Can the VC Community Disrupt Serial Incarceration?

There is nothing the startup community loves more than a good disruption. And what better to disrupt than the prison-industrial complex -- after all, a staggering 100 million Americans have criminal records and keeping them locked up costs us $63.4 billion a year.

As of last October, the U.S. incarceration rate was 716 per 100,000 people. While the United States represents about 5 percent of the world's population, it houses around 25 percent of the world's prisoners. Worse still, 76 percent are rearrested after release and of those 89 percent are unemployed at re-arrest. So, we see the connection between crime and poverty in action.

One former member of the investment community is turning to a uniquely American solution to solve the problem: entrepreneurship.

The formerly incarcerated are not without skills. Think about it: Drug sales require cash flow management, sales and marketing. Robberies -- successful ones at least -- require strategic planning. Catherine Hoke -- who comes from the venture capital and private equity world -- founded Defy Ventures in 2010 to show ex-convicts (she prefers the term "Entrepreneurs in Training" or EITs) how to use the skills they already have to develop legal businesses.

Hoke spoke at SOCAP 2014 about Defy Ventures' model. The nonprofit provides training to EITs in skills like leadership, business plan development, finance, sales and marketing -- and even things like etiquette: how to dress for a meeting and how to shake hands in a business setting. The program's mentors and teachers include startup luminaries like Seth Godin and Tim Draper. As inspiring as the Defy Ventures story was, I was skeptical. How could 300 hours of training really disrupt a life, disrupt a community? After all, people have been trying to solve the cycle of urban poverty and prison for decades, and the number of people in prison just keeps increasing.

My skepticism vanished when I chatted with three Defy graduates about their experiences in the program.

There's Lasyah Palmer, the father figure by default, dressed in a striped shirt and colored jeans; 31-year-old Jamel Graham in trendy black nerd glasses, checkered shirt and suspenders; and 28-year-old Coss Marte in a button-down shirt open at the collar -- each one shining with charisma and charm. None of these three would be out of place in one of San Francisco's tech-center co-working spaces or expensive coffee shops, and yet it would be hard to pick out the jewel heist mastermind or drug kingpin among them.

These three men wanted an opportunity to change careers, and when the Defy Ventures program presented itself, they grabbed the bull by the horns and let it buck away. On the question of whether or not Defy can really change lives, the men agreed that personal choice was the first step to change. Graham put it this way: "I don’t think Defy can take credit for anyone’s life. Because if you are in the program, it's because you’ve already changed your own life." But the Defy Ventures program, and especially its mentors, helped all three to jumpstart their new activities -- success became theirs for the taking. "Everyone I come into contact with, I just I squeeze the hell out of," joked Marte, describing how he finds clients and refines his business model.

When asked where they'd be without the program Palmer said, "I’d still be legit, but Defy has made it a smoother transition. It's Hyundai vs. Mercedes Benz." Marte saw a bleaker alternative. "I would have been doing minimum wage. I humbled myself to do that [after a career leading a $2 million drug business] because I was committed to changing. Eight dollars an hour isn’t much, but I’m not worth much to my family when I’m in prison."  But Defy has given him a path to the pride of legitimate business ownership.

Though personal motivation is a key factor in success at Defy, all three agreed that the influence was reverberating through their communities. Explained Marte, "People in my neighborhood saw me come home, thought I was going to do the same thing -- [sell drugs]. People ask [for drugs] all the time, but I don’t even know how to find a cigarette." He also explained that he'll be hiring folks from his neighborhood as his company grows.

Palmer agreed. "[When I was in prison] I saw people go in and out [over and over again]. It makes you wonder, is it possible to stay out when you leave? It’s hard when you’ve been in for a long time ... People who come home from prison are looked up to. If you turn that around and do something different, that changes perceptions little by little."

Graham described how his relationship with his old friends has changed. "In my neighborhood, we’re very competitive. We used to compete over who could sell the most drugs. Now people are competitive with me, want to see how to do what I do ... They ask me for advice about their business plans."

In addition to these three success stories, Defy graduated 112 EITs in 2013. Of these, an impressive 95 percent are currently employed. Grads have seen an 83 percent increase in income and experienced only a 5 percent recidivism rate thus far. Of course, those impressive stats represent rates of return after only one year, and time will tell if the recidivism rate increases.

Policy leaders have been trying to eradicate the correlation between urban poverty, race and crime for decades and it is a damn difficult nut to crack. Millions of dollars in programming have been thrown at this problem, and it's been addressed through hundreds of government and corporate programs over the years -- and still the cycle remains tragically in place. Whether or not Defy Ventures can change the world, there is no doubt it's already changing some lives for the better.