A few weeks ago, I wrote about the lack of diversity in venture capital. Historically, a very small amount of venture capital has gone to companies with black founders. According to a study by Harlem Capital, a VC fund that backs diverse founders, just 105 companies with black or Latino founders have raised rounds of $1 million recently.

This lack of diversity is particularly pronounced at venture capital firms. Women accounted for 11 percent of venture capital firms' investment partners in 2016, according to data released by the National Venture Capital Association and Deloitte. Latinos made up two percent of investment partners at the firms surveyed, while none of the firms employed black investment partners.

I'm pleased to say this may be finally changing. TechCrunch announced yesterday that Base10 Partners, a VC fund located in San Francisco, has closed its first fund. At $137 million, it's the largest ever debut for a black-led VC fund. Base10 funds seed stage startups with between $500,000 and $5 million. 

I'm even more pleased to share other recent news that addresses this overlooked opportunity:

  • Arlan Hamilton, who (according to Fast Company) is the only black, queer woman to have ever built a venture capital firm from scratch, has a new $36 million fund dedicated exclusively to black women founders, called Backstage Capital.

  • Black Founders Matter, founded by Entrepreneurs Marceau Michel of Werkhorse and Kathryn Brown of ScoutSavvy, has a simple premise: sell T-shirts and merchandise, then use the proceeds to fund black- and female-led startups. Its goal is $10 million.
  • DarcMatter, co-founded by Natasha Bangsopaul and Sang Lee, is a matchmaking platform that connects fund managers actively raising capital with investors around the world. It uses a deep understanding of different cultures to network around the globe. DarcMatter hopes to facilitate connections between industry leaders and investors, especially when it comes to bridging East and West markets.

So why am I so bullish on investments into diversity and inclusion? Not simply because it is right and just, but also because I know the power of contrarian investing--and how it affects entrepreneurship.

In finance, a contrarian is one who attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong. A contrarian investor seeks opportunities to buy or sell specific investments when the majority of investors appear to be doing the opposite, to the point where that investment has become mis-priced. Warren Buffett is the greatest living contrarian investor.

In a white paper, Stephen Anness and Andy Hall (both fund managers for Invesco Perpetual) showcase these four cornerstones of contrarian thinking:

  1. A willingness to dispute conventional wisdom.
  2. A capacity to demonstrate creativity.
  3. A determination to reform the consensus.
  4. A high-conviction focus on long-term objectives.

So how can you apply this approach in your business? Try these strategies:

  • Hire talent other companies wouldn't. Look to underrepresented potential human resources like veterans and inner-city youth.
  • Look for major trends--then do the opposite. If everyone is adopting low-touch customer service through AI, double down on the benefit of human customer service. Make that your competitive advantage. 
  • Prove people wrong. By definition, if you are a contrarian, people will call you crazy.  Babson College professor Daniel Isenberg said it best in his book Worthless, Impossible, Stupid: How Contrarian Entrepreneurs Create and Capture Extraordinary Value "To paraphrase Nobel laureate Albert Szent-Györgyi, entrepreneurship consists of seeing what everybody has seen, and doing what nobody has done."

Inclusion isn't just right for social justice reasons. It is right for financial reasons. The world is not simply male and white, and for too long investors have been overlooking great opportunities based on their own homophily. Perhaps that trend has begun to shift, leading to more underserved opportunity. Base10's founders certainly think so.

Published on: Sep 18, 2018