Lorine Pendleton practiced law and worked with three startups before discovering her calling as an investor. Believing that she could drive change in the VC ecosystem by investing in underrepresented founders, Lorine started angel investing eight years ago and hasn't looked back. Lorine now is one of five women of color investing in founders of color and LGBTQ founders through Portfolia's Rising America Funds. We spoke with Lorine about her path to investing and why others should consider following her lead.
Q: You began your professional career as a lawyer and then worked at two startups. How did that path lead you to become an investor, and why has that become your calling?
I have always had an entrepreneurial bent and been attracted to the startup world. After I graduated from Brown, I worked at a couple of major record labels. While at Blue Note Records, which was owned by Capitol Records, I went to law school at night to become an entertainment attorney and stay in the entertainment space. After graduating from law school, I joined an entertainment boutique firm founded by Londell McMillan. It was a very entrepreneurial firm. There were only four attorneys, but we represented big artists like Prince, Chaka Khan, and Stevie Wonder.
That's about the time I saw how entertainment and technology were converging. So, I joined my first startup, an Israeli company called MindEcho. The company's technology generated profiles of its users and recommended content, something that is so common now with companies like Amazon and Netflix. However, that was before streaming services and, although we had a great product, the market wasn't there. The company eventually folded. That was my first lesson in product market fit.
After that I joined another startup that was very successful -- Community Connect, a precursor to Facebook that targeted the Latino, African American and Asian markets. After that company was sold, I joined a company as one of four co-founders where we built software to enable large companies and professional services firms to manage their alumni networks. We expanded our product line to include HR tools and then sold the company to Oracle.
I returned to law firm life, working in business development at a couple of large global law firms. That's when I first heard the statistic that less than 1% of venture capital goes to Black founders, which by the way hasn't changed. All three of the startups where I had worked had VC funding, and I thought it was abysmal that less than 1% of VC dollars would go to startups founded by Black entrepreneurs. It was that moment when I said, "I want to change that." But I didn't know where to start. Then I read an interview with Natalia Oberti Noguera, the founder of Pipeline Angels, which trained women to get involved in angel investing so more women-led companies would get funding. That interview inspired me to start investing and I enrolled in the Pipeline Angels program. That was eight years ago. I started angel investing with my own money and that led to launching a venture fund with Portfolia, which is where I am today.
Q: Before we dive into the Rising America Funds, which you lead on the Portfolia platform, tell us about the Portfolia model and how it is a game-changer in terms of democratizing investing.
Portfolia was founded by Trish Costello. Trish ran the Kauffman Fellows program, the most prestigious training program for venture capitalists, and taught many of the leading VCs their trade. While at Kauffman, Trish concluded that venture capital was broken. The people who were becoming partners at VC firms were mainly white men, not women and not people of color. Trish knew there was a problem because she had trained a lot of women and people of color who were well-qualified to be VC partners. She questioned why only a certain group of people – white men – were making investment decisions on innovation in this country. So, Trish founded Portfolia with a double mission: to get more women, many of whom had never considered themselves angel investors, to invest in early-stage companies and to direct those investment dollars to companies founded by women and people of color as well as products and services that are often overlooked in VC funding.
To invest in funds like Portfolia, you have to be an accredited investor as defined by the SEC. Women are becoming more and more affluent, and in a decade, women in the U.S. will control more money than men. But right now, only .5% of women who qualify as accredited are investing in early-stage companies versus 30% of men who are accredited. Women will write a check for a nonprofit without a thought. So, Trish thought why not activate women's wealth to invest in companies we want to see in the world for both returns and impact? And that's what she set out to do with Portfolia, which is probably the largest group of women combining their capital to invest.
There are now 1300 women who invest in at least one of Portfolia's funds. We have $40 million of assets under management through 13 funds each built around a different theme, including the first fund focused on solutions to women's health issues, an active aging fund with solutions that cater to the baby-boomer market, and the two diversity funds that I co-lead. Each fund is led by a team of four or five experienced investors. Except for one male doctor who co-leads the FemTech Fund, the partners are all women and 40% are women of color or immigrants.
Through Trish's vision, Portfolia is changing what venture capitalists look like. And, as you can imagine, that informs the kind of investments we make because we see problems that traditional VCs don't understand or feel uncomfortable addressing. For example, we've invested in Willow, which is a breast pump company that deploys advanced technology to address a need millions of women face.
Q: You and four other women of color are the lead investors in Portfolia's Rising America Funds I and II. What is your investment thesis for those funds?
We believe that the Rising America Funds are the only funds led by a team of all Black and Latina women. And we are a highly experienced group of investors. I got my start through angel investing. My partners, all of whom are Kauffman Fellows, also have extensive and varied backgrounds in investing. Karen Kerr was a managing director at GE Ventures and now has her own fund. Daphne Dufresne got her start in venture but now runs a $2.0 billion private equity fund. Juliana Garaizar ran Texas Medical Center Ventures and now leads Greentown Labs, a Houston-based climatetech incubator. And Noramay Cadena, who started as an engineer at Boeing, runs a fund investing in supply chain solutions.
Our work at Portfolia is not a full-time job for any of us. Portfolia's unique platform takes the administrative burden of running a fund (tax, legal, etc.) and allows us to focus on sourcing and investing in the best companies for a great return to our investors. We invest in companies where at least one of the founders is a person of color or LGBTQ. We are sometimes asked why we aren't going after the best companies. We don't think that investing in founders of color or LGBTQ founders means sacrificing returns. In fact, we think these companies offer superior opportunities. Countless studies have shown that diverse-led companies outperform companies with non-diverse teams.
Founders of color and LGBTQ founders get only a fraction of VC dollars. As a result, they have to bootstrap their companies for much longer, which makes their companies incredibly capital efficient and high-performing. In addition, because these companies don't get a lot of funding, their valuations tend to be lower. So, from an investor's perspective, these companies are great investment opportunities – high-potential performance at prices that aren't inflated like many startups.
Our first Rising America Fund invested in 16 companies, and we recently launched our second Rising America Fund.
Q: Investors tend to invest in founders who are like them and who have similar life experiences. As a result, they may overlook markets or customers they don't understand or solutions to pain points they don't even know exist. Can you give an example or two of companies in your portfolio that are on a rapid-growth trajectory because they are focused on the enormous potential of multicultural markets?
Diverse founders and, particularly, people of color bring their experiences to their companies to build solutions that others may not see. For example, we invested in MoCaFi, which stands for Mobility Capital Finance and was founded by Wole Coaxum. A former executive at JPMorgan Chase, Wole saw the need to address the 80 million people in the United States who are either unbanked or underbanked, 50% of whom are people of color. If you don't have a bank account or a debit card, you need to take your paycheck – or more recently, your stimulus check – to a check-cashing business which typically takes a commission of 20% or 25% of the amount cashed. Without a bank account, you need to buy a money order to pay your rent. These are all things most of us take for granted. But Wole understood these problems and he set out to fix them by creating a solution where you can handle these transactions on your cell phone, all without fees. MoCaFi makes money through a slice of interchange fees paid by banks and merchants. MoCaFi is expanding and doing very well.
Other companies that we've invested in are tapping into ethnic markets. Some people think these are niche markets, but they're not. By 2040, ethnic minorities will be the majority. In fact, in California, the minority is now the majority, and that is the trend throughout the United States. Latinos are the biggest, fastest growing demographic with tremendous spending power. The same is true of African American and LGBTQ consumers. In many cases, products and services that are now popular and mainstream were first introduced in these communities.
Q: What can and should be done to build a more diverse startup ecosystem?
To entrepreneurs, I say get out and very actively network. The more people you know in the startup ecosystem, the better. It's all about your network. Even if you connect with someone who is not an investor, he or she may know other people who are. It's not always about financial capital. Your network can supply other sources of capital: human capital and social capital. For example, a business executive, accountant, lawyer, or other expert could mentor you and provide business expertise and resources to which you wouldn't otherwise have access.
For investors, I encourage you to get out of the pattern matching syndrome and meet diverse founders. There are many ways you can do that. Hold office hours for diverse entrepreneurs. Attend or volunteer to judge pitch competitions showcasing diverse entrepreneurs. Participate in programs like Project W's Tech Equity Hub, in which I was involved last year, that offer investors opportunities to meet high-potential founders of color.
And then, for people who are at large companies, even if you are not ready to write a check, there are plenty of ways to help. Volunteer as a mentor and help with the founder's pitch deck, go-to-market strategy, or finances. When you are ready to write a check, you can look at crowdfunding platforms, angel groups and, of course, Portfolia. The minimum investment for Portfolia is $10,000, and when you invest you get a stake in eight to ten companies, which diversifies your risk. In addition, as an investor in Portfolia, you get invited to pitch meetings and can be part of a due diligence team. So not only are you investing your capital, but you are also learning about different industries, getting to know a great group of people, and having fun.