Family offices, endowments, foundations and their investment consultants are letting structural barriers and implicit biases get in the way of opportunities for innovation, impact, and yes, alpha, by overlooking funds run by women and people of color.
I’m surrounded by Ivy League-educated asset allocators, on the one hand, and on the other, diverse fund managers investing in world-changing innovations. Demand is not meeting supply.
We are building the infrastructure to close this gap and connect LPs to opportunities.
Some examples: Kim Folsom of Founders First Capital closed a $100 million venture debt fund to scale women of color founded companies. Jarrid Tingle and Henri Jacques-Pierre of Harlem Capital last year raised over $40 million for a first-time fund that has made more than 20 investments in women and founders of color with disruptive business models solving big problems. Carmen Palafox and Noramay Cadena of MiLA Capital raised a first fund and is investing its second fund to invest in “Tech You Can Touch,” along with a 30,000 square foot fabrication facility and co-working space in Los Angeles focused on hardware technology.
Austin Clements spun out of a venture capital firm and is unequivocally viewed as a leader in the Los Angeles VC scene. He and his partners launched On Purpose Ventures, a fund focused on exceptional returns and scalable technology that supports small businesses.
These fund managers and more than two-dozen others are part of VC Include, a platform I founded two years ago to connect diverse general partners and institutional limited partners. I launched it without any backing after advising startups of color since 2012. I kept hearing about the length of time it was taking for diverse fund managers to raise funds. It was taking diverse fund managers more than double the amount of time to fundraise than many white fund managers. To my surprise, some of these diverse managers had spun out of major VC funds.
My next natural question was, “Well, who is supporting the fund managers on their fundraising journey?” When I found no one, I built VC Include to provide the necessary infrastructure, including LP networks, programs, and insights that diverse managers needed to grow as institutional grade managers.
VC Include has held 18 events in a half-dozen cities, worked with 30 funds and has interfaced with 60 more. We’ve spoken with hundreds of LPs. As I grew a supply chain of diverse fund managers in venture capital, private equity and impact investing, interest grew among asset allocators. But too often their feedback was, “Let’s wait and see.”
I rationalized that if we would build it, they would come. Then they would share a reason why they couldn’t invest: The checks are too small. The managers are not institutional grade. There is no anchor investor. They need to attend more VC Include events before they engage.
The consensus has been that what we’re doing is good, but they are fiduciaries and can’t take on the risk. I’m a serial entrepreneur that’s experienced both sides of the funder/founder coin. I knew what I signed up for. However, they are forgetting that it’s a bigger risk not to invest.
Now everything has changed. With COVID-19 and a civil rights movement with growing momentum, we’ve entered an unprecedented moment. We have to change. We can no longer do things like they’ve been done before. This is a Kairos moment, an opportunity to create a new reality that is kinder, more loving and inclusive. That opportunity starts with changing our collective relationship to money and access to capital.
Nearly every investor knows that the asset management industry is broken. It’s driven by egos, familial and university relationships, competition and “hard work.” Reliance on these attributes has led to Black, Latinx and women making up just 1% of asset managers in the U.S. These results are not due to education, hard work, or meritocracy. They’re caused by racism, exclusion and implicit bias. The time has come to look at this challenge with new eyes and to put capital in the hands of diverse managers at scale.
Thankfully, there are a few LPs that have recently committed and are allocating capital to diverse managers. They include The Ford Foundation, W.K. Kellogg Foundation, Silicon Valley Community Foundation, The San Francisco Foundation, The Consumer Technology Association, Cisco, and Kauffman Foundation among others. It’s important for these LPs and others to invest in the innovation economy that is needed to develop and grow the next generation of technology enabled businesses that are owned and operated by diverse founders. We’re looking to these leaders to be swift in their check writing to new managers with massive potential to generate alpha. Given the social and political unrest, there is no time to lose.
People of color have been patient for decades, waiting for opportunities to shine, which remain few and far between. VC Include’s diverse fund managers are educated. They have pipelines of founders needing capital to build their companies. Still, many managers need mentorship and examples of inclusive leadership to grow into large, blue chip funds in the next 10 to 15 years. They didn’t grow up with fund managers to teach them. Most weren’t the lucky 1.8% of black and brown manager chosen as investment partners by large Silicon Valley firms.
But more than anything, they need capital. They are worth it. This is one of many examples of why #BlackLivesMatter. Lack of access to capital is continuing to choke communities of color when the system is set up to exclude them from innovating, failing, creating and succeeding. The risk profile is now more risky. If you don’t invest, it’s a risk.
I have a clear call to action: We need capital and professional organizations including VCs, data experts, foundations and family offices that have pledged to invest in diverse managers to come together to move billions in capital in the next 10 years, specifically for venture capital, private equity, and growth firms owned and operated by women and people of color. We have the platform, the programs and the people.
Join us by investing in a fund of funds vehicle powered by the VC Include platform. We have built the infrastructure needed to serve the ecosystem and support the managers in becoming institutional investors. Once the capital is unlocked, we can run faster.