Although at least one third of U.S. tech startups were launched by immigrant entrepreneurs, these founders are often overlooked at the investment stage.
Every year, thousands of immigrant founders launch their businesses in the U.S. They pitch to investors in hopes of raising capital, only to realize cultural differences and a foreign accent don’t exactly increase their chances.
“I talked to every VC in Silicon Valley, and they all looked at me like I was the black sheep in the room,” said Eva M., founder of a subscription-based sugaring delivery service. “With my feminine business and my Eastern European accent, I just didn’t fit in. So I turned my company into a successful business without VC backing.”
Funds replacing networks
Paul Judge, managing partner at Panoramic Ventures, said most U.S. entrepreneurs have some form of direct or extended connections within VC networks. “They ‘know’ someone, or at least know someone who knows someone,” Judge said.
“Unfortunately, there are underrepresented founders building great businesses who don’t have those advantages.” And without the connections that come from pre-existing networks, they can’t access the capital they need.
Judge added that his firm’s core principle is investing in founders who are overlooked. This includes minorities, women, and immigrants: 42% of Panoramic Ventures’ portfolio consists of businesses founded by entrepreneurs from diverse backgrounds.
Pioneers of “immigrant VC investing”
Until recently, few funds considered foreign entrepreneurs’ investment potential. But, as companies like One Way Ventures, Starta Capital, and Unshackled Ventures show, by giving opportunities to overlooked founders, investors can also boost their returns.
After 20 years of angel investing, One Way co-founder Semyon Dukach noticed immigrant-led companies repeatedly outperformed the rest of his portfolio. Over the last several years, more VCs have begun to support immigrant entrepreneurs as part of their overall strategy. “We’ve seen that immigrants have fewer opportunities to access capital,” said Terry Choi, partner at Amadeo Global. According to him, banks and VC funds aren’t entering this field at scale.
Amadeo Global shifted attention to international entrepreneurs after analyzing recent research on immigrant-run ventures. Over half of U.S. unicorns — startups valued at over $1 billion — have at least one immigrant founder.
Real revenue
In April of this year, Conductive Ventures raised a $200 million Fund III to continue backing immigrant entrepreneurs and minorities. According to TechCrunch, more than 60% of Cognitive Ventures’ portfolio—24 startups in total—are immigrant- or minority-run ventures.
It turned out that these non-traditional entrepreneurs, who couldn’t secure initial funding, ended up with capital-efficient enterprises. According to Carey Lai, Cognitive Ventures co-founder, their companies have “real revenue.”
“Immigrant entrepreneurs are just as likely to build successful businesses as anyone else,” Judge said. “And sometimes even more so, because of their desire to leverage the opportunities here and succeed in their new countries.”
New risks
Geopolitical risks, however, remain high, as the war in Ukraine has demonstrated. Immigrant-run startups often have teams outside the U.S. As a result, during Russia’s invasion, many tech companies had to focus on relocating their teams and restructuring operations.
Some investors are currently looking to support startups with Ukrainian ties.
In April, Roman Tyan, founder and managing partner of New York-based NRG Ventures, launched Ukrainian Tech Ventures. The nonprofit venture fund aims to back 200 startups over four years, looking to avert a war-related cash crunch.
Ukrainian Tech Ventures seeks to raise $50 million, with no further plans for profits beyond a management fee of 1.75% to cover costs. According to Bloomberg, the initiative is currently in fundraising talks with investors. As with traditional VC funds, investors will make money if the Ukrainian businesses backed by the fund perform well.
