Episode 116 - Investing in Overlooked Entrepreneurs with Alfa Demmellash
Today’s guest was once recognized by President Barack Obama during a speech at the White House, and she was named one of Forbes’ Most Powerful Women Changing the World with Philanthropy.
As the CEO and Co-Found of Rising Tide Capital, Alfa Demmellash is working to help underserved entrepreneurs get the recognition and investment capital they need.
In this podcast, she took us on a journey to Ethiopia, Harvard, and Rwanda, and we think you’ll love every step of the way...
Episode Transcript
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Henry Kaestner: Welcome back to The Faith Driven Investor podcast. Today is a special edition because we've got a special guest that I've known for a while. Looking forward for her to share her story with you. And then also William Norvell, my co-hosts on The Faith Driven Investor podcast, is driving cross-country in an RV with his wife and two very young children. We've been joined here by Rusty, our co-host on the Faith Driven Entrepreneur podcast Rusty. I imagine William right now rolling in with the Winnebago into Walley World. John Candy is about to come out and give him some bad news.
Rusty Rueff: Yeah. I mean, can you imagine what that Winnebago is going to look like after versus before? The damage costs (laughter)
Henry Kaestner: Oh my goodness, yes. I kind of want to welcome him when it gets back to California and then I kind of don't want to. Right. So it's great to have Rusty here. And so as a result of that, we're going to have an episode that is going to be for both our faith driven investor audience and then also our Faith Driven Entrepreneur audience. And as you might know by now, we have three different properties Faith Driven Entrepreneur our Faith Driven Investor and Faith Driven Athlete. And I do know Alfa reasonably well, but not well enough to know whether she was a competitive athlete or not. And so I don't know if we can have crossover to the FDA podcast, but we most surely have something for FDE and FDI. So, Alfa, thank you very much for joining us.
Alfa Demmellash: Thank you for having me. And I can say safely that I am not a competitive athlete, so we'll stay in two lanes.
Henry Kaestner: And I'm not either. All right, good. So we found ourselves on the right podcast with FDE and FDI. Alfa we're grateful that you joined us on the show today. And I'm so excited to pick your brain and hear your perspective. But we like to capture some of the background of each of our guests. And you've got a really, really interesting background. And you grew up in an amazing country. My father, who was a spice buyer, has traveled more than 150 countries and he says that the country that impressed him the most was Ethiopia. That's a country you're from. Tell us about Ethiopia and how it formed you as a person.
Alfa Demmellash: Sure. I'm so delighted to hear that your father holds Ethiopian high regard. I do as well. I was born and raised there until about age 12. Unfortunately, during the time period when I was growing up, Ethiopia was having its bout with communism and dictatorship. And so we had a really unfortunate time period of what is known historically as a period of red terror. And this was a time that was hugely disruptive to my family and resulted in my mother needing to flee the country as a refugee when I was two. And so, you know, I had a pretty amazing in many ways and grace filled household with a grandmother who practiced our faith. We have brought in anybody and everybody who is hungry and hurt. And so I got to kind of spend most of my time running around with her. My aunt, who was sixteen at the time, had taken over kind of the day to day caretaking of me. So I had this fairly independent kind of childhood. One thing that my mom did right before she left was as a condition of living, she made my grandparents and my aunt promise that they would send me to Montessori school. So that was also a huge privilege, given that there wasn't a lot of early childhood education there at that point.
And I think this was probably the only Montessori school. And so it took, you know, basically a village to get me to that Montessori school and back. And so I also had kind of that special opportunity that I think has shaped a lot of how I view my life now.
Henry Kaestner: So a lot of people don't know that Ethiopia is really a Christian country. Some of the earliest Christ followers are from Ethiopia. The Coptic Christian tradition is very alive and well. Talk to us about what's unique about Ethiopia. My father, for instance, suggested that he thinks it's because Ethiopia was really never colonized. I think the Italians were there for a couple of months or something like that. But generally, it's a very unique culture. What is it about the Ethiopian culture that you think is unique? And then to what extent does that really influence who you are right now?
Alfa Demmellash: Sure. So I think, you know, Ethiopia, like a lot of Africa, there is a lot of internal diversity. So you have, you know, about 80 languages, 200 dialects. It's also, you know, right on the equator. But it has mountainous regions, huge farmlands. Right now, it's about 100 million people. So pretty populated. The thing that has been amazing and I've had a chance to travel quite a bit since immigrating. But, you know, the cultural diversity, it's clothing. Food. Yeah. It's just very, very unique. And I would say that having been in other countries in Africa, the fact that the colonial influence of the Italians was prescribed only to cafes and really delicious desserts and pizza, some of the best. Other than that, culturally, I think there was a lot that has remained intact. And the other thing is that it's also been over 3000 year old empire. So there is this continuity, I think, that has also influenced kind of the sophistication of its cultural background.
Rusty Rueff: So take us through rising tide capital. I mean, we know you co-founded it in 2004. Give us some of the impetus behind that. But also just take us on the entrepreneurial journey from co-founding it to where you are today.
Alfa Demmellash: Yeah. So, you know, the cofounding of Rising Tide was incurred in something that actually was grounded in Rwanda. And I had been studying in college conflict resolution and just international periods where the darkest really in human history, the Holocaust then and genocides and such. And how do we actually fulfill on our promise of never again really understanding kind of the sacredness of human life. And so when I heard about and learned about Rwanda, I was really, really moved deeply, in part because some of what happened during that genocide also involved the killing of people and throwing them into reverse, saying, you know, go back to Ethiopia because there is this hermetic myth that the Tutsi came down from Ethiopia into Rwanda. And that really shook me at my core. And so I ended up in Rwanda studying both the genocide, but also some of the processes for healing and restoration that were underway, in particular, traditional mechanism of conflict resolution. So I went to Rwanda. Right. As that process was unfolding and it was a deeply transformative experience and part kind of seeing what it looks like when you have a society, a culture that is thrown into the darkest of the dark. And they have to rebuild everything from scratch. And so how do you do that was a question. And I wasn't at all interested in economic development at that point. I thought I was most likely going to go to law school and study law. But as I sat on a hilltop and it was a genocide memorial as well, watching all of those thousands of skulls of children and yet such a beautiful country, I was really moved to understand. And then you will also see all these women who are carrying unbelievable loads up and down these hills and like, really having the thought.
There is so much about resources, the competition for resources, scarcity, perceptions of scarcity that shape how people respond and the kinds of kind of seeds that are planted around the value of human life. And so that began my kind of question and curiosity about economics and how do we build an economy that actually values human life and values the stewardship responsibilities that we have from that kind of faith perspective and puts that at the center. And that was kind of the impetus for Rising Tide capital and saying, you know, the role of economic development in the ways I understood it is really to ground people's interactions with the market as a place of exchanging culture, building values together, shared values. And so that brought me back into the US. And I started looking at what it looks like to build that kind of economy from the ground up and places like where I am and Jersey City and the neighborhood we're in Newark, Trenton. These communities in one of the wealthiest states in the union, New Jersey, was kind of a call to action to say even though these worlds couldn't be more different, you know, Rwanda and deep inner city communities in the US, there were certain similarities that really resonated with me and kind of called me to pursue this entrepreneurial or social entrepreneurial path. The whole thing started was a whole bunch of questions and listening to community leaders and members in private sector, public sector, the churches and trying to understand what the conditions that created this multigenerational disinvestment and, you know, economic failure in these communities where it came from and what it would look like to address it by recognizing people's innate entrepreneurial talents and building community around them and making sure that they have access to the kinds of capital and markets that would help them build thriving businesses. And so in the beginning, we thought, you know, a lot of the emphasis at raising paid capital was to say, look, you know, there is a microfinance world and access to capital is crucial. And so we really we named it Rising Tide Capital with an emphasis on financial capital. And then we learned pretty quickly within a couple of years of piloting a fund that what was really needed was a lot of the social capital, the education business management knowhow. Those were not things that could be easily gotten in many ways. I mean, capital, financial capital is hard to get. But these other things felt like there wasn't a lot of. Representation or entrepreneurial action going on there, so we decided to shut the fund and focus exclusively on building this kind of community and connecting people to sources of capital through partnerships and relationships. So that was kind of the big aha for us. So we launched a community business academy. It provides full scholarships to entrepreneurs who are trying to start and grow businesses. Then when they graduate that it's a 12 week program, it's an intensive look at what it takes to take an idea and bring it to market and build out, you know, a lot of the infrastructure and that product, et cetera. But then ongoing coaching and support, which is where a lot of the transformation happens, which is that long term support.
I always joke and say I've never met an entrepreneur that has grown something in six months or, you know, the average length is 10 years. You know, when I talk to people they are like it took us 10 years before we knew we were actually going to make it. And so being able to provide that kind of long term sustaining partnership and grounded in relationship has been where we've seen this transformative capacity. Now we have over 3000 entrepreneurs in New Jersey and we've actually, over the past few years started partnering with other community based organizations. Right now, we're in three other states and Illinois, South Carolina and North Carolina, where we have active replication efforts going on. So they're supporting hundreds of entrepreneurs in their communities. We work with about a thousand entrepreneurs in six New Jersey cities, in Spanish and in English. So it's a remarkable story that I get to be a witness of.
Rusty Rueff: It's fascinating, the stats that I think probably most of us know. If not, we sort of intuitively know that, you know, nearly 97 percent of private equity and venture capital goes to white entrepreneurs. And, you know, you're the perfect guest to speak into that missed opportunity from what you're doing. So we'd love to hear your perspective on that.
Alfa Demmellash: Absolutely. I think, you know, for a variety of reasons, it makes so much sense to invest in the kind of talent that's going to keep our families grounded and fed. And I think especially during this time of a pandemic, the missed opportunities are highlighted in brighter colors. I mean, looking at the role that a lot of small businesses, especially those that are owned by people of color, play and providing essential services, you know, it's immense. And it's where a lot of people find employment opportunities. Over 50 percent of all jobs in the US are created by businesses like this. These are the kinds of entrepreneurs who keep communities and small towns and large urban centers knit together.
And they've done it with minimal, if any, capital and investment from the venture capital world, certainly. But really overall investment at every level. And so this is where I think we now have an opportunity to reset and to really say what kind of a country do we want to live in? And we're facing the kind of small business failure rates and the fact that, you know, it's possible.
I was looking at a McKinsey report that 60 percent or more of small businesses may not come back and the vast majority of those are owned by women and people of color. And I think that there is an opportunity to say this is the challenge of our generation. This is the thing that we have to unlock. And it affects all of us. It doesn't know borders. Economics is very much interdependent. And so I think there is a huge missed opportunity for us to ambush their creative talents and problem-solving capacities of people in many communities which we need now.
Rusty Rueff: You know, you mentioned the Community Business Academy. Tell us more about that, because it sounds like that's your teaching model.
Alfa Demmellash: Yes. So we've learned that, you know, our average entrepreneur is 41 years old, a parent with two children. Usually when they come to us, they're actually working someplace, underemployed or trying to exit and build something, an idea that they've believed in or they've been in a sector and they think there is an opportunity to do something different. And so they come with experience, but very minimal and financial capital and social capital. And so the teaching model is really pure based, experiential. They're doing things. We've also used simulation games and we've looked at basically best practices in adult learning methodologies. And especially when you're talking about entrepreneurs with an average age of 41, they are coming. Preloaded was a lot of assumptions. And they're entrepreneurs because they want to go and do things in a new way, in their own way to begin with. So rather than trying to confront that differently. Kind of create the conditions in a peer to peer way in a community based way, so they're not having to, you know, go get into like a big building because there's lots and lots of intimidation. Fifty percent of our entrepreneurs don't have any kind of a college experience. So they're not necessarily familiar or comfortable in being in the kinds of learning environments that your typical MBA would have no problems with. So our goal is to make this business education as accessible as possible. So it actually takes place on weekends and nights because many people are working while they're building their businesses. And there is a lot of hands on building. We require anybody who joins us to actually have one focused idea, even though they usually end up from the learning experience, pivoting and shifting the model. It's very much focused on helping them bring an idea into fruition in a way that takes into account their experiences.
Henry Kaestner: Alfa, take us back to 2004 when you're getting started with this and walk us through what rising tide does through the eyes of an entrepreneur or pick one of the people that you work with early. What was their story? What did you help them with? And then maybe also pick a story of an iceberg that you're working with now, because presumably some amount of what you do and equipment and entrepeneurs change over the years. But walk us through the relationships you have with those two very different entrepreneurs.
Alfa Demmellash: Sure. So in 2004, an entrepreneur who is coming to raising paid capital typically has heard about us because my co-founder Alex and I had basically papered the town with notices to say, come and explore your dream with us. And we'd built a number of community based relationships with nonprofits, particularly those who are working with the formerly incarcerated end groups that didn't feel like entrepreneurship or business ownership as far as they would see it in their mainstream was for them. So we would have that entrepreneur come into an orientation session that usually lasts about four hours. So we'd have about 100 people in a church basement and they're going through and actually getting asked the kinds of questions that they never had. And that was also a big aha for us. So, you know, being asked, what do you want to do when you grow up essentially as an adult was a question that had not been asked of them. And so what we were seeing from those entrepreneurs is like a real surprise by the level of upfront investment of time and energy.
And we didn't try to sell them on just our idea. We actually showed them the ecosystem of other support services that exist. So they really had to choose us if they wanted to be on the journey because it was going to be intensive. And so they would go through an orientation process and then they had to apply.
We also learned some early lessons on like free and programs for all entrepreneurs and only the grandmother and the eleven year old showed up that first orientation when we said everything was free. And so we shifted our tactics and said, you know, you have to apply. You have to be accepted into it. And so there was a process for that. And then once people were accepted, we would notify them. And so this entrepreneur would get a phone call from us. And those early days were amazing because people would like the hour, dropped the phone and screamed that they'd gotten accepted into something that was as rigorous as what we are proposing. So that early entrepreneur, usually service-based, you had, you know, people who are coming and trying to start everything from pest control to even some very early tech, whether it's installing, you know, computer Ethernet connections, et cetera, for like very, very basic technology for schools, et cetera. And so those were the kinds of entrepreneurs we were working with. And fast forward to today a lot of those processes and so far as the orientations and the rigor and the application process is still the same.
Definitely. You know, it's been 15 years. And so the use of social media and a lot of other platforms to connect with people. I mean, when we have a Facebook alumni group of nearly a thousand entrepreneurs that are selling with each other and connecting with one another. And so we have a lot more visibility into the activities of our entrepreneurs today than we did in the past. And so we've been able to shift and pivot things, particularly in what we do with people once they graduate.
Rusty Rueff: I think all the things you're talking about, our listeners might kind of look at it and go alright lots of statistics. And we know our urban entrepreneurs have a lot of activities going on out there. But take us right down into the entrepreneur themselves. You know, tell us a story or multiple stories, if you'd like, just about the entrepreneurs that you're working with and how this is coming to life for them.
Alfa Demmellash: Absolutely. So, you know, one of our entrepreneurs who is amazing. Her name is Angela McKnight. She actually came to us because she had her grandmother, who was in a senior housing and she was working with her grandmother to help with administrative needs. You know, mail would come in, things will pile up and there is just overwhelm and in handling those administrative responsibilities. And she realized that this was not a problem just for her grandmother, but also for a number of other seniors were living in that complex. And so she had started doing this for them of as a support from helping them think through their benefits and just like open the mail and respond and communicate. And so she heard about the Community Business Academy and came to figure out how to set up a business. She called it Care About You and started the service exclusively focused on elders. As time went by, she actually realized that a lot of the seniors were eager to have her services and perhaps the administrative services alone were not actually the reasons why they were so eager. They were often isolated and lonely. And so she stresses she wants to figure out how to put this into the business model, more like it looks like more of a social enterprise or a nonprofit. And so she created a side nonprofit, Angela Cares, that actually supports seniors with isolation. And one of the key projects that she's been running for many years now is connecting high school seniors with seniors and housing complexes and throwing them senior problems, actually. And having this kind of multigenerational exchange of stories. And then fast forward a few years later, I got a call from her saying, hey, you know, I'm thinking that I might run for office. And I said, wow, you know, you're running the business. You're running the nonprofit. You're going to add, you know, legislative potential leadership into this. And she said, I really see some of the long standing policy related issues here. And so she ran for office and got elected as a sitting assembly woman for New Jersey. And she's gotten reelected since then. And she is one of the most active legislators you can possibly imagine. And then she's also teaching classes in the evenings. So she teaches one class in the evening alongside many of our other instructors. Today, 90 percent of all of our instructors are returning entrepreneurs. We're giving back. And so that's just one example. And I will also tell you that a number of our senior leaders within the organization now are raising graduates. And so we have our program innovation person, our chief of staff. In fact, our executive director for New Jersey, who we just hired, had come to us to start a food cooperative and that had translated into actually interest than public policy and economic development. And so now she's in the nonprofit sector right alongside us. But that entrepreneurial energy and, you know, we have schools that have been created by our entrepreneurs and pest control companies, construction companies, you name it, they're active.
Rusty Rueff: You know, man did CNN get it right when they named you a hero. I mean, I just think that the way you think about serving others and helping them to get capital to grow their businesses. I mean, it's a phenomenal story. It really is. And I know you care about the future, too. We were together at the Praxis event. There was a lot of talk about the future tide and what's that mean for the urban entrepreneur. So why don't you take us through future tide?
Alfa Demmellash: Happy to you know, future tide has in many ways become now tide. Present tide. So Future Tide Partners was a concept that we started developing a couple of years ago when we started seeing the trends in exponential technologies and automation and really started thinking about, whoa, you know, how weird, let's say take one of our entrepreneurs who owns an auto repair shop and really thinking about the kinds of investments she was thinking while making, you know, opening a second auto body shop and maybe taking out whatever savings she had for retirement included to invest than that. And we were saying, should she do it? Should she not? I mean, because we know we're in conversations where we're talking about self-driving vehicles and, you know, what does it look like for the hundreds of thousands of auto repair shops across the country and the local business owners who own them to think about the next seven to 10 years when there is this rapid acceleration and the adoption of exponential technologies that could make their business models obsolete. And so we really felt like the conversations around that issue were being hard at varying levels of government, but with very little connection to the day to day realities of what this would mean for the millions of small businesses that employ the majority of Americans. So that concern was what brought us to the future type discussion. And in many ways, with this pandemic, what's happened? So our concern with future tide was to say how do we raise appropriate levels of awareness and education without creating crisis and pandemonium about the loss of jobs and generating more fear, but rather looking at a lot of the opportunities that are also inherent in so many of these technologies. And so in many ways, I think what we had anticipated we would need to do over the next five to seven years to educate cross-sector leaders and investors to take the long view with us and help us think through how we can invest in a future of entrepreneurship and job creation that addresses what we were seeing as being a significant impact on employment. And now here we are in this corporate world, and the reality that we can work from home remotely is facilitated by and large by many of these exponential technologies. At the same time, simultaneously, we know we're facing this massive challenge of huge unemployment figure. So that 20, 30 million Americans who filed for unemployment. These are numbers that approach Great Depression levels. And those were the concerns we had literally, you know, in the weeks beforehand to this pandemic. And so on the one hand, the positive thing is that we don't have to spend five to seven years raising awareness so we can check off that box. I think now what's been accelerated is the need to really problem solve. So this is why we're really excited to have conversations around what investment needs to look like and really wanting to have more conversations with our fellow entrepreneurs in the tech space to say, hey, help us think through this, because this is about all of us. This is about our children's flourishing and their ability to put their God given talents to work at some enterprise or another. So this is a big, big conversation and I'm seeing it come to actually quicker fruition than I imagined. So we're taking people through frameworks. We're having cross-sector conversations, and especially in the philanthropic space, including kind of this fund for the pandemic relief that I'm working on. I'm really using the future tidelands to help guide our team and our volunteers and, you know, the state's leaders at every level to say, you know, what we're solving for is not just the problem of what's happening today or 30 to 60 days from now, but really kind of the longer term trends that have been in play for a while but now had been accelerated on a massive scale offer.
Henry Kaestner: I know that your faith influences much of what you do and why you got this started. Can you talk about what it looks like for your faith to manifest itself and how you talk about faith with young entrepreneurs that are coming through your program?
Alfa Demmellash: Yeah. You know, we've been very fortunate given the communities we focus on. They already come to raising tide with, you know, deep, deep, deep faith backgrounds. So we are grateful that their expression. Of their gifting. What they're trying to achieve and the lens through which they see their journey as an entrepreneur, as being one that is guided by their faith. And so that has enabled us to be, you know, was our being a faith based organization to nourish practices that can bring people together in a way that really allows us to confront doubts that are endemic to the entrepreneurial journey. But even more now where there is so much uncertainty that people who are of faith in many ways have the practices and the mindset of being able to confront this deep doubt and uncertainty from a place of faith, that the very definition of what faith means is to walk on water, to walk on deep uncertainty.
So that has been our approach. And myself personally, I have been guided by my faith alongside of my co-founder from, you know, our earliest. This is what brought us together as friends and what enabled us to even think that we could start something like rising tide, which was to really pray and listen for and recognize that we are really not in charge, that this is so much bigger than us. All of this is so much bigger than us. And so the practices of being able to pray. And we've brought even in this time of crisis right now, we have twice a day. Neutral. But meditation sessions that we're inviting people into deeper reflection. So we've been doing that since week one of the pandemic. And it's enabled us, I think, to create the space for reflection and for greater connection to, you know, to the larger master of what's going on. You know, the strategist, the master strategist here.
Henry Kaestner: So speaking to the master strategist, is there anything that you found in the Bible, anything that you found recently in your devotions, maybe today, maybe this week, maybe recently, that you really feel that God is speaking to you?
Alfa Demmellash: For me, I've been meditating a lot on Paul and meditating on what it means to see in the right ways and to be the light in these times. I also read Oswald Chambers. I don't know if you read My Utmost for His Highest. Yeah. So that's the daily dose of being brought into humility, you know, in these times, because it's very much the case that when you're an entrepreneur or a social entrepreneur, as you know, to get very quickly into fix it mode and think that you can actually, you know, do things with your own powers. But it's that reminder on The Daily that this is about God first and then following.
Henry Kaestner: Yeah, well, we have of course, this is an audio podcast, but we have a video interview going on right now. And I just showed Alfa that, in fact, I have a new copy of my utmost for his highest, the daily version, which is really something that I think that another interviewee had recommended. And I went out, bought it, and I've been really blessed by it. So thank you for sharing that, Alfa. Thank you for sharing your story with us. Please tell Alex that we say hi. Congratulations on the new headquarters move. Congratulations on the work that God has done through you in serving so many entrepreneurs in our cities and just grateful that you spend time with us.
Alfa Demmellash: Thank you for having me and thank you for what you all do, each of you and you, Henry, for continuing to raise the flag for the faith driven entrepreneurs among us and showing hopefully that there is a path and we make the path by walking it, but there is a path that others could follow.