Companies use VC funds led by women and POC to reach emerging markets
A step forward and a half step back is the jagged evolution of the proportion of venture capital funding that goes to female founders over time. For more female founders, especially black people, to get funding, venture capital funds led by women and black people need to be better funded.
According to Q1 2022 PitchBook NVCA Venture Monitor in Q1 2022:
- Mixed-gender founding startup teams received 15.6% of venture capital dollars, down from 17.1% in 2021.
- All teams founded by women received 2.0% of venture capital, up from 2.2% in 2021.
Black and Latinx female founders raise less than 1% of venture capital.
Companies like General Mills are showing that becoming Limited Partners (LPs) in diversity-led venture capital firms is not just the right thing to do. It’s the strategic thing to do. General Mills recently announced that its venture capital arm, 301 INC, will invest $15 million in two early-stage venture capital funds, the Fearless Fund and Supply Change Capital. Women lead both.
These VCs have a unique perspective on trends in their sectors and a large pipeline of talented startups with diverse foundations that could be future acquisition targets. These venture firms address the underfunding of various technology and consumer goods (CPG) financiers.
Venture funds run by women are twice as likely to invest in startups with a female founder and more than three times as likely to have a female CEO. US funds led by women outperform all-male peers.
Large VCs with little to no diversity among their investment decision makers have unconscious bias and lack connections to different founders. A typical Silicon Valley VC expects investments from friends and family as a sign of trust in the founders. But most black and brown founders don’t have friends and family with spare cash to invest in their startups.
Two venture capital firms with an impressive backstory
Arian Simone is co-founder and CEO of the Fearless Fund, the first fund created by women of color for women of color. Simone is a serial entrepreneur, business angel, public relations and marketing strategist, and holds an MBA from Florida AMU. Her first fund raised $25.8 million and was backed by strategic investors including Ally Bank, Bank of America, Costco, JPMorgan Chase, MasterCard and PayPal. General Mills invested in fund two.
While in college, Simone raised a few hundred thousand dollars for a retail business. She realized that nobody who looked like her wrote checks. “Don’t worry about it, because one day you will be the business investor you are looking for,” Simone promised herself.
Through the PR firm, after college – which had clients such as Disney and Sony – Simone began dating VCs. “Oh, this way I can keep track of everything I wanted to do [funding people that look like me],” she realised.
Noramay Cadena and Shayna Harris met at MIT’s business school. While both focused on supply chains, Cadena focused on the aerospace industry and Harris Food. Both wanted to work purposefully.
Born in Mexico, Cadena is a teenage mom. She has invested $10 million in more than 50 investments, including another fund she founded. As a lead partner in Portfolia’s Rising America Fund and a direct investor in start-ups, she also built her expertise in investing in private companies. Also on her resume is the development of an accelerator program that has worked with five cohorts.
Harris has worked for large companies such as Mars, Starbucks and Unilever, as well as venture-backed startups. She was COO of startup Farmer’s Fridge and helped lift his seed through Series C rounds, building his team and culture. As a business angel, board member, advisor to startups and part-CEO in food and software ventures, she also understood the perspective of the founder.
They discovered that both had invested in Omson, a bold, flavorful and delicious Asian spice brand founded by Vietnamese-American sisters. That sparked a discussion about how they chose investments. The census projects that by 2044, more than half of all Americans will belong to a minority group.
“When we were talking about why the company [Omson] and founders were so convincing that we started uncovering the thesis for a fund [Supply Change Capital] that would be the central area of food, culture and technology,” Cadena said. No venture firm has focused on food and technology with a diversity lens. Your company has the potential to make an impact on health, sustainability and diversity.
Both Fearless Fund and Supply Change Capital provide support to their portfolio companies, which in the case of Supply Change Capital includes curriculum-based training. Other support may include executive coaching, access to marketing and recruitment firms for high-level talent. “We regularly receive incoming deals, sometimes from late-stage companies,” Harris said. “These companies say, ‘I love your ethos…You get me.'”
Cadena, Harris and Simone understand the long-term value of their work. They help various founders and their employees to build generational wealth. They want to lead the movement to make the distribution of venture capital fairer and more equitable.
Based on Fund One’s performance, diversified funds can potentially raise in excess of $100 million. It is too expensive and time-consuming for institutional investors such as pension funds to invest small amounts in small venture funds. Pension funds do not invest in funds with less than $100 million in assets under management.
The symbiotic relationship between LPs and funds run by women
Raising the first fund is not easy, especially if you are a woman of color. These two companies followed a similar pattern. Wealthy investors play a paramount role in the initial fundraising phase for the first fund. Once there is some investor attraction, champion fund managers have the confidence to make recommendations. Champions open doors for investors and refer them to other champions.
The 2020 racial bill focused many businesses, including financial services firms, as well as family offices, on helping to address social and economic injustices. Champions introduced themselves to these investors.
For strategic investors – corporations, including financial services companies – the benefits are multiple:
- Sell and use the products and services these startups have developed.
- Have a front row seat in developing potential acquisition targets.
- Benefit from a new source for research and development.
For venture funds, the strategies provide for the following:
- Expertise in brand scaling, food safety, R&D, brand management and finance.
- Provide a halo effect. Strategic investments signal to other potential investors that these funds have passed the test.
- The possibility of a liquidation event arising from the acquisition.
How are you introduced to funders you attract?