Black VCs Can Make A Bigger Impact With Institutional And Individual Investors’ Help
BLCK VC Retreat. The nonprofit equips Black investors with the access, education, and community they need to accelerate their careers in venture capital. BY MARGI RENTIS
The share of venture capital dollars managed by Black men and women is less than 1% for each. No wonder Black founders have only raised 1.2% of venture dollars, according to Crunchbase. Black people represent 14% of the population in the U.S. Think of the innovations the world is missing out on by overlooking such a large population segment.
VCs may say they want diversity, but that may be lip service. The numbers haven't changed much.
It takes organizations that not only talk the talk but walk the walk. Needed are grants to support small, emerging, diverse managed funds; policy changes making investing in VC more accessible to accredited investors; and better sharing of emerging best practices.
Mandy Bynum Mc Laughlin, CEO at BLCK VC, grew up in the tech industry, working for a couple of startups that went public. She also became an angel investor and limited partner in venture funds. BLCK VC is helping the venture capital community reflect the demographics of the U.S.
"It seemed like my white colleagues were making more money with their stock options than I was," she said disappointedly. She believed other smart, talented Black people were also missing out.
Mc Laughlin became an angel investor. "I went in with more of my heart than my head," she sighed. "I made some bad investments...but learned a lot...and expanded my network."
Instead of solo investing as an angel, for her next chapter she started investing as a limited partner (LP) in small, emerging, and diverse managed funds. With one investment, you are investing in multiple companies and the fund is professionally managed. Investing in startups is a way to diversify your portfolio. Interestingly, accredited female investors—compared to their male counterparts—are more likely to recognize the importance of these characteristics as a way to de-risk their investments, according to How Women (and Men) Invest in Startups*.
Investing directly in startups or as an LP in a venture fund is an illiquid investment. Like many women, Mc Laughlin is comfortable investing for the long haul. She likened it to investing in her retirement and her house. "I am not trying to flip my house," she said. "I live here."
"It's [investing as an LP in small, emerging, and diverse managed venture funds] more of a team sport," said Mc Laughlin. "I grew up playing team sports and am not a solo athlete." Teams include people with different skills that complement other members. In venture capital, those skills include finance, go-to-market strategies, developing teams and connections to funders, customers, and top talent.
Some VC funds have a hybrid model, allowing LPs an engaged experience similar to angel investing in which they can roll up their sleeves and help startups while also having professionals managing processes, such as due diligence and selecting investments. These types of funds are an ideal fit for Mc Laughlin. "I just really enjoy and am excited about working with talented women," she said enthusiastically.
PitchBook compared established fund managers to emerging fund managers and found that young, small venture funds outperformed more significant funds. Smaller firms make fewer investments, are more hands-on, focus on brand building, and are agile and less bureaucratic.
Chidima Okorie, Program Officer at the BLCK VC Retreat. The nonprofit equips Black investors with the access, education, and community they need to accelerate their careers in venture capital. BY MARGI RENTIS
Kauffman Fellows found similar outperformance. Small, emerging, and diverse fund managers identify and target overlooked opportunities and win those deals because they have more recent and relevant real-life experience and are more engaged investors.
Many institutional investors have made DEI commitments without defining what they are committing to, lamented Mc Laughlin. They meet with small, emerging, and diverse managers to check a box and fulfill a marketing and PR pledge. They are not making the systemic changes that will enable Black VCs to raise money more quickly.
Small, emerging, and diverse fund managers often don't have the traditional experience that some institutional investors want, such as previously managing a fund with their investment thesis. Institutions are missing the extraordinary expertise these newer fund managers bring to the table. Widen the aperture by which fund managers' skills are evaluated to include operators who have successfully scaled technologies, built teams, and brought products and services to market; angel investors who have an eye for picking great investment opportunities; or experience in adjacent industries such as private equity.
They don't have the generational wealth to sustain themselves and their teams before profits are distributed from the VC fund. Fund management fees for microfunds don't cover salaries and expenses. Provide grants to offset the high cost of initially creating and running emerging venture firms.
Don't use industry jargon to obfuscate and make things look more complicated than need be. Demystify your processes by speaking in plain English.
Don't waste the time of Black VCs if all you want to do is check off a box.
Institutional investors must develop ways to invest in high-performing small, emerging, and diverse VC funds. Large institutions often prefer to make $10 million to $50 million investments but cannot represent more than 10% of a fund's capital. Few emerging Black managed funds can absorb that size investment. Whether it is creating fund of funds, other vehicles that allow diverse VCs to band together to meet LPs needs, or something else, think outside the box.
Jackson Georges, Jr. Partner at CapitalG, and founder of BAG (Black Angel Group) at the BLCK VC Retreat. The nonprofit equips Black investors with the access, education, and community they need to accelerate their careers in venture capital.
BY MARGI RENTIS
BLCK VC is working with institutional investors who already get it and those who want to get it to connect them. It is not wasting time on those who don't get it and don't want to.
BLCK VC is also working on initiatives to motivate more accredited Black investors to invest in startups. "We may have dabbled here and there, but let's make sure that we all know what our power can do within the venture community," she emphasizes. Accredited Black investors have the power to fund Black VCs and Black founders.
Because emerging and Black managed venture funds don't often have connections to institutional investors, accredited investors play an outsized role in their emerging funds. These accredited Black investors don't have the generational wealth of their white counterparts. They are not likely to make investments that are hundreds of thousands of dollars, let alone millions of dollars.
But emerging diverse funds can remedy that because they often accept smaller investments. Nearly three-quarters of accredited male and female investors would make an investment of $25,000. It's a market that smaller, diverse funds can serve.
Investing in venture capital must be made more accessible by raising the number of accredited investors who can invest in micro funds from 249 to 499 and increasing the fund size from $10 million to $50 million. How are you investing in your community?
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*How Women (and Men) Invest in Startups was co-produced by Ventureneer, the author of this article’s company.
Geri Stengel. Follow I am president of Ventureneer, which specializes in defining and eliminating problems that hold underrepresented entrepreneurs back, especially minorities and women. Our work provides clients with branded research, training and content opportunities that generate thought-leadership, visibility, sales, and brand loyalty. I am a WE NYC and digitalundivided mentor as well as an advisory board member of Million Dollar Women, Women Startup Lab, and Aleri Research..