising, and clarity around how we can help each other succeed. I’m happy to hear that folks like Yves Louis-Jacques from Backstage Capital are working on creating this.

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