Author: Will Lowery | UC Berkeley School of Law | J.D. Candidate 2021 | Posted: November 23, 2020
In the wake of George Floyd’s killing and the Black Lives Matter demonstrations, venture capitalists took to Twitter and blog posts to express their support and condemn racism.[1] In a prepared statement, renowned VC firm Kleiner Perkins wrote: “We can, and will, do better.”[2] Other firms like Benchmark and Accel donated to civil rights causes.[3] Despite these efforts journalists, entrepreneurs, and technologists demanded that VCs put their money where their mouths are to address systemic racism and labeled Tweets and statements as “diversity theater.”[4] These critics point to the lack of black and other minority representation in the VC and tech industries. Only 3% of VCs are black and black founders account for just 1% of VC funding (of that, just 0.2% goes to black female founders).[5]
Commendably, several VC firms launched funds dedicated to investing in underrepresented founders. In early June, Softbank launched the $100 million Opportunity Fund to invest in minority-owned businesses.[6] The same week, Andreesen Horowitz announced the Talent x Opportunity Fund with $2.2 million in initial donations from its partners to invest in founders from underserved communities.[7] Despite these actions, many criticized the size of the funds. For instance, Softbank’s Opportunity Fund represents just 0.1% of its $100 billion Vision Fund and Andreesen Horowitz’ Talent x Opportunity Fund represents just 0.02% of its total $12 billion in assets under management.[8] In a Financial Times opinion, black founder Richard Robinson praised these efforts but asked the tough question: what happens after these funds have been deployed?[9] Robinson asserts that more must be done to combat systemic racism – VCs should, among other things, set aside time to meet exclusively with black entrepreneurs, hire black employees to senior positions, invest in black founders, and take regular unconscious bias training.[10]
Other VC firms have amended term sheet provisions to address the issue. The Diversity Rider Program, started by Alejandro Guerrero at Act One Ventures, inserts standard language into term sheets requiring the company and lead investor to make commercially best efforts to include at least one Black or other underrepresented minority check writer as a co-investor in the round.[11] The program aims to increase the representation of minorities in venture capital deals and improve diverse check writers’ track records with prospective LPs when it comes to raising a fund.[12]
The jury is out on whether these actions will move the needle on diversity in the venture capital and tech industries, but they represent steps in the right direction.
[1] Lucinda Shen, Venture capital is calling out racism. But can it put its money where its mouth is?, FORTUNE (June 2, 2020), https://fortune.com/2020/06/02/venture-capital-is-calling-out-racism-but-can-it-put-its-money-where-its-mouth-is/
[2] Id.
[3] Id.
[4] Nitasha Tiku, Black tech founders say venture capital needs to move past ‘diversity theater’, WASHINGTON POST (June 10, 2020), https://www.washingtonpost.com/technology/2020/06/10/racial-gap-vc-firms/
[5] Kyle Westaway, How To Support Black Entrepreneurs: Hire And Wire, FORBES (June 3, 2020), https://www.forbes.com/sites/kylewestaway/2020/06/03/how-to-support-black-entrepreneurs-hire-and-wire/#49ed47437794
[6] Deirdre Bosa and Laura Batchelor, SoftBank created a minority-focused fund, but diversity has not been part of its larger vision, CNBC (June 5, 2020), https://www.cnbc.com/2020/06/05/softbank-minority-focused-fund-belies-history-of-little-diversity.html
[7] Natasha Mascarenhas, A16z launches donor-advised fund for underserved founders with $2.2M in initial contributions, TECHCRUNCH (June 3, 2020), https://techcrunch.com/2020/06/03/andreessen-horowitz-launches-2-2m-fund-to-invest-in-underserved-founders/
[8] Deirdre Bosa and Laura Batchelor, SoftBank created a minority-focused fund, but diversity has not been part of its larger vision, CNBC (June 5, 2020), https://www.cnbc.com/2020/06/05/softbank-minority-focused-fund-belies-history-of-little-diversity.html
[9] Richard Robinson, Venture capitalists must do more than stand in solidarity with Black Lives Matter, FINANCIAL TIMES (July 21, 2020), https://www.ft.com/content/55a4d2e1-4d2b-4f19-a9b8-11534df4c688
[10] Id.
[11] Gené Teare, Introducing the Diversity Rider Program, CRUNCHBASE NEWS (August 26, 2020), https://news.crunchbase.com/news/introducing-the-diversity-rider-program/ (Several firms have signed up for the program including Greycroft, First Round Capital, Maveron, SVB Capital, Harlem Capital Partners, Fifth Wall, Plexo Capital, Precursor Ventures, and Equal Ventures.)
[12] Id.