Building Equitable Entrepreneurial Ecosystems with Accelerators

Welcome to episode 14 of the CitySCOPE podcast. I’m Kate Cooney, senior lecturer and founder and director of the Inclusive Economic Development Lab at the Yale School of Management. Today, we speak with Caron Gugssa-Howard and Dianna Tremblay from ICA in Oakland, California. ICA runs a Bay Area accelerator program and also makes investments in small businesses through their venture capital CDFI.

Caron Gugssa-Howard (00:51):

My name is Caron Gugssa-Howard, and I am the strategic program manager here at ICA, responsible for managing the implementation and daily operations of all entrepreneur programming and ensuring the quality control across all programs.

Dianna Tremblay (01:07):

I’m Dianna Tremblay. I’m the chief program officer at ICA and my primary function is to make sure that we are meeting our mission with the companies that we work with and especially in the companies that we invest in as well. And I have the honor of working with Caron every single day.

Kate Cooney (01:22):

We’re so excited to have you both here. And I just want to start with a really big question. I know part of the mission or the mission of ICA, the work is centered on creating a more inclusive economy. What do you think are the barriers to an inclusive economy? And at a high level, how does the work you do aim to reduce these barriers or create pathways toward that more inclusive economy?

Dianna Tremblay (01:48):

There’s so many barriers, of course, but if I think about in the context of what we work in, in the space, it really are low, low wage jobs. So there’s, that is a definite barrier and a lack of wealth creation opportunities across all job functions, not just the low wage jobs. And also a big part of it is the current system that we’re in. The system was not set up so that the economy would be inclusive, and that poses a really large problem. And because that lack of inclusivity, it stems through the history that the United States has had and also the global economy, as well as keeping people shut out. And on a high level, ICA is really looking at how do we work with small businesses so that we can help them to think about long term value creation and long term sustainability? And if they’re able to do that, not only does it build wealth for the entrepreneur themselves, but it builds wealth for their employees as well. The idea of wealth creation opportunities for employees has always been around. There’s ESOPs, there’s lots of things, but usually not everything is available to everyone, especially if your job pays such a low wage that you cannot put money into your 401k or you can’t even purchase stock options because you’re a front line employee as opposed to a management level employee. So we’re really working with companies who are wanting to make sure that they offer those wealth building opportunities across every single person in the company, no matter their role. And we not only do this through services like the accelerator, which will share a little bit more about, but we do it through direct investment. It’s one thing to support companies. It’s another thing to support them and give them the money that they need to actually do the things that they want to do.

Kate Cooney (03:36):

First, let’s just talk about where you’re situated, and then we’ll get more into brass tacks. You’re working in the Bay Area. This is one of the most dynamic, high growth regional economies in the country, even the world. Give us a sense of what’s happening for small businesses. We hear so much about the big tech companies and what’s coming out of Silicon Valley, but what’s the view from the small business entrepreneur? What’s it like to be in this dynamic regional economy?

Caron Gugssa-Howard (04:09):

Yeah. I mean, it’s funny that you mention Silicon Valley, so it’s like forty five minutes east of us. So you have small businesses in every kind of arena. You have businesses, some that maybe focus on kind of serving the Big Tech folks, and then have your micro entrepreneurs who are selling goods or other CPG products. But just because of the landscape here, there’s just a wide range and it can be in, like I say, tech, health and beauty, food and beverage manufacturing, apparel manufacturing, catering. And we’ve seen in the catering space, that’s where a lot of focus will go to like the Big Tech folks, but we saw that change in 2020. And then just because of our location, there is a lot of folks who kind of get a lot of traction and success at the farmers market level because here farmers markets can go year round. And so we work with a lot of folks in the food manufacturing space who have started their success there in a sense.

Kate Cooney (05:16):

I have a cousin who, I was living in L.A. in the 90s, and he was in Oakland, and he had an idea for a food truck. And it was in 1998, and he bought an old van. He made the thing, and he couldn’t quite get it. And I was telling him 10 years later, your idea was just too early. You know.

Caron Gugssa-Howard (05:36):

The food truck scene here is, you know, in L.A., too, but here it’s really big. And even during COVID, you saw a lot of folks who either had restaurant models that they did like the delivery platforms that they could transition into a food truck model and park somewhere and allow folks to be able to socially distance and still kind of get the same food that they were getting at a restaurant. Folks had some success with that.

Kate Cooney (06:04):

I bet, because then you can be outside and everyone can still have that experience, dining experience, people watching experience. But you’re not inside. Do you see a lot of work moving from food truck into food hall or restaurant? Or is the success that there’s more than one truck or the business grows from the truck?

Caron Gugssa-Howard (06:30):

Yeah, I guess I can speak to one entrepreneur. I mean, folks typically go from the brick and mortar to the truck and actually see equal or more success with the truck because it’s kind of place-based. So you can be in Berkeley one day, they’re off the grid. You can be in Oakland at the Oakland Museum. You can go to many, many cities. And then what they’re doing is using the brick and mortar space for preparation to put the food on the trucks. So we’ve seen, we actually have a company in our last accelerator cohort who had a brick and mortar, but is seeing a lot of success, more traction with the food truck.

Kate Cooney (07:07):

Okay, so I was going to ask next, what’s the purview of your work within ICA, and how does that, you know, what kind of perspective does that allow you to see into in terms of what’s working well, where the challenges are in this whole space of helping small businesses and helping, I mean, I want to get back to the jobs piece as well, but helping small businesses in general launch and get to breakeven and get to finding that market fit?

Dianna Tremblay (07:39):

In my role as chief program officer and as you mentioned, I’ve been at ICA for seven years now, so I’ve had lots of different interaction, lots of different ways of looking and coming into the context of like, what does it really take to support small businesses? And I think in my role, it’s really interesting to start to see the political side and what that really looks like and the advocacy side and really what that looks like, and I do a lot of, a lot of our partnership work too and hearing what other folks are doing and how they’re moving the needle and how can we think creatively about supporting each other, even if it’s not like we don’t have to have programs that we are doing together, just like, “What are you doing? What are we doing? Where’s the mix in between and what makes the most sense?” So I get a really good sense about what’s working in the ecosystem and what could be lacking in the ecosystem or the ahead areas or room for improvement in the ecosystem. And I also love that I get to talk to folks around the country about what programs they’re working on and what’s working for them and their entrepreneurs that they serve and bringing a little bit of what we do and sharing that, especially because of who we are and how we deploy capital and support. But I also get to hear best practices of what’s going on in Seattle, in Atlanta and in New York City, and we are part of a collaboration that has 50 something members in it, across 50 different cities. So I get to hear what Minnesota is doing, too. So it’s like I really enjoy that being able to see that because, you know, when you’re on the ground, you don’t always get to see and hear all different perspectives. 

Kate Cooney (09:12):

So let’s stay with you for a few minutes, and let’s see if we can get some of that knowledge into the conversation. So first of all, let’s just start with ICA and you mentioned it a couple of times that you’re doing this dual track of investing as well as accelerate, accelerator work. So can you tell us what those two tracks involve, and particularly the accelerator. The investment’s more straightforward. Is that part of your signature approach that might be different than the other entrepreneurial support orgs that you interact with in Oakland?

Dianna Tremblay (09:51):

In 2016, we launched our accelerator in the formation that we have it. This is our 25th year of existence. We’ve been a nonprofit for 25 years, and we took all of the amazing things that we’ve been doing over the previous, however many years it was before we launched the accelerator in 2016, knowing that one on one advising was really important, knowing that cohort based learning and support was incredibly important to the entrepreneurs. Because if you’re the CEO and you have no other person to talk to on your team because you’re also the owner, and so you need to have other folks that you can, I was using this with Caron earlier this week, fellowship with and really think about how do I support myself and other folks? So we do our accelerators, and right now we run three accelerators. And Caron can go through all the detailed things of it, but we run three distinct accelerators, two that we run, one is new this year, one we’ve been running since 2016, and one we run with partners. And for us, our approach is different because we really meet entrepreneurs where they are. We do not build anything until we understand what the community needs and we get feedback on it. And we have learned to be really good listeners and really intuitive around what people are needing, so even during our application process for our accelerator, we fine tune our programming based on what we hear, what people say, or we make new offerings. So there is a structure, but we are still very, customize it as much as we can. Of course, we want to make sure that we can scale the program so we can’t customize it too much. Then for us, we really are focusing on supporting entrepreneurs of color and women entrepreneurs, and for us, it’s particularly Black and Latinx entrepreneurs, that we have a laser focus on to make sure that everyone is getting the support that they need, especially because those two groups are often left behind the most. Not saying that they are the only group left behind, but here in the Bay Area, they are two really big groups that get left behind a lot of the time. And our accelerator is a pipeline for our investment practice, which is really different for us. So we are a venture capital CDFI, so CDFI is a federal designation that says we are doing good with our money, and the federal government will give us money to do good with our money. And we’re a VC CDFI, so we’re able to do equity, which is also another unique part about us. There are probably a dozen VC CDFI in the country and with us pairing our accelerator programming and each accelerator’s a different amount of time with capital is really, really, really critical. And I think for us, those are, that in-between is what really makes our work stand out, and it’s our long track record of being able to support over 600 companies over the last twenty five years.

Kate Cooney (12:40):

So when you meet the entrepreneurs, you know, when you’re recruiting and when they come in, are there things that they share or general kinds of experiences with the ecosystem? Do you find that in general you’re their first interaction with the ecosystem or they’ve had a series of not so great experiences with the broader ecosystem or are there certain challenges they’re facing? Are you targeting certain stage of growth for the businesses?

Caron Gugssa-Howard (13:10):

Yeah. Typically because we’ve been in this area for a while and we started working with really early, early stage businesses, even probably at our inception, folks at the ideation phase. Folks will refer us to companies. So, you know, the first call typically is someone who’s either pre-revenue or they have very to little traction. But our goal is we actually work with growth stage companies. So you have to be post revenue, but we’re not just going to throw you away if you come to us. So we do an entry call with folks and we figure out really what their business needs are. And then we figure out who is best in our network and the ecosystem to refer them out to. And so we give them a list of resources. We offer warm introductions where we actually have that, that personal relationship with folks. So that’s typically what we get. What we see from a lot of people are there’s a funding gap there. They’re looking for funding, they can’t find funding. But oftentimes if you unpack that a little bit, there’s just oftentimes a lack of knowledge of how business should be structured and what it takes to acquire that funding. But if they’re a little earlier stage than what we work with, we definitely refer them out to partners in the ecosystem.

Kate Cooney (14:35):

And one of the things that you talk about is this mentoring component to the accelerator. Can you say more about how you structure that? Who are the mentors? Or generally, how do you recruit mentors and give us a sense of how that that works?

Caron Gugssa-Howard (14:52):

Yeah. In the flagship program which Dianna spoke to, and that’s our 16 week program, companies who come through that accelerator are paired with a strategic advisor. And so they’re paired based on their business challenge. And so within that program, there’s four pillars that the program focuses on, which is growth, people and culture, capital readiness, and investment readiness. And so what you do is you’ll have a workshop, and then after that workshop, you as company will meet with your strategic advisors to really kind of double down on what’s that particular pillar of the learnings in that workshop means for you in your business. And so that’s typically how that kind of mentor relationship works in the accelerator program. We typically since, again, our history, we have a long list of folks who just want to be engaged. They’re typically folks who work full time in their industries and have expertise and knowledge that really can help catapult a business’s success and growth. And so they’re pro bono advisors for us and work with companies in that way. We do have facilitators that we may offer an honorarium for if they’re doing a workshop for us, but our advisors are pro bono.

Kate Cooney (16:13):

Can you give us an example, a story of a mentoring relationship that went really well and really made a difference for one of your entrepreneurs.

Caron Gugssa-Howard (16:23):

We have one adviser. He’s stellar. He is into agricultural capital, and he’s just an amazing advisor, never turns on an opportunity to advise a company. And we just realize that of the companies that he’s advised in probably the last three to four years, three of them have transitioned and matriculated into our investment portfolio. And so that is a true testament to his expertise, his commitment to both the entrepreneurs and ICA.

Kate Cooney (16:52):

And it’s also a testament to your process of matching by industry pair because that’s sometimes in the literature what’s highlighted as a challenge for incubators or accelerators that focus demographically is that, let’s say, for the women in tech incubator or the women more generally incubator, you can have a lot of different business industries represented. And then if you’re not in the tech specific incubator, you’re missing all the industry specific knowledge that and networks that really make the difference. And so it sounds like you’re kind of marrying a demographically focused, targeted approach with one that has thought consciously about ensuring that that drawback to a broad industry recruiting is handled on the mentorship side.

Caron Gugssa-Howard (17:49):

Yeah, for sure. We take pairing very, very seriously. Just because they, you know, advisors have the highest touchpoints with the companies in that longer six week accelerator program. So we actually spend a lot of time on pairing.

Kate Cooney (18:06):

I was just thinking about when I worked at the L.A. Free Clinic a million years ago, they had about hundreds of volunteers, but it was a pretty professional volunteer experience. I mean, you did a number of hours over the year and some people had worked there for years in that volunteer capacity, and they had a whole set of managers who worked with the volunteers. What kind of scaffolding does that level of engagement from the pro bono mentors require as on the ESO side?

Dianna Tremblay (18:42):

Hannah, her name, she’s on the program team. She manages all of our advisors and our engagement in the network. And we as a team, we’re interviewing folks, we’re doing onboarding before anyone, before an advisor gets in front of any company or goes or facilitates any workshop, the team is on the phone call with them, figuring out what they need, sharing, downloading information. It is a lot of scaffolding that we put around, especially if someone is facilitating a workshop because we’ve seen so many of the workshops and now in the virtual world, we really understand what works and what might not work. So we do a lot of support there with the advisors, the pro bono advisors, and they appreciate it. And even if it’s like a 30 minute download before they get into a meeting with the company, they appreciate that because we have so much information that you can’t share off of a paper or like you can’t share from financial documents, like we actually get to know the entrepreneurs really well. So there’s a lot of scaffolding around and we’re always trying to explore better ways to keep folks engaged and to make sure that people have what they need. But they do know that they can come to any one of us if there’s an issue with an entrepreneur and the entrepreneurs also know that they can come to us if there’s an issue with an advisor, which we have, you know, no program is without having an issue at some point or another. Then we have that, and we have had that happen and we deal with it pretty quickly, and the advisor understands and the company understands, and we just move forward from there.

Kate Cooney (20:09):

OK, so then moving from some of the signature work that you’ve done in marrying the investment with the accelerator, what kinds of ideas are you excited about that your peers are doing that are different but equally innovative, or that you’re seeing in other cities? What are some of the things that maybe there’s a growing consensus around in terms of what’s needed or that you thought, “Wow, that’s such a cool idea. Glad to hear they’re doing that.”

Dianna Tremblay (20:37):

I get really excited when I hear other CDFI are looking into doing convertible notes or just something other than debt. I get really, really excited because it’s an acknowledgement that not one form of debt will serve every, or one form of capital will serve every single company. Each company has different needs at different times. So even entertaining, like how do I even do a convertible note or how do I do these other equity like instruments? Or even as ICA, how do we figure out how do we offer loans when people need it, like when we’re able to learn from each other in that way and see what other CDFIs are doing, it’s really interesting and awesome, and when we’re seeing other support organizations really, really dive in and figure out based on all of the companies that they’ve been working with, how do they better align their programming and how do they make it even better? And like, there are some partners of ours like Optima here in Oakland, they do such good work, and I had no idea how they could make their programming better, but they figure it out and they like, they’re just one of the examples of how do you really take an intensive support module and make it work for a number of entrepreneurs where most of it is, there’s a lot of support out there that’s not intensive or that’s just advice, or people aren’t able to figure out how to get from the advice to the tactical. So I’m always really excited when I hear other folks doing that stuff.

Kate Cooney (22:07):

That’s something that our colleague that we work with here at the law school, who runs the Community Economic Development Clinic talks about is that sometimes it’s not advice, it’s actually just having someone help you do some of this work, that is what she’s found over the years, and she’s been doing this kind of community engaged work for longer than me, and I’m learning a lot from working with her. But she yeah, sometimes you can, I mean, you can tell people all day long what, what are all these good ideas, but sometimes it’s down to providing the actual accounting spreadsheet and sitting and helping them to take the numbers from the papers in the shoe box and put them into the spreadsheet. Is that what you’re finding? Is that one thing that you find really works?

Caron Gugssa-Howard (22:54):

Yeah, I think particularly just in light of COVID, a lot of our, all of our programming prior to COVID was in-person, so you know, it would be a workshop and you go off into the world and, you know, make it happen with your strategic advisor. But what we found in having to deliver content in this new way, really getting really tactical and in the weeds with folks is needed and appreciated. So we have a cap, 20 minute, 15-20 minute overview and then put folks in breakouts and just really have some really tactical activities that they can dig into with each other and have someone in the room facilitate it. We come back, we get reactions and we may go into a second or third breakout room just so that they’re leaving that workshop with some really actionable steps on how to move forward that particular module or issue.

Kate Cooney (23:53):

Right. So let’s talk more about the kind of capital that you provide and what you’re learning about, you know, what can really make a difference for helping the businesses that you work with?

Dianna Tremblay (24:04):

When we think about capital, we first figure out what is the best fit for the company based on where they are, what stage, how they want to grow and what they want to achieve with that capital. So like, for example, if someone wants to buy equipment and equipment only, an equipment loan is better for that. Like, you don’t go out and raise equity to buy just equipment. So a lot of it is figuring out what people need and right sizing it. And we’ve been investors for about eight years now. When we launched Fund Good Jobs, which is our first investment fund, we’re on our second fund right now, it was really around, how do we tailor deals so that we bring other capital people to the table? Usually there’s a really big perception that entrepreneurs running small businesses are incredibly risky and female and entrepreneurs of color all are doubly risky. So it’s like, how do we bring our social capital to the transaction and how do we bring our own capital to the transaction so that we are attracting other folks? And then from there, if our money, our equity is now sitting on their balance sheet, who else can that money attract now that they have more assets on their own balance sheet? So we have done convertible notes in the past, which is they’re time bound, they’re convertible debt. So either at the end of the term, the company can pay you back if they choose to or the note holder can convert that into equity. And those are usually the paths. And if it’s, you know, it’s a conversation and it’s like usually the conversion happens when they’re doing another raise and there’s a reason to convert. And ICA, we never want to be a majority owner of anybody’s thing because that’s not our purpose. Our purpose is to get paid back in mission value and not monetarily, although if we can get our money back, we love that too, because then we’re able to get it into other companies, for sure. And we also do other instruments. We do a save note, which is a simple agreement for future equity. It’s from Y Combinator, and it’s standard across Silicon Valley. There’s some areas that don’t do save notes, but we do that. And that is equity in the future. So there’s no maturity date. There’s no interest rate. It is equity for later on, and we would convert when they did their next round. We’ve also done small business loans as a part of our deals as well, and we also work with other CDFIs, so we’ve worked with a number of other CDFIs to help build the capital stack. So like if a company needs various different kinds of capital from various different places to help them think about “how am I going to do all that stuff over here to match their uses of what they want to do for the capital?” So we work with other folks to do that. And then last year, at the height of shelter in place, so shelter in place in California started in March, and PPP and EIDL, the government things were not ready yet and they weren’t being deployed. So we created a 0% interest loan. We called it the Rapid Response Liquidity Fund and it’s 0% interest. It’s a four year term. No payments for the first year. And when we hit the year mark, then we have a conversation with the companies to really understand, what those payment terms could look like, do we need to be more flexible here, because we don’t want to make, we do not want to be a drain on cash flow when we know people absolutely need cash flow. So those are different kinds of capital and we’re also part of the California Rebuilding Fund. We’re one of the participating CDFIs as well. And that’s a big loan pool that the state of California stood up to be able to support entrepreneurs here in California.

Kate Cooney (27:45):

And that was prior to COVID or that was part of the COVID response?

Dianna Tremblay (27:49):

Part of the COVID response.

Kate Cooney (27:52):

So does a lot, so tell us about how you raise funds yourself. Is it the federal government largely? Or is it foundations? Individual high net worth individuals? Is it companies? Who’s?

Dianna Tremblay (28:07):

Everybody. Everywhere. No, I’m just kidding.

Kate Cooney (28:11):

Are their return expectations pretty varied or?

Dianna Tremblay (28:15):

Because we’re a nonprofit, we’re either getting, we’re getting grants just straight up philanthropic dollars or we’re getting really, really, really low cost debt. And the return expectation is for the low cost debt, we pay it back, and for the philanthropic dollars, the return expectation is that we will meet our mission, that we will, each grant comes with its own agreement, comes with their own stamp, what we’re looking at to do, so they’re going to look at job creation. They’re going to look at wealth building opportunities. They’re going to look at the demographics of the entrepreneurs that we work with. They’re going to, to the best of our ability, we’re going to try to share the demographics of the employees because employee level data can be kind of difficult to get sometimes. And there’s also privacy. So we pay folks back in mission. And of course, if it’s low cost, they have an expectation that we will pay them back and we do.

Kate Cooney (29:06):

There’s a lot of talk, you know, at the business school about creative ways to use philanthropic dollars without a lot of return expectations in a capital stack to allow more market rate capital to come in higher up in the stack to plug holes where equity would go in the case of affordable housing, and there’s these new opportunity zones. So I’m just wondering if your reflection on any of those approaches, are you finding that there are new places where your position in the capital stack can really make a difference? Do you see a lot of play in the opportunity zone space in Oakland and in the Bay Area?

Caron Gugssa-Howard (29:56):

Opportunity zones in Oakland, if I’m not mistaken, I think was one of the cities with the largest number of zip codes that fell within opportunity zones, and it was a hot bed for a second. And I don’t know if COVID put that to rest, but it definitely was much more real estate. Yeah. At play. Of course. And so we didn’t really have a lot of businesses who were really even attuned to how they could or how it could benefit them, or how would it affect them. So really, not a lot of that here per se. But I think for us, I think what we were most excited about and just able to kind of fill this gap is our seed equity fund. And so, you know, that’s one way for earlier for us to be able to put capital infusion in earlier stage businesses, folks to show that others have skin in the game on this business because they’ve proven out the business model. They have traction, but they’re a little riskier because not only are they a small business, but they’re small business owned by a person of color or women. And so we’ve been able to create, design, a program that is particularly matched with this equity fund. And so at the close of it, there is this milestone based equity opportunity of $25,000 to $50,000. And so that is, I would say, one direct way that we have really kind of met that challenge. And it’s just really huge for earlier stage businesses, for someone, an investor like our social impact investor like ourselves, to take that much needed risk on a business and to help make that company more attractive to other capital partners.

Kate Cooney (31:52):

Now you mentioned that there’s a perception of higher risk. What would you have to say about what you’ve learned about the riskiness of the investments that you’ve made in the 600 businesses that you’ve worked with or the entrepreneurs that you’ve worked with since 2016? What have you learned about the truth behind some of these risk perceptions?

Caron Gugssa-Howard (32:14):

Yeah, exactly. They are perceived risk that we know. So things that you know, can or may be looked down upon, the hustle that a lot of entrepreneurs of color have or women have because they have to, because institutionally things are set up against them or not for them, the grit, the bootstrapping, just making things happen with very little. So, you know, some people, we were just talking about that earlier today in a meeting. You know, we have some entrepreneurs who have expressed they need investment amounts that are much lower than what they actually need, but they’re so accustomed to making a lot happen with very little that there just has to be, there’s a shift in education that that has to happen there. But to, you know, a non, you know, to an investor that doesn’t have that lens that we have, doesn’t have that insight to entrepreneurs, that could, with this person, this entrepreneur doesn’t know what they’re doing. You know, they’re not educated in that way to know what resources they need or how much things cost. And so, you know, they’re just threw to the wayside. So those are a lot of things that we’re seeing here, but it’s definitely the perceived risk, I would say. 

Dianna Tremblay (33:34):

And we’re a part of a collaboration with the Wisdom Fund. The Wisdom Fund, really, they look at what products could work specifically for women of color, debt products. And through their research, they actually found that women of color pay back their loans at a higher rate. So they’re actually a little bit of the opposite of risky. There’s no risk there. Intuitively, you know that it’s perceived risk and perceived risk that is linked to implicit bias, that is linked to racism. Like, we all know that, and it’s like, how do we push, continue to help those things be seen? And how do we help people to get rid of this perceived, this lens of perceived risk? And you know, in our opinion, it can’t happen fast enough, like it needs to happen at a much faster rate than the rate it’s happening right now.

Kate Cooney (34:23):

Let’s just imagine New Haven, for example, let’s say, we’re enamored of your model. We think about what it might look like to set something like that up. But you mentioned having other partners in the ecosystem that you refer to for earlier stage pre-revenue businesses. What does a, even a lean startup version of what you’re doing require? What would be the necessary ingredients? Thinking about you’re coming in after the business has already gotten to revenue and is ready for growth capital. So there’s something that happened in your ecosystem before folks get to you. Could you give us a sense of what you’ve learned about what are some of those key ingredients, even in a very lean way, not everything you would want, but the, I don’t know, the right, not the Cadillac, but the Pinto version.

Dianna Tremblay (35:19):

I’ll start with like, there has to be an immense amount of cultural competency, immense. Like you just can’t jump in and be like, “I know all the things.” There has to be a high amount of emotional intelligence. There has to be no hero savior complex anywhere to be seen. You can’t. And I’m starting off with like all of the things that make the people as opposed to the program because the people are the thing that you use the most. And they have the most interaction and if folks don’t trust the people that are delivering them services or program or even capital, even if the capital is highly accessible, they’re not going to take it. So those are some of, they’re not soft skills, they’re just normal, be a good person, do good work kind of thing. And I think from the building, like the MVP of that it’s just like, there’s listening sessions, you have to listen to people, you have to absolutely understand what the community needs first and foremost, before you build a thing, you can build it all you want. 

Caron Gugssa-Howard (36:28):

I was just thinking about this because I’m so enamored by like the companies we work with. Sometimes I get butterflies. They have courage that like either I don’t have or haven’t tapped into yet. I mean, I’m collecting a cheque, right? These folks are out hustling and, you know, making a dream and a passion work. So I think leaning in to sometimes like that courage of the entrepreneur, like just really, just putting, and particularly if you have business knowledge, you have business acumen, you have some resources you can put, you can put folks in contact with, lean into that courage and just really hearing them. I think it’s just so important. They are always just looking for a listening ear, and I really listen for the why behind the why. And I think that you can really get so much deeper into partnering with a business to really want to give them that confidence and to really help poise them for scale and growth. Definitely one of the ways that I do, I get butterflies just talking to our entrepreneurs. I have a call like later and I’m nervous already because their business is amazing and I don’t know if she’s figured it out yet, but I have. But it’s just amazing.

Kate Cooney (37:45):

Can you give us some stories about some of the businesses that have inspired you and where the product is meeting the market? And is it unique to Oakland or do you have some emergent ideas? And then I want to circle back to the jobs part because this is something that some of the academics we’ve interviewed have talked about. You know, entrepreneurship is hard and it’s, you know, sometimes it’s not the route out of a disadvantaged situation, you know, a good job that’s 40 hours a week with a two week vacation and a 401k might be a better pathway and the one person I’m thinking of studies ethnic quote unquote ethnic entrepreneurship, which is part of the academic literature, but it’s looking at Cuban entrepreneurs and Korean entrepreneurs. And what she has argued is that so much free family labor goes into these entrepreneurial projects. And that note, many of the entrepreneurs that she has studied want their children to do that same job at the corner store for the next generation. And so I would just love to hear your reflections on, you know, particularly small and medium enterprise entrepreneurship versus innovation driven entrepreneurship and how you see yourself positioned in that space and are there times when maybe you think entrepreneurship isn’t the best path?

Caron Gugssa-Howard (39:14):

I think we particularly are working with companies at the growth stage, folks who really have a product or service that’s scalable and in a market. The market share could be huge. And they just are, just that 5% that they have the ability to go after can really create wealth for themselves and their employees. So, I mean, like for the company, that I’m seeing, it’s a cosmetic brand. Yes, it’s a saturated market, but she has some intellectual property that’s really tied into her formulations. So those are things that she can really capitalize on. If there was an acquisition, those are things that make the business really, really attractive. We do tend to work, and Dianna you can chime in, folks on the innovation front, particularly we do, we’re industry agnostic, but we have a long history of working with folks in the food space. So what we’re seeing here is a now a trend of upcycling. And so folks, which I think is an amazing business model where you can always take, you know, waste from someone else that you’re getting for free and create that into revenue and profit. So that is what we’re seeing a lot of here are people targeting marginalized communities who are actually spending dollars in these segments or these channels, but folks just aren’t paying attention to those customers. So those are typically the types of businesses that we work with and what we really see that potential for scale. It’s just that they need some kind of business fundamentals. They need to partner with someone who can really help them think strategically about the business and then match it with capital, if at all possible.

Kate Cooney (41:02):

Do you find that people have industry experience and that’s how they’re getting their idea? I just wonder about that idea generation piece. What you’ve learned from the entrepreneurs that you’ve worked with. Is it coming from, are they cycling out of careers into entrepreneurship? And they’re carrying some industry knowledge from that career cycle or?

Caron Gugssa-Howard (41:26):

Yeah, it’s either two things. It’s either that, they’re trying, they found a gap in whatever industry or career that they were in, and they’re trying to capitalize on that gap because they see there’s a demand for it or they can create some demand for it or folks who just had a passion for, they’ve had a passion for something for years. They’re great and making it happen, whether it’s a product or service, and they have a network in which they again can sale and then further market and create this demand for their product or service. So I would say that we kind of see it on both ends. But I would say it’s probably a bit about a 50-50. Folks actually do have experience in that industry that come to us for, I like to say we work with a lot of happenstance entrepreneurs. They started doing something out of being a stay at home mom, and it just worked and it clicked and the business took off, but they kind of don’t have any clue about what they’re doing as a business, you know, as an entrepreneur. And so they’re kind of needing that guidance.

Kate Cooney (42:36):

Do you have a story of a mom, a stay-at-home mom? Or can you think of another example of a business like that?

Caron Gugssa-Howard (42:45):

Yeah, we have one in our longer 14 week accelerated program. I think that exactly was her catalyst. At some point, I think maybe she was in the financial industry and went on into kind of like the after school kind of program crafting model then kind of went into DIY and now just has this amazing business where she has corporate partnerships. Of course, the COVID 19 had to probably like permanently pivot to kind of this virtual model, but really crafted a really successful business based on that. But, you know, just was doing it and it just happened to take off, really tapped into the needs of folks and you could say in her immediate area, but now she has an opportunity to go global because they’re fully virtual. So definitely one example there.

Kate Cooney (43:39):

Are there programs or initiatives that have been really important for the work that you do or are there things you wish the city partners or the state partners would do that you’ve seen other places do well and you’d like to see California or Oakland pick up?

Dianna Tremblay (43:57):

I have so many wishes for that, I think it’s just like all of them, do more, all the time. You know, the Bay Area is one hundred and one cities. We’re all really intertwined. Like seven million people. And each little city, each city has their own thing. They do their own thing. And I think with all of the other priorities, each city is able to put into what they can around supporting small businesses. And with each city, that looks different. So we interact with lots of different cities, not just Oakland. And with the California Rebuilding Fund, it was a way for us to interact with the state on a different level as opposed to through just through like the partnership level of we’re actually able to now offer a product that was developed through the state. So that’s really cool. But I think the more, like I always want everyone, all the time, to do more things to support small businesses like I’m a been working in and working to support small businesses for the last 20 years. So like, I always want as much as humanly possible. Granted, everyone has their own budget, not always possible, but I want more. Give us all, all the more things.

Caron Gugssa-Howard (45:06):

Yeah, I think, the city’s piece is, we’re here in Oakland. It’s a small, big city. Their resources are stretched and the allocation is, can be different from year to year. And here there’s so many smaller organizations, meetup groups, things where folks don’t necessarily have to rely on the city. But then you get into more of the suburban areas, and particularly for us, businesses at the growth stage, whatever resources the city has or has provided, they’ve kind of surpassed those. But there’s other cities who could be 30 minutes out where the city really is the main hub for them going to get business resources and advice. But again, if funds aren’t allocated or commissions aren’t put together to really service those needs, they kind of go unmet. So we’re really looking forward to tapping into that more public sector and just seeing how we can really tap businesses who are poised for scale and can benefit from our services in some of these other areas and cities outside of immediately, Oakland and San Francisco.

Kate Cooney (46:23):

So I want to ask you a question about the jobs side of things. So you talked about jobs and this is a real challenge. As you said, you started our conversation with this notion that one of the biggest barriers to an inclusive economy is bad jobs, right? Low minimum wages, low wages. You know, just this kind of, there’s a structural dimension to the economy that conspires to create these low paying jobs without a lot of stability, without a lot of minimum hours, as well as low wages and contingent labor, these incredible tech based mechanisms for bringing labor in and releasing them quickly, depending on, you know, the foot traffic. So you’re both working with the entrepreneur, but then you’re thinking about those future workers that that entrepreneur is going to be hiring. How open are the entrepreneurs to that conversation? Does it put them at a competitive disadvantage? What are some of the things that you’re recommending in that good jobs work that you do?

Dianna Tremblay (47:30):

I would say 100% of the companies that we work with are committed to our mission. Like, that’s just like we do that, if they were not committed to our mission, we would not work with them. We would figure out a different place to have them be where they are a better fit, mission wise, and services need wise. And you know, we don’t get resistance and we talk about, here’s what. I think everyone has gotten to the spot of understanding that when your workers are taken care of in the way that you can afford to do it because you can’t afford to do everything all the time. So as the business grows and gets more profit and you have more net profit, you’re able to do more things, you’re able to offer health insurance, you’re able to offer raises. There’s even like free things you can do. You can give feedback. You can have people understand what they need. You can do spot bonuses. You can do things that don’t add to the operational budget every single year that are on your P&L or balance sheet. So there’s no resistance. And good jobs, a good job only gets an employee so far, though, which is why we are always thinking about wealth creation opportunities. A good job is sustaining. Your job has to be able to pay you enough so that you can again put money into your 401K or you can put it in your Robinhood account if people still do that after what Robinhood did. Or you can put it in the different places that you need to put it so that you can then save money and start to build that wealth. And even when thinking about, I think, Kate, earlier, to your point of is entrepreneurship the way, is having a job the way with the salary, it’s all of the ways. There’s so many different things that need to happen. And if you think about it, buying a house is a really high and you have to have the down payment. That’s really hard for people. Starting a business, you can start a business in your kitchen. It takes you longer to build wealth, but it is a way to be able to build wealth. So for an entrepreneur who’s thinking about themselves and building wealth and thinking about the jobs that they’re going to offer, they are aligned in that “I don’t want someone else to have to struggle so that I can that be the only one to build wealth.” Yeah, I don’t know if Caron has thoughts about it too.

Caron Gugssa-Howard (49:41):

Yeah, I was going to say definitely not resistant, we get reactions, different reactions from the different program participants. You know, the accelerator, the four month program, those are folks typically at the 500K above level and then the lab accelerator folks, you know, below 500K. So those folks, the reaction is “that sounds great, but I’m trying to get myself, you know, a good job.” And so really kind of going through like how to really solidify the business model and essentially prove it out. If you’re not paying yourself, your business model isn’t proven. And then, you know, folks on the 500K and above, it’s like, “OK, I have a little bit of cushion. Where can I source employees? How to, Dianna’s point, like how? What ways are available? Because I can’t really offer full health benefits now, but I can offer a health stipend right now or I can offer PTO.” So just different thinking about those different ways to kind of lead up to, you know, let’s just say you get acquired and you have profit share or some other revenue share. And those people are really, those folks are really able to really walk away with some huge chunks that they’re able to buy a house. Maybe not in California, but you know, they’re able to buy a house or really invest in anything, whether it’s their education, their children’s education, and so forth.

Kate Cooney (51:12):

So just to put a pin in that, are there certain kinds of wealth sharing that you’ve been working with entrepreneurs to implement? You said thinking about the benefit package, but also profit sharing? So is it a kind of ESOP model or a share allocation along with whatever the salary package is?

Caron Gugssa-Howard (51:34):

We have a few folks in the investment portfolio who have ESOP models already established. And then in the accelerator, folks may already have a stipend, a health stipend program established or it’s very easy for them to do that because they do have some funds and some profit. They just were thinking that they had to provide, they had to tuck away thousands and thousands of dollars to be able to do something larger but not understanding or just not knowing that they could really infuse smaller amounts and that that would be a help for folks. So definitely seeing that, being able to offer PTO for folks. I think we have one entrepreneur. She, you know, she provided a vacation for four staff and their family annually because she was able to do that. So it just looks a myriad of ways based on either what people have immediately or what they’ll have in the immediate future.

Dianna Tremblay (52:36):

We’ve had folks wanting to understand how co-ops work, what’s the form that you can be so you can still take on investment because everyone owns the co-ops. So how that works? We’ve seen perpetual employee trust so that the employees of the business will forever own a part of the business. And that’s a really innovative way to make sure that employees also share in the well as the business is growing and as long as the entrepreneur is growing the business, especially if you don’t want to sell your business, you want it to stay with your employees or stay in your family. It’s just another way to think about how do you build wealth building opportunities? How do I do profit sharing? How do I just do bonuses like anything above and beyond what a salary is or hourly rate that people then can then move and put into something else that they can then, as Caron said, buy a house, pay for their own education, pay for their kid’s education.

Kate Cooney (53:28):

So that’s part of your education in the different labs and accelerators that you run is how to do that and how to think about it.

Dianna Tremblay (53:36):

And we work really closely with our investment team to understand all the different ways, and even when someone is being considered for an investment from us, we’re really understanding their commitment. We’re deepening our understanding of their commitment to wealth creation and how to actually tactically make that work.

Kate Cooney (53:53):

Well, we’re getting close to the end of our time, so let’s do a speed round of questions. How do you manage the heterogeneity of the businesses applying to the accelerators? Some might just want to have a good salary and employ a lot of local people while others might want to become global businesses. How do you manage such different end goals?

Caron Gugssa-Howard (54:12):

How we manage that is we act very explicitly. What is your current business challenge? We also ask where, what are your goals for the next 6 to 12 months? What are your goals for 3 years? And so we take all of that and take into considering, into consideration your industry. And so when we pair you with your strategic advisor, the goal is once we kind of get to, I guess, some average between those three, the goals and the businesses challenge and the pairing of the advisor, the goal is for you to double down and dig in deep on those nuances as it relates to your business and where you want to go with your strategic advisor. So that’s definitely one way that we kind of saw some people coming into, you know, very coming in with very same goals in mind.

Kate Cooney (55:03):

Next in our speed round. Social impact. Social impact is part of your investment strategy, both profitability and social impact. Do you have a framework you follow for assessing the impact side of the businesses you consider for investment?

Dianna Tremblay (55:17):

We do a lot. We do have our own internal frameworks that we use to better understand the social side of a potential investment, and that really starts within, on the program side. So if someone’s going through the accelerator or going through a lab, we get to know them a lot and we gather a bunch of information just to understand what their impact could be and what their commitment to do, to our mission is. So I think it’s outputs of like jobs and all the things, but also their commitment to wealth creation and what that can look like long term. So we do a lot of that data collection and that is a part of our investment and program selection criteria. We look at it from the very beginning when Caron is first talking to the people. So when we’re looking at applications for our programs to when we’re meeting as a group, our team, the program, actually all of ICA team is invited to go through our equity pipeline and decide on who we’re going to look at next and who we’re going to, then we share notes and all those things. So we’re all a part of that. And then on the other side, before, as we are looking at the investment again, we’re helping to think through pathways to wealth creation. So it’s just not like people are left to their own devices to figure that out. We also do annual impact surveys, so we collect data yearly of the companies. And if it’s an invested company, we collect data even more frequently. It’s just a part of our due diligence as an investor and our fiduciary duties that we have.

Kate Cooney (56:47):

Let’s keep going with our speed round list. Do you see any trends in the kind of businesses or business models gaining traction through the pandemic years? Also, how do you recruit entrepreneurs to work with you? What’s your approach to developing a pipeline of businesses to work with?

Caron Gugssa-Howard (57:02):

In terms of what we’ve seen with COVID 19, obviously, the D2C direct to consumer business model, folks who if they weren’t already, you know, doing something with e-commerce or on platforms, folks who are able to make money, their products are able to make money while they sleep, so they could be on different platforms selling whether it be regionally, nationally, or even globally. So we definitely saw that as a trend and likely the folks who are still surviving or thriving right now. So that’s definitely one of the trends that we saw. In terms of pipeline, we actually rely heavily on our ecosystem partners for pipeline. So, you know, we’ll send out an email and say, “We have a program coming up. This is the profile of the criteria for this program. Who, what companies or clients past or present that you’ve worked with? Who could be a good fit?” We actually, because we’re, we can’t be at events, sometimes we would go to various events here in the Bay Area whether it be pitch events or any sort of like vending opportunities. Those are oftentimes places we would go to try to recruit and kind of add to that pipeline of entrepreneurs. But right now, it’s our own kind of online marketing efforts and then our ecosystem partners. And then I think the third piece is kind of around encouraging or not entrepreneurs and folks into entrepreneurship. I am a firm believer. I have probably been entrepreneurs since I was a kid. I just there’s so many lessons in the journey of entrepreneurship that I’m never one to dissuade, particularly if we, because we work with entrepreneurs of color and women, I just think that there’s so much learning and education on both sides that can happen with kind of coaching somebody through what entrepreneurship can look like, what it can look like related to their business. Now, whatever they come out on the end, so you know what, this has been great, but I don’t think it’s going to get me where I want to be financially, socially, whatever that may be for them. But just the amount of information that they’ve learned along the way can really transcend them into a different place. And so I’m all, I definitely don’t want to lie to folks, you know, but I definitely believe the journey of entrepreneurship teaches life lessons that that really are just beneficial in a lot of different career paths, whether they stay and grow that business, they go on to another business or they go back into the workforce.

Kate Cooney (01:00:01):

Do you ever turn away business ideas that are too small in terms of the growth aspirations?

Caron Gugssa-Howard (01:00:08):

Yeah, I think particularly with this lab accelerator, which is a very high level accelerator, is four weeks. It’s for earlier stage businesses, but is directly tied to the seed equity fund, which is an investment tool. Really, scale is key. So if you have a business model and you’re not differentiated in a way that we really feel that you’re poised for that type of growth, again, we’re not looking for VC growth and we’re not looking for a hockey stick growth. But again, our point of our capital is to infuse it in your business, see, watch it grow for you, what it can do, and then at some point in the future, our hope is that we’re able to have a return on investment so then we can go and invest in other businesses like yours and others. So we definitely have turned down some businesses just because if differentiation just isn’t there or the growth potential is capped, it’s too local, it maybe can only go regional. So we have done that.

Kate Cooney (01:01:14):

OK, we’ve got one about safe notes. You mentioned using safe notes, reading about financial innovation in Silicon Valley keep it simple securities are becoming more and more important because they combine the protective mechanisms of the convertible notes and the simplicity of safe notes. Have you used some of those with your clients and if not, why do you stick with the safe note?

Dianna Tremblay (01:01:40):

If I think about it, kiss versus safe, I am not sure why we chose one over the other. I’m not, I’m not on the investment team, so I can just be real. But I know one of the things that we, attracted us to the safe is that, you know, we have historically used a convertible note, which does have a maturity date, which does have an interest rate, which does get carried on the balance sheet as debt. And we were interested in finding a security that didn’t do that, which is why we’re using the safe and because we’re in Silicon Valley, and it’s Y Combinator is so well known and people, so many people have seen the safe note that we felt comfortable going with that as opposed to the Kiss, which also Silicon Valley tool, people as well know as well. But we chose the safe. And we also like that, you know, it’s still delays the need to be, for the valuation to happen. Of course, it has a valuation cap, but delays that and we wanted to be able to have those mechanisms, especially because the companies coming out of the four week accelerator are much smaller. And if the valuation cap is wonky, we will end up owning too much of the company, which is not something we ever want to do.

Kate Cooney (01:02:48):

OK, last one on the speed round, in terms of the small business, entrepreneurs are households with side hustles. Do you see trends in shared production spaces such as ghost kitchens and community production spaces as an important part of the ecosystem. And where are those small scaling possibilities that you’re observing in the businesses that you work with?

Dianna Tremblay (01:03:13):

Yeah, there’s definitely two maker spaces that I’ve seen. One is people can go and figure out how to turn their service into a product or how to launch a product, which is really cool because it’s a whole lab. The other one is really supporting contractors and architects and really figuring out so like, I there, I don’t have a giant CAD machine at home and this is before shelter in place or my firm is not the spot where I can do that. I can go to this one place and I can work on my own entrepreneurial endeavor there without having to own all of this big, heavy stuff. And, Caron, I totally cut you off. I’m sorry.

Caron Gugssa-Howard (1:03:50):

I was going to say, yeah, definitely prior to COVID, maker spaces were a thing, I know a lot of folks who had rented space in maker spaces and then just being in a space of innovation and being able to talk to other entrepreneurs, it was huge. So with COVID, I don’t know how they were able to transition or pivot a lot of those models. I love hearing about like the barbershops and hair salons because they really have really big followings. And if they, based on what their revenue goals are, really like, develop, even white labeling products, like to sell to their existing clientele. So they’re actually getting them their service dollars and then, you know, if they are creating some product, whether it’s a hair line or whether it’s a aftershave, something, some way to further that that dollar spend with those customers, those are just always great, innovative ways to have, you know, because maybe the scale isn’t there, you know, maybe they don’t have a desire. They just want to be able to live comfortably, which they can do, which they can do. But it’s just kind of thinking about that revenue model and massaging those, those profit margins and just figuring out what that looks like. That’s so fascinating. I’m just so interested in different landscapes.

Kate Cooney (01:05:14):

So if you could flash forward 50 years, and I was picking 50 because some of the interviews that we’ve been doing have been reflecting back to the civil rights era and some of the early Nixon administration endeavors to respond to that era’s demands with, quote unquote, you know, Black capitalism as the answer. And that’s where a lot of these supplier procurement initiatives originated. Those are about 50 years old. And if you could flash forward 50 years from now, what’s a picture of a truly inclusive economy? What would that look like? What would be some of the key ingredients? And what are two or three things that we had done to get there? 

Caron Gugssa-Howard (01:06:02):

Amazing question. I just have a key ingredient. Dianna’s top down and I’m bottom up. So key ingredient is take the risk. Take the risk, and, you know, I mean, that’s I guess, for full stop there. I mean, that’s investment, right? That’s the world we’re all taking risks. Take the risk on these businesses and really take the risk on the entrepreneur.

Dianna Tremblay (1:06:31):

So I’m hoping in the 50 years the conversations about dismantling parts of the economy that aren’t working or parts of the financial system that aren’t working, people are actually starting to do that. So we’re no longer just talking about it. We have enough and it’s not the, all these disparate conversations that are happening with like the ICA and the Runways and the Uptimas and Working Solutions of the world. It’s like actually like Wells Fargo and Bank of America are talking about it. JP Morgan Chase talking about it and actually starting to move in that way. Key ingredients? Investment, I agree with Caron, just invest in the folks that don’t have that and a willingness for people to give up power is absolutely critical because people just hold onto their power because it benefits them and they don’t care about if it doesn’t benefit anyone else. 

Kate Cooney (01:07:18):

Thank you so much for that conversation. It’s such a pleasure to meet you both.

Dianna Tremblay (01:07:22):

Thank you.

Caron Gugssa-Howard (0:1:07:23):

Thanks everybody.

Manuel Morales (01:07:29):

This podcast was created by Kate Cooney in collaboration with James Johnson-Piett and the students of the Spring 2021 Lab.

Eun Sun Cho (01:07:37):

All engineering and production by Ryan McAvoy and Kate Cooney.

Kate Cooney (01:07:41):

Special thanks to Rhona Ceppos for administrative support and to Ryan Carpenter for assistance with Zoom.

Eun Sun Cho (01:07:48):

Music from the album City Trees, composed and performed by the artist K-Dub.

Manuel Morales (01:07:53):

For more information and show notes, visit our website at IEDL.yale.edu.

Eun Sun Cho (01:07:59):

Thank you for listening.

[Music]