The VC firm behind Airbnb, Lyft, and Box has an exclusive new $15 million fund that will target at black celebrities, athletes, and media figures--not as founders starting new ventures, but as investors. The effort aims to boost black engagement within the tech community, the Wall Street Journal reported on Monday.
One of the world's leading investment firms committing to an underserved segment is a sign there is unrealized opportunity to be explored. Even if you're not in the entrepreneurial target group, it's always a good sign when the tides of investment flow into new fertile ground.
There are, however, a few gaps in our public knowledge of this fund that make me wonder how much of it is a real attempt to address diversity in funding and how much of it is a PR move. Let's examine it.
Lack of diversity is definitely a problem.
The fund is explicitly targeting black limited partners (the investors who provide the capital that VCs deploy), yet not explicitly targeting black founders to invest in. That's pretty interesting.
Presumably it will focus on backing black startup founders. Andreessen Horowitz hasn't confirmed this, but it would make sense: The firm has a long history of being on the leading edge, and its new LPs--which include actor Will Smith and basketball star Kevin Durant--have long supported black entrepreneurs.
But 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 employed black investment partners.
Andreessen Horowitz will apparently waive all the fees it would normally collect--approximately a few hundred thousand dollars a year if the fund stays at $15 million--and donate them to nonprofits to boost the black community's investment in tech. Let's put this in perspective, though: The firm charges millions in fees on its $1.5 billion main fund; making money from fees is immaterial. The move makes sense.
Here's what Andreessen Horowitz is missing--and how to solve it.
What doesn't make sense is the $15 million figure. That can't possibly be the full story. Likely this sum from some notable African Americans is a "first close" towards a much larger amount. I can see Durant convincing others in the NBA to join him. Same with Hollywood and Will Smith.
I bet this fund will close topping $150 million, for a few reasons:
- The firm's main fund is $1.5 billion, a hundred times bigger than this $15 million commitment. Which do you think is the priority?
- Most initial investments Andreessen Horowitz makes are in the single-digit millions. So if the average is $5 million, this fund could only do three deals.
- A fund with 27 investment managers (none of whom are black) will need at least one full-time employee, and it may be hard to make managing a $15 million fund appealing to those 27, or even to a new hire.
So for this to be more than just a publicity stunt--more than just a new way to get rich people's money, and to actually have an impact on diversity and inclusion in tech--there is a lot more Andreessen Horowitz could do, including:
- Hire an African American partner to lead the initiative. (Only two percent of investing partners in the country are black, according to a 2016 statistical breakdown by investor Richard Kerby.) My personal recommendation? Ervin "Magic" Johnson, who has spent more than 20 years supporting black enterprise in his post-NBA career.
- Train a new generation of African-American and Latino associates. Have them learn the VC world from the best. Since Andreessen Horowitz knows the best VCs are also successful entrepreneurs, tap into recent exits by black startup founders.
- Support a black- and Latino-centric mentor network. Startup success takes a village, and nurturing a network filled with homophily is a catalyst for success.
- Team up with the magazine Essence--whose publisher is one of the LPs on this new fund--to showcase successful black founders. Provide as diverse a group of role models as possible.
Entrepreneurial funding definitely has a diversity problem, especially in the tech sector, and I sincerely applaud these latest steps to address the issue. But there's so much more that can and should be done. Here's hoping this fund gets us a little closer.