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Winning the Future: Eliminating Racial Imbalance in Innovation

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Earlier this year during his State of the Union Address, President Obama proclaimed that "The first step in winning the future is encouraging American innovation." He called us "[the nation] of Google and Facebook," and boldly stated that "innovation doesn't just change our lives, it is how we make our living."

But if you're black, chances are that innovation is not how you make your living. As the founder of an Internet startup, I meet entrepreneurs and investors every day. I've met hundreds, yet over the past few years, I have met only a couple of entrepreneurs and investors who are black. After the president's call to action back in January, I felt compelled to think about why diversity in innovation is an important (not just personal) issue.

In 2010, research firm CB Insights surveyed 165 funded early-stage Internet companies, finding that just 1 percent of the founding CEOs were black (83 percent were white). In fact, only 11 percent of founding teams included a black co-founder at all. Similarly, a 2008 study by the National Venture Capital Association and Dow Jones VentureWire found that just 1 percent of all venture capitalists are black. So the numbers reflect my experience. But why does it matter?

For one, innovation is an important source of jobs. In May of this year, McKinsey research showed that the Internet creates an average of 2.4 jobs for every one job that it cuts due to efficiencies. Further, their study revealed that across 13 mature national economies measured over the last 5 years, 21 percent of GDP growth could be directly attributed to the Internet. Without proportionate representation, these benefits are likely to be unevenly distributed.

Diversity also means a broader range of businesses and ideas in which to invest, and investors might actually improve returns by casting a wider net. Looking at research from CB Insights, 87 percent of Internet startups founded by black entrepreneurs receive no outside funding (compared to a national average of 63 percent), yet 23 percent generate operating revenues--6 percent more than national average.

Still, investors are not backing black entrepreneurs on a proportionate basis -- a problem likely rooted in awareness. Increasing our representation in the venture community would facilitate diversity and help promote more black entrepreneurship. But with many venture capitalists getting their start as entrepreneurs or in similarly underrepresented areas of finance, we find ourselves in a difficult catch-22.

Another reason to promote diversity is that ideas can and should come from everywhere. Black Americans rely on and enjoy technology to the same degree as every other group in this country. For example, a report on Twitter by Edison Research back in May showed that black people represent 24 percent of Twitter's user base, roughly twice what they represent of the nation's population. With innovation rooted in iteration, we miss an opportunity to tap into these users for the next wave of services that will improve and apply these technologies in creative ways.

Finally, this space is arguably more accessible than other specialized industries, making it a prime target for improvement. In the start-up world we are seeing an increasing number of self-taught programmers thanks to a growing number of online courses and communities. These programmers are finding work as software engineers and product developers -- high paying jobs by any measure. According to Indeed.com (a jobs and recruiting website), the average salary for a Ruby on Rails programmer in Silicon Alley is $110,000. Strangely, out of at least 10 universities in New York City, only NYU offers formal classes in Rails, which suggests that opportunities are not coming through formal channels and are not limited to college graduates.

So how do we improve the landscape? As black people, we must accept that we are underrepresented in this field and begin to change the status quo. Entrepreneurs are, by our nature, self-motivated and tenacious; challenging norms and coming up with creative solutions is part of our job description. We must push ourselves to be curious about new services and the technologies that power them; to build businesses, create networks, and effect change one successful startup at a time. Robert Kennedy put it best when he said, "the future is not a gift, it is an achievement." So, we must achieve. For their part, investors should seek diversity in founding teams as a key element of portfolio diversification. They, too, can challenge themselves to look more broadly and think more openly.

We will all benefit from such efforts. Or in the words of President Obama, "these investments -- in innovation, education, and infrastructure -- will make America a better place to do business and create jobs. But... we also have to knock down barriers that stand in the way of their success. The future is ours to win."

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