The Brief | August 7, 2023

The Brief: Racial bias in venture capital, local investors back Ghana’s small businesses, breakthrough energy fund, investing in cancer treatments

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Welcome back, Agents of Impact! Thanks for giving us a summertime break. Back to school! 

Featured: Returns on Inclusion

Legal challenge to Fearless Fund misses the mark on racial bias in venture capital. The next shoe has dropped. The conservative activist behind the legal strategy that led to this summer’s Supreme Court decision barring affirmative action in college admissions has now set his sights on venture capital. A lawsuit by the American Alliance for Equal Rights, led by Edward Blum, alleges anti-white bias by Atlanta-based Fearless Fund, which provides capital for early-stage businesses run by Black women. Fearless Fund is one of dozens of funds that have launched in recent years to take on implicit bias in venture capital against Black and other founders of color. US-based venture capital funds allocated just $2.3 billion, or barely 1%, of $216 billion in investments last year to Black founders, according to Crunchbase. Targeting what little funding flows to founders of color, who are starting businesses at higher rates than white entrepreneurs, could stymie US economic growth and job creation. “The precedent and slippery slope we are on is terrifying,” says Henri Pierre-Jacques of Harlem Capital, which backs diverse founders.

  • Implicit bias. The lawsuit alleges that Fearless Fund is violating a section of the Civil Rights Act of 1866 barring racial bias in private contracts by making only Black women founders eligible for a grant contest. The legal challenge has had the paradoxical effect of highlighting the industry’s real problem with racial equity – implicit bias against founders of color. “Why does the Alliance target a modest venture capital fund supporting Black women, while predominantly white institutions perpetuate systemic financial havoc without facing commensurate consequences?” advisors at Creative Investment Research asked in a blog post. “This stark disparity urges us to scrutinize the very bedrock of the economic system.”
  • Economic stressors. The pullback in venture capital and private equity markets has pushed diversity, equity and inclusion efforts into the background, according to Oakland-based Illumen Capital. “The triggers of bias are firing more often than in times where the market is steady,” Illumen’s Daryn Dodson told ImpactAlpha. In practical terms, that means portfolio company founders are seeking survival help from their investors – increasing revenues, managing headcount, and even securing their bank deposits – rather than taking steps to ensure diversity and representation. This year’s survey of Illumen’s portfolio found that fund managers are having more difficulty ensuring that founders meet DEI provisions in their term sheets, “because founders are experiencing a lot of stress with regards to market volatility,” added Illumen’s Joanna Kuang. More
  • Racial-equity strategies. Black-led Fearless Fund, launched in 2019 by Arian Simone, Keshia Knight Pulliam and Ayana Parsons, has raised tens of millions of dollars from Bank of America, PayPal, LISC, Mastercard and other investors across two funds to back female founders of color. The portfolio includes more than three dozen Black female-led startups, such as Partake Foods, Slutty Vegan and Bread Beauty. “For years, Black founders have complained of discrimination, but they have been effectively blocked from doing anything about it, because, to prevail, they must show that the discrimination is intentional,” University of Iowa law professor Gregory Shill told TechCrunch. “Rather than challenging this head-on, one alternative tack has been to set up funds that specifically recruit Black or women founders. That effort is what is being challenged here.”

Dealflow: Small Business 

Local and global investors show up to finance small businesses in Ghana’s ‘missing middle.’ Ghana’s $5 billion annual shortfall in capital available to small business owners is stunting badly needed economic growth. Mirepa Investment Advisors, an Accra-based small business finance fund manager, has raised about half of its target of 120 million cedi (roughly $10 million) from local investors, including Axis Pensions, CAL Asset Management Company Limited, Venture Capital Trust Fund and Petra Trust. Institutional investors across Africa have historically preferred government securities to private funds like Mirepa because of perceptions of risk. “The recent default by the government on its debt obligations to local asset owners, especially pension funds, makes a strong case for diversifying away from government and investing in the productive sectors of the economy,” Mirepa’s Samuel Yeboah told ImpactAlpha.

  • Growth capital. Ghana’s national advisory board for impact investing, Impact Investing Ghana, last year released a landscape report on the potential and need for catalytic capital to support Ghana’s small businesses. Mirepa is among an emerging group of local private capital providers striving to support Ghana’s small business community with flexible growth capital. The new fund will cut checks equal to $200,000 to $2 million in manufacturing and tech businesses supporting Ghana’s key economic sectors, focusing on businesses that are owned and led by women.
  • British accent. Separately, the UK’s development finance institution, British International Investment, has stood up a new small business investment firm in Ghana, Growth Investment Partners. The Accra-based subsidiary will make revenue-based and other self-liquidating investments in local currency. Its target investment range is $500,000 to $5 million. GIP is being led by Jacob Kholi, ex- of BII and Aureos Capital. BII is seeding the new subsidiary firm with $50 million; it is looking to attract additional capital to the evergreen facility from both local investors and other DFIs. BII’s Kwabena Asante-Poku told ImpactAlpha that the DFI plans to replicate the strategy in other African markets.
  • Keep reading

Dealflow overflow. Other news crossing our desks:

  • Bill Gates-backed Breakthrough Energy Ventures is raising a third climate fund, according to an SEC filing. The firm did not disclose its fundraising target. (Axios)
  • Emerson Collective spins off Yosemite, a venture fund focused on cancer treatments that is run by Reed Jobs, son of Steve Jobs and Emerson’s Laurene Powell-Jobs. (The New York Times)
  • Accion Venture Lab invested in Colombia’s Lificy, a startup that connects small construction businesses to potential contracts and financing. (Accion)
  • Mexican solar startup Bright raised $31.5 million in a Series C round led by Denmark’s ODS Investment Fund. (Contxto)
  • European venture investor A/O reached a first close on a targeted €250 million ($275 million) fund to decarbonize and optimize the built environment. (EU Startups)

Agents of Impact: Follow the Talent

Larry Kramer will step down as president of the William and Flora Hewlett Foundation at the end of the year to become president and vice chancellor of the London School of Economics and Political Science… Mohnish Jain, ex- of Deloitte, joins Ankur Capital as finance manager… Adasina Social Capital names Tufts’ Julianne Zimmerman as managing director.

Mosaic’s Patrick Moore becomes CEO, succeeding founder Billy Parish, who will become executive chair of the board. Daniel Budington, ex- of Santander, becomes Mosaic’s CFO… The World Bank is hiring a chief executive officer for its Climate Investment Funds in Washington, DC… Blackstone Charitable Foundation is looking for a finance and operations associate in New York.

Jumpstart seeks a director of impact initiatives in New York… State Street Global Advisors is hiring a head of sustainability stewardship in Boston… Opportunity Finance Network is hosting an online informational session for partners and stakeholders of the federal Greenhouse Gas Reduction Fund, Wednesday, Aug. 16.

Thank you for your impact.

– Aug. 7, 2023