Tech firm's success may open doors for Twin Cities black entrepreneurs

The data is downright discouraging: Only one percent of black-owned tech companies are funded by investors.

But Clarence Bethea, founder of warranty app Upsie, is experienced at trampling long odds.

He'd evolved out of a dysfunctional home, where his father abused his mother; intermittent homelessness and drug dealing as a teenager to become the founder of a thriving Twin Cities' tech startup.

"It was a lot of work, but I met the right people at the right time who changed the trajectory of my life," said Bethea, 37. "I received guidance and support from them along the way."

Using that same formula of hard work and harnessing life-changing resources, Bethea recently overcame the investment longshot familiar to most black tech entrepreneurs.

He raised $1.7 million in nine weeks for his business, Upsie, which sell warranties and makes them manageable through a mobile app. The fundraising goal was $1 million, but it attracted prominent venture capital firms. Even with the round closed, investors are still lining up.

"For that next African-American founder who is like, 'Can I do this?' and is at a crossroads," Bethea said, "hopefully this says that they can because I'm not anything special."

But observers say Bethea's fundraising feat — at that stage of growth and that amount — is unheard of locally and nationally. It's prompted stories and interview requests from national media, like Black Enterprise and Forbes.

"There still exists a lot of preconceived ideas of what a tech founder looks like," said Sharon Kennedy Vickers, founder of the Twin Cities chapter of Blacks in Technology.

"The numbers are small for black tech founders because they don't have the access to resources and capital to take their ideas to market. I believe the path to securing that kind of funding is a lot more difficult for entrepreneurs of color."

Bethea said acceptance into Techstars Retail was the difference-maker. The international startup accelerator, offers select entrepreneurs funding and mentorship for a three-month period. In the Twin Cities, it partners with Target to cultivate retail tech businesses.

Bethea said Techstars' training not only transformed his business, but the mere affiliation with one of the top tech accelerators in the world, validated it and leveled the playing.

"It took away the black or white thing," he said. "It made people judge me on who I am, how I am as a founder, what our team is doing every day and the business."

Bethea, a married father of two, lives in Burnsville, but he's originally from Decatur, Ga.

A basketball scholarship at Bemidji State University brought him to Minnesota in 2002. Like tech founders Bill Gates and Mark Zuckerberg, he dropped out of college to pursue entrepreneurship.

"I think being an African-American founder you have more questions, they dig a little deeper," Bethea said of investors. "It's not like I dropped out of Yale or Harvard. I dropped out of Bemidji State. I don't come with that resume."

Bethea said he's personally familiar with CB Insights' research on venture capital investments in 2010 that found only 1 percent of black-owned firms were funded.

Upsie launched in 2016. Its protection plans are at least 50 percent less for electronics and appliances than traditional warranties, Bethea said, adding the app remedies gnawing problems with the industry — high prices, lack of transparency and customer service.

"We knew consumers hated being pitched at a store to buy a warranty, we knew there was no transparency around that experience. We knew that service was terrible for most consumers," he said. "It started with a mission to fix those problems and technology is just a way we can deliver it."

Upsie now has more than 14,000 users and 25 percent month-over-month revenue growth. The company went from two employees to seven in a year. And with the $1.7 million infusion, it'll add six to 10 more employees this year.

"We are looking to grow in a cost efficient way, improve our product and service to customers," he said.

Upsie was one of 10 startups selected out of thousands in 2017 for Techstars Retail in partnership with Target. It's poised to disrupt the archaic warranty industry, said Ryan Broshar, managing director of Techstars Retail.

When Bethea left Bemidji State his junior year, he didn't have a plan.

"School wasn't my thing," he admitted. "I just wanted to work, make money and get out in the world." He did stints with a trucking company and a youth basketball program where a former business executive became his mentor.

"He saw something in me," Bethea said.

The executive poured his knowledge and money into Bethea, footing the bills for Bethea's speech and body language lessons, grooming him for entrepreneurship. With his southern drawl gone and armed with business tenets, Bethea started a staffing business for Fortune 500 companies.

"When you grow up and you're in a five-block radius and that's all you know, then you see something outside of that you can achieve and somebody's says you can achieve X,Y and Z. If you start believing it, it becomes powerful. And I think that's what happened to me."

In 2015, he began building Upsie to save consumers money. Bethea said the socio-economic status of entrepreneurs influence the problems they solve with their ventures.

"When I was a kid we couldn't afford a computer but if we did we'd have to buy something to protect it because we wouldn't be able to replace it," Bethea said. "Coming through that struggle allows you to look at problems differently."

Bethea didn't have tech background but believed his idea was viable business. He did research and contracted and then hired developers. Upsie went in beta stage in 2015.

The app went live in the summer of 2016 and the reception confirmed Bethea's hunch. Angel investors and in-kind services hit $1.5 million.

Even with its high growth rate, some investors were skittish about Upsie. Bethea said if he were white he would've raised more and investors wouldn't have been peppered him with extra questions and doubts.

But by the fall, there was a breakthrough, a $2.5 million deal with a venture capital firm was struck. Bethea planned to hire more people and move into a bigger office.

Then the investor abruptly backed out of the deal. An arrest when Bethea was 15 had emerged in their background search. It'd resulted in no charges. And Bethea said he'd disclosed his past to the investors.

"I was devastated," he said. "I went into depression."

Months later he learned about Techstars. But it seemed like a longshot — thousands of startups competing for 10 spots. Bethea still applied. The benefits were too numerous not to.

Techstars Ventures — the venture capital arm of the accelerator — invests $120,000 in each business. The accelerator, located in the Target building, puts Target mentors and business advisors just feet away.

Bethea and his team grew in knowledge and size, from two employees to seven within the three months. And by the end of the training, they gained a multitude of skills, including how to successfully court investors.

"I believe with stories like Clarence's, we get to see and highlight that there are valuable products coming to market by individuals of color," said Kennedy Vickers, who is also the city of St. Paul's chief information officer.

"It also presents an opportunity for us to start funds designed to specifically support entrepreneurs of color."

The other nine startups moved out of the accelerator when the program ended. Upsie crew remains, sucking up knowledge, Bethea said.

In a field dominated by white men from elite schools, Bethea sometimes felt out of place. But one of the most valuable lesson he's learned is his background is an asset.

"A lot of this entrepreneurship game is dealing with adversity, dealing with the unseen," he said. "And when you come from where I come from, that's all you see. It took going through Techstars to understand where I fall in respect to those people who dropped out of Harvard and Stanford. It made me confident."