Investing in VC Funds for Diverse Founders Is Getting Competitive

(Bloomberg) -- Venture capitalist Sean Mendy started working on a new fund that would back diverse founders about a year and a half ago. It was going well—he and his co-founder had backing from heavyweights like LinkedIn Executive Chairman Jeff Weiner and basketball-star-turned-investor Andre Iguodala. But just as he was raising money and selecting his first startups, a wave of protests around racial justice gripped American cities. 

The protests touched off a global reckoning with inequality, and moved many in Silicon Valley to try to address tech’s own glaring racial disparities. As the movement picked up momentum, Mendy got several hundred emails from prospective investors, he said. He wound up turning down most of them down. 

On Tuesday, Mendy’s firm, Concrete Rose Capital, plans to announce its inaugural fund. The amount will total at least $15 million, but could wind up being significantly higher once fundraising is finished. Concrete Rose joins a growing list of organizations looking to put more money behind founders from underrepresented races and backgrounds. Last month, SoftBank Group Corp. announced a $100 million fund to back companies led by people of color. And Base10 Partners, the world’s largest Black-led venture firm, recently raised a $250 million fund, almost double the size of its last one, to invest in startups and back diversity initiatives. 

Mendy lauded the new influx of investor interest. “Competition is good for the space,” he said. Hundreds of years of American racial inequities stemming from slavery will prove costly to repair, he added. “I want to see as many founders as possible raise money.”

Besides focusing on underrepresented founders, Mendy and his co-founder, Jason Norman, will also invest in companies that meet the needs of underrepresented consumers, and in startups that aim to build diverse teams from the start, often a rarity in tech.

Racial inequality has long been a problem in Silicon Valley. Black people comprise just 3% of investment partners at venture firms, according to an industry group survey, and Black founders represent fewer than 1% of startup leaders who got venture funding between 1990 and 2016. Mendy said that in selecting which investors to work with, he focused on people who made equality a priority before George Floyd’s killing ignited the issue.

“There’s definitely people who didn’t care about this who now care,” Mendy said. But he added: “I’m less interested in whether or not they cared about this a few weeks ago, and more interested in what they want to do now.”

Concrete Rose’s backers include Intuit Corp. Executive Chairman Brad Smith, SurveyMonkey Inc. Chief Executive Officer Zander Lurie and Sixth Street Partners’ Alan Waxman. Each investor not only puts in money, but also commits to advising founders directly. That helps the founders expand their networks, Mendy said, “as opposed to being introduced to somebody once.” He learned the value of such relationships through his past work as vice president of development at the Boys & Girls Club of the Peninsula, which is where he met LinkedIn’s Weiner, now a key adviser to his fund and its anchor investor.

Tristan Walker, founder and CEO of Walker & Company Brands, an Atlanta-based health and beauty company for people of color, stresses that backing diverse founders is not only morally laudable, but also good business.

“Diverse teams lead to more profitable outcomes,” he said, adding that by looking first for pedigree, such as a Stanford University degree, VCs miss opportunities. “You have to leave your Zip code,” he said.

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