Corporations Tap Women- And POC-Led VC Funds To Reach Emerging Markets

One step forward and a half step back is the jagged trajectory of the proportion of venture capital funding going to female founders over time. For more female founders—particularly those of color—to get funding, venture capital funds led by women and people of color need to be better funded.

According to Q1 2022 PitchBook NVCA Venture Monitor, in the first quarter of 2022:

• Mixed-gender founding startup teams received 15.6% of venture capital dollars, down 17.1% in 2021.
• All female-founded teams received 2.0% of venture capital, down from 2.2% in 2021.

Black and Latinx female founders raise less than 1% of venture capital.

Corporates like General Mills show that becoming limited partners (LPs) in diverse-led venture capital firms isn’t just the right thing to do. It is the strategic thing to do. General Mills recently announced its venture capital arm, 301 INC, will invest $15 million in two early-stage venture capital funds, Fearless Fund and Supply Change Capital. Women lead both.

These VCs have a unique perspective on the trends in their sectors and a large pipeline of talented, diverse-founded startups that could be future acquisition targets. These venture firms address the under funding of diverse funders in tech and consumer product goods (CPG).

Women-led venture funds are twice as likely to invest in startups with one female founder and more than three times more likely to invest in a female CEO. Women-led U.S. funds outperform all-male rivals.

Large VCs with little to no diversity among their investment decision-makers have unconscious biases and lack the connections to diverse founders. A typical Silicon Valley VC expects to see investments from friends and family as a sign of confidence in founders. But, most Black and Brown founders don’t have friends and family with money to spare to invest in their startups.

Two Venture Capital Firms With Impressive Back Stories

Arian Simone is co-founder and CEO of the Fearless Fund, the first fund built by women of color for women of color. Simone is a serial entrepreneur, angel investor, PR and marketing strategist, and holds an MBA from Florida AMU. Her first fund raised $25.8 million and was backed by strategic investors such as Ally Bank, Bank of America, Costco, JPMorgan Chase, MasterCard, and PayPal. General Mills invested in fund two.

While in college, Simone raised a couple of hundred thousand dollars for a retail store. She realized that no one who looked like her was cutting checks. “Don’t worry about this because, one day, you will be the business investor that you are looking for,” Simone promised herself.

Through the PR firm, she started after college—which had clients like Disney and Sony—Simone began to meet VCs. “Oh, this is how I can pursue everything I’ve wanted to do [funding people that look like me],” she realized.

Noramay Cadena and Shayna Harris met at business school at MIT. While both were focused on supply chains, Cadena was concentrated in the aerospace industry and Harris food. Both wanted to do purposeful work.

Cadena was born in Mexico and is a teen mom. She has deployed $10 million in more than 50 investments, including another fund she founded. As a lead partner in Portfolia’s Rising America Fund and a direct investor in startups, she also built her expertise in investing in private companies. Developing an accelerator program that has worked with five cohorts is also on her resume.

Harris has worked at large corporations, such as Mars, Starbucks, and Unilever, as well as venture-backed startups. She was the COO of the startup Farmer’s Fridge, and helped it raise its Seed through Series C rounds, and built its team and culture. Being an angel investor, board member, advisor to startups and fractional CEO in food and software ventures gave her additional understanding of the founder’s perspective.

They discovered that both had invested in the Omson, a brand of bold, flavorful, mouth-watering Asian seasoning started by Vietnamese-American sisters. That started a discussion of how they chose investments. The Census projects that, by 2044, more than half of all Americans will be from a minority group.

“As we talked about why the company [Omson] and founders were so compelling, we started to uncover the thesis for a fund [Supply Chain Capital] that would be at the center section of food, culture, and tech,” said Cadena. No venture firm was focused on food and tech with a diversity lens. Their firm has the potential to make an impact on health, sustainability, and diversity.

Both Fearless Fund and Supply Chain Capital provide support to their portfolio companies, which, in the case of Supply Chain Capital, includes curriculum-based training. Other support may include executive coaching, access to marketing and senior-level talent recruitment firms. “We’re consistently receiving inbound deals, sometimes from late-stage companies,” said Harris. “These companies say, ‘I love your ethos…You get me.'”

Cadena, Harris, and Simone understand the long-term value of what they are doing. They are helping diverse founders and their employees build generational wealth. They want to be leading the movement to make the distribution of venture capital fairer and more equitable.

Based on the performance of fund one, diverse-led funds may be able to raise funds that are over $100 million. For institutional investors, such as pension funds, it is too expensive and time-consuming to invest small amounts in small venture funds. Pension funds don’t invest in funds with less than $100 million in assets under management.

The Symbiotic Relationship Between LPs And Women-Led Funds

Raising the first fund isn’t easy, especially if you are a woman of color. These two firms followed a similar pattern. High-net-worth investors play an outsized role in the early stages of fundraising for the first fund. Once there is some investor traction, fund manager champions have the confidence to make referrals. Champions open doors to investors and refer them to other champions.

The racial reckoning of 2020 focused many corporations, including financial services companies, as well as family offices, on helping to fix social and economic injustice. Champions made introductions to these investors.

For strategic investors—corporations, including financial services companies—the benefits are multifold:

• Sell and use the products and services that these startups have developed.
• Have a front-row seat to the development of potential acquisition targets.
• Benefit from a new source of research and development.

For the venture funds, the strategics provide:

• Expertise in scaling brands, food safety, R&D, brand management, and finance.
• Provide a halo effect. Investments made by strategics signal to other potential investors that these funds have passed muster.
• The opportunity of a liquidation event resulting from being acquired.

How will you get introduced to funders who get you?