Smaller funds, those those with $50 million or less in assets under management are helping usher in a new wave of diversity within venture capital. And the reasons for this are simple.
The newest crop of investors is emerging from historically overlooked or marginalized communities who set up funds and then reinvest in those funds. “Small funds work purposefully and leverage their limited resources to drive positive change and foster diversity in the entrepreneurial landscape,” B. Pagles Minor, the founder of DVRGNT Ventures, told businessroundups.org+.
Emerging managers often target early-stage companies with diversity in mind, which is important because many of these companies don’t last long enough to achieve, say, a Series B. a lack of early support at the pre-seed and seed-stage level.
While many small funds do not have an explicit diversity mandate, a significant number of these funds are led by people from underrepresented backgrounds; larger funds, on the other hand, lack talent from diverse communities. This in itself creates an opportunity for smaller fund managers to step in and support the founders who are overlooked and ignored at a higher level.
Ramzi Rafih, the founder of London-based No Label Ventures, has a fund that focuses on supporting immigrant founders in Europe. He says the community is still undervalued in the startup ecosystem compared to the US, where such immigrants account for more than 50% of all unicorns. “If we can focus on solving obstacles immigrant founders face and make them more visible to VCs, we believe we can provide our investors with an outrageous return,” he told businessroundups.org+. This often means being the first investor in a round and connecting a founder with other investors and corporate clients, and helping with visa issues.
“It is crucial to recognize that a wealth of data supports the idea that embracing diversity can reduce investment and lead to better financial outcomes.” B. Pages Minor
No Label seeks to fill the gap left by some of the larger funds, which often fail to support diverse talent and instead leverage the network they’ve built over the years. Many larger funds also simply don’t know how to diversify their network, or they don’t know or disagree that investing with diversity in mind can generate exorbitant returns.