Conversations with BLack Venture Capitalists: ‘We Don’t Need Another PR Stunt'
Big Investors, Including SoftBank and Andreessen Horowitz, Signal Interest In Black Founders
George Floyd protest in Foley Square. Photo: Nina Roberts
Published on Times of Entrepreneurship on August 11, 2020
The massive racial justice movement ignited by the death of George Floyd at the hands of a Minneapolis policeman in late May has gained swift momentum across the United States. Many previously complacent non-Blacks have joined Black protestors for daily demonstrations in the streets perhaps triggered by the horrific video of George Floyd and hiscrushing last call for “Mama” before he died.
George Floyd’s death, among other incidents of police brutality and racism, like the endless “Karen” videos of white people calling the cops on Blacks, are inspiring frank conversations about race at kitchen tables, on streets, and in workspaces, many virtual, including those of venture capital firms.
Systematic racism and economic injustice in the US might be revelatory to some non-Black VCs because of the current climate, but for Black VCs, it’s daily life. “As a black woman who is gay and has a family,” says Melissa Bradley, “there is nothing that White America is experiencing today that I haven’t experienced for the past 50+ years of my life.”
Many Firms Tout ‘Diversity And Inclusion’
Venture capital is one of the whitest corners of finance. The numbers speak of a work of systemic racism, in which lip service has long been enough. Many financial firms tout “diversity and inclusion” as a core value. But venture capital falls shockingly short when it comes to putting its money where its mouth is: Only 1% of VC backed startups had Black founders according to the Diversity VC report.
The stats illuminate how racial injustice and economic injustice are intrinsically intertwined. Black-owned firms are also less likely to get bank loans.
Meanwhile, last week, it was the moves of the giant firms stocked with white partners that won the headlines. SoftBank launched a $100 million fund and Andreessen Horowitz launched a $2.2 million fund with donations from partners to invest in founders of color and/or underrepresented founders. For context, Andreessen Horowitz’s latest bio fund is $750 million. And SoftBank’s Vision Fund is $100 billion.
Bradley, the founder of Washington, D.C.-based 1863 Ventures, says she appreciates the good intention of VCs setting up new funds specifically for Black founders, but has some doubts. “If people really want to invest in us,” says Bradley., “they would have picked up the phone and invested in one of us. We don’t need another PR stunt.”
A quick Google search shows there are already plenty of Black-owned VC firms and/or VC firms that invest in Black-owned businesses, and people running inclusive funds have reported that investors who evince interest at the start quickly fall away when it comes to writing checks.
“I worry that the fees that people are going to pay to start new institutions are waste of money,” says Bradley, “because you could be investing in folks that are already doing this work.”
1863 Ventures, which is also an accelerator, launched in 2016. 1863 is geared for businesses, not necessarily in tech, which have been in operation for one to two years; approximately 90% are Black-founded. 1863 Ventures and its affiliated program have supported 559 founders and invested $850,000 so far, according to its impact report. A $2.5 million fund, its goal is $10 million.
Will this sudden rush to create new VC funds lead to sustained economic justice? “We can we cannot fix in 48 hours,” says Bradley, “that which has existed for 400 years.”
“There are fund managers out there who have been doing the work for years, who are Black,” says Ross Baird, who co-founded the impact investment fund Village Capital in Washington D.C., “and have been investing in communities of color.”
‘Sidecar Funds’
Baird, who recently launched Blueprint, which invests in economic development projects, adds that investing in experienced Black-owned VC firms, is more sustainable than investing in those who have recently announced “sidecar funds that are very small relative to their core business,” as Baird puts it, in reaction to the recent focus on Black economic and racial justice.
“I would say the people who are building diverse teams and sending money to diverse fund managers and diverse founders as a matter of course,” says Baird, “are the people I think doing it right.”
Collab Capital, in Atlanta, Ga., aims to reach $10 million by August and specifically invests in Black founders. All three co-founders have been immersed in the entrepreneurial ecosystem as investors of 16 black-founded businesses collectively and/or founders themselves prior to launching Collab in 2018.
Co-founder Jewel Berks Solomon, who is also Head of Google for Startups, says that the recent protests across the US solidify what she and her Collab co-founders already knew. “Although it has been more than 50 years since the Civil Rights Movement, racism and injustice are still pervasive across all facets of American life,” Berks Solomon writes in an email, “We see disparities in access to healthcare, education and economics.”
Berks Solomon’s role as Head of Google for Startups is to help underrepresented startups across the US through Google’s resources, such as workshops about sales or fundraising. Her role at Collab is to invest in Black entrepreneurs. Collab’s first and only investment thus far is Atlanta-based Hairbrella, a company launched by Tracey Pickett that makes funky satin-lined rain hats with an attached visor.
Access to capital is one of the biggest obstacles facing Black entrepreneurs. Collab was created to provide a solution for closing the wealth gap for Black Americans, a byproduct that’s “one of this country’s oldest institutions; systemic racism,“ writes Berks Solomon in an email. “Investing in Black-owned businesses allows us to create wealth in those communities while closing the racial wealth gap in America.”
Collab’s fund is structured with a profit-sharing format that aims to provide earlier returns to its limited partners than traditional funds; three years instead of seven or 10.
An Immigrant’s Take On America’s Race Problem
Early stage investing is increasingly a global business. For immigrants, America’s race problems can look like an opportunity – if there’s a new will to solve them.
At a half-immigrant-owned firm in Austin, Texas, Oksana Malysheva along with partner Joe Merrill run the VC fund and accelerator Sputnik ATX. They incubate and invest in eight to 12 startups a year. Each startup receives $100K via a SAFE note and follow-on funding is $500K.
Originally from Kiev, Ukraine, Malysheva, says learning about race in the US has been an ongoing educational process since she arrived at the age of 21. Malysheva has invested in several Black-founded startups, not specifically because the founders or co-founders are Black, but because they had excellent business ideas.
As a VC Malysheva has invested approximately $50 million, typically early stage; she’s invested $5 million over two and a half years through Sputnik ATX. Emphatic about casting a wide net to meet potential founders of all types, Malysheva has invested in founders who are mothers, POC, immigrants, LGBTQ. She believes talent can come from anywhere. “It’s useful not to have any preconceived notions,” says Malysheva, who grew up, she describes as, “extremely poor.”
The protests prompted Malysheva and Merrill to crunch the numbers of their 47 founders’ ethnicity to see how it compared to the US population. They found Sputnik ATX’s founders skewed about 1% below the 12% Black population and slightly high on white, South and East Asians and LGBTQ. “To our shame,” says Malysheva, Sputnik ATX scored low on Latino founders, which she plans to address.
Malysheva underscores that her job as a VC is to make money for her investors, her limited partners, so she’s obligated to invest the best startups regardless of ethnicity or gender. What happens if no people of color, or women, have startups worth investing in? It’s never happened but Malysheva says hypothetically, “That sends a strong signal to me that I failed in my pipeline process, because I know that they exist.”
A Sputnik ATX intern originally from Nigeria recently voiced anxiety about the police stopping Black men, such as himself. “Feeling compassion is one thing,” says Malysheva about racism’s impact on Black people, “but hearing those words from someone who is close to you just put it in a completely different perspective.”
Malysheva then launched a new initiative, a call to founders working on projects that combat police brutality, perhaps a police injustice reporting app, or flagging white supremacy actions. “I’m not promising to fund every idea that comes my way,” says Malysheva, “but I am promising to go and dig and look for this.”