Venture capital firms need to start putting their money where their mouths are when it comes to backing diverse founders, according to managing partners at US social impact VC Kapor Capital.
“While there has been increased discussion about funding for Black and Latinx founders, we’re still seeing a disconnect between how dollars are allocated and the numerous diverse founders with high-impact companies who are being overlooked,” Brian Dixon, managing partner at Kapor Capital, told New Private Markets.
Kapor Capital discovered this ‘disconnect’ when it found – using US census data – that of the $147 billion invested into US start-ups in 2021, only 1.2 percent went to Black founders. Meanwhile, funding for Latinx-founded early stage start-ups decreased from 1.5 percent in 2020 to 1.2 percent in 2021.
“The reality is the VC industry has not meaningfully changed,” Dixon said, citing these data points as evidence of this. “There is still a pernicious idea in venture that by taking into consideration the identity and background of portfolio founders and companies, a fund will be deprioritising returns”.
Kapor Capital, which backs tech start-ups that close equity gaps, has set out to disprove this – doubling down on efforts to back diverse founders. In 2017, its portfolio was composed of 59 percent diverse founders, but by 2021, 100 percent of its investments went into companies with a founder from an underrepresented background.
If VC firms want to make substantial progress in this, they need to start matching verbal commitments with tangible benchmarks and a specific plan of action, Dixon explained.
As way of further levelling the playing field and preventing investments landing with and circulating among the hands of a selected few, the firm accepts all cold requests from founders through its website.
It also created a Founder’s Commitment back in 2016, a first-of-its-kind initiative where portfolio founders set diversity and inclusion goals for their individual companies. “This lens helps us ensure the start-ups we invest in are driving change within their communities,” Ulili Onovakpuri, managing partner at Kapor Capital, said.
We’ve demonstrated that diverse companies not only drive incredible returns but offer a competitive edge by bringing a distinct point of view into underserved needs in our communities,” Onovakpuri said.
In September, the firm raised $126 million for its third fund from about 70 LPs, including Bank of America, Blue Cross, Blue Shield of Louisiana, Cambridge Associates, Ford Foundation and Winthrop Rockefeller Foundation.
At the time of its commitment, Ford Foundation flagged Kapor’s focus on increasing accessibility to venture capital as a key area of interest for the foundation. “Investing in innovative people and ideas is what fuels economic and societal progress, but far too often access to that capital is unequal and unbalanced,” Roy Swan, a director of mission investments at Ford Foundation said.