The HUB: What Happens after Hurricane Ida?

Entrepreneurship Will Likely Surge after Ida, but Whites Benefit Most from Federal Disaster Aid

Federal Emergency Management Agency disaster recovery funding benefits entrepreneurship, but favors white entrepreneurs, according to new research from Rice University.

FEMA paperwork is notoriously difficult; paperwork is often a de facto obstacle for communities with less time and resources.

After Katrina, FEMA aid was notoriously slow, so that people sometimes received it years afterwards. 

“Results from our county-level analyses during 2000 to 2010 indicate that despite their devastating impacts, more costly natural disasters increase local self-employment rates,” according to the report, written by Asia Bento, a Rice doctoral sociology fellow and Jim Elliot, a sociology professor and affiliate at the Rice Kinder Institute for Urban Research. “Damages, in other words, appear to create opportunities.”

The report looked at counties such as Harris County, Texas, Miami-Dade County, Florida and Los Angeles County.

Without FEMA help, natural disasters on their own increase self-employment by .014 percentage points for each additional $100 million in local property damages, according to the report. When recovery funding enters the picture, that number grows even higher —  the researchers found that in the event of a $1 billion disaster, there was an average increase of roughly 420 additional self-employed people in the counties studied.

But the opportunities created through disaster are skewed toward white people, who tend to benefit more from the self-employment increases.

The research follows a November report from FEMA’s National Advisory Council that emphasized equitable disaster recovery.

“Overall, these findings add to growing public concern that disaster recovery has long-term implications for local economies and for the racial inequalities that structure and divide those economies,” the authors wrote. “Intentionally or not, those implications favor white workers over Latino and Black workers living in the same metropolitan counties experiencing the same levels of rising natural hazard impacts and federal recovery assistance.”

Q&A: Transparency Is a Lonely Road in Investing

“Intent won’t be enough, it has to be intent and outcome,” said Joe Kirgues, the co-founder of Milwaukee, Wisconsin-based accelerator gener8tor. Gener8tor has been issuing demographic data for a few years — 42% of its startups include a founder of color, 82% of startups are outside of major tech hubs, 33% startups include a woman founder and 17% include a woman of color founder. About 63% of alumni have raised more than $1 million in follow-on financing or have been acquired, according to its website.

Its fund has returned 1.10 in distributions to paid-in capital (net), has a 21.54% net internal rate of return and 2.74 total value to paid-in (net), Kirgues published in a recent Medium blog. The statistics capture all of gener8tor’s fully invested funds from 2012 to 2019, totaling more than $10 million, Kirgues said. Gener8tor has invested in 131 startups.

Companies out of businesses were marked to zero, he wrote in the blog.

“Admittedly this data is still incomplete in that it reflects the score of a game only partially played,” he writes there. “But we believe that as our younger investments mature we anticipate these numbers will only improve.”

Kirgues’ responses have been edited for clarity and conciseness. 

Gener8tor started to publish demographic statistics of its portfolio in 2016. Why did you all decide to initially publish?

It’s overdue in our industry to have that level of transparency. The gener8tor process that generated evolution really began almost five years ago, when we began publishing our investment statistics across race and gender, capturing our demographic profile of our founders, we also do the same for our team. If we believe our mission is to be the best partner for a community, we need to reflect the community and everything that we do. 

We know there’s a funding disparity, gender disparity, race disparity, geographic disparity. What steps has gener8tor taken to combat that?

When we have our team go out to begin finding entrepreneurs who can meet with our program, we want to make sure we’re going into places that may oftentimes have been overlooked. As a built-from-scratch accelerator in the Midwest, we wanted to set the standard that we don’t see a pipeline issue, and it’s as much about whether we’re engaging communities as whether there’s opportunities to invest. 

Gener8tor runs a lightning rounds event, which connects entrepreneurs seeking to invest in diverse founders with those founders. So for example, back in February  we held an event for over 250 participating startups, all of which were diverse and connected them with over 300 investors in one day. 

Why is it important for accelerators and venture capital funds to be transparent with their demographic statistics and fund performance?

Rhetoric can only get us so far, and the well-wishing can only get us so far. … If we seek to drive change into our industry, but we’re only superficial enough to allow the majority of peers to not disclose their data across race, place and gender, as well as financial performance, I don’t believe we’re going nearly as far as we could.

Since your initial publishing 5 years ago, have you seen more people in the funding and accelerator space begin to be transparent? 

Unfortunately, we haven’t seen an increased level of transparency. We definitely see an increased level of attention to the discussion.

What kind of feedback have you gotten from publishing the demographic statistics?

One of the things founders want to think about when they take capital from an investor is how did the previous startup founders do? To know that they’re going to a group where, you know, not only are 80% of our graduates raising more than a quarter million and nearly 60% raising more than a million, but they’re doing that because our investors see that as an opportunity to have shared success. As a community, we want to draw as much capital as we need to fight the disparities across race, across place and across gender, we need to focus on that signal. Intent won’t be enough, it has to be intent and outcome.

As heated as the dialogue might sometimes get, we hope that we get as heated about the outcomes and the transparency.

We feel it’s been rewarding for us to go to our existing investors and say that for each year’s investment, those funds, in many cases are amongst the best performing funds in their vintage or in their year of founding. We went to some of our investors to get their thoughts [before we published]. Not all of them.

Option for Military Spouses who Often Take a Back Seat

By the time Flossie Hall’s first business, a meal prepping company called Healthy Momma, was three years old, it brought in nearly $3 million in sales and employed 100 people. 

But then Hall’s husband, a chief in the U.S. Navy, was re-stationed 3 hours from San Diego, where her family and the commercial kitchen was located. The thought of starting her business again in a new city was incredibly exhausting, Hall said, and it was impossible to run the kitchen from that far away. A pending sale fell through, so Hall made the tough decision to close the company.  

“I had founder fatigue, and I was working 18 hour days and it was physical labor,” Hall said. “I just couldn’t do it any more.

“At the time my expertise wasn’t strong enough to wait it out, or operate it remotely. I wish I had known then what I know now.”

Many military spouses have made similar sacrifices — almost unimaginable to those outside the service. For active duty members’ spouses — who are 92% women — moving every few years often means giving up a career. In fact, the unemployment rate for spouses is three times higher than the general population. 

Nevertheless, Hall was dismissed when she first began to advocate for resources designed for spouses. She was pointed to resources for veterans — aka, the male spouses. That’s why she and fellow military spouse Moni Jefferson co-founded the Association of Military Spouse Entrepreneurs, an online community.  Deployments are especially tough on spouses, who sometimes have to scale their businesses up or down.

The association offers chats to ask questions, digital co-working spaces and coaching sessions. It’s free to access, but there’s also a premium version that includes one-on-one mentorship for an annual fee of $470. The association is also funded with $200,000 in sponsorships and grants. 

Once the businesses grow enough to be tangible, the platform refers founders to partner programs for more resources to build their business, Hall said. In two years, the platform has helped 2,000 spouses build companies. 

“We have spouses doing just the most incredible things, and they’re living the military lifestyle,” Hall said. “Like, their spouses are overseas and they’re over here, inventing things and scaling products. And they have kids at home. They’re just crushing it in so many ways.”