Smaller funds, those that have $50 million or less in assets under management, are helping to usher in a new wave of diversity within venture capital. And the reasons for this are simple.
The latest crop of investors stems from historically overlooked or marginalized communities that are setting up funds and then investing back in those funds. “Small funds operate with a sense of purpose, leveraging their limited resources to drive positive change and foster diversity in the entrepreneurial landscape,” B. Pagles Minor, the founder of DVRGNT Ventures, told TechCrunch+.
Emerging managers often target early-stage companies with diversity in mind, which is important because many of these companies do not last long enough to make it to, say, a Series B. The dearth of later-stage Black companies is in part tied to a lack of early support at the pre-seed and seed-stage levels.
Though many small funds do not explicitly have a diversity mandate, a considerable number of these funds are led by those from underrepresented backgrounds; larger funds, on the other hand, are lacking talent from diverse communities. This in itself creates an opportunity for smaller fund managers to step in and back the founders being overlooked and ignored on a higher level.
Ramzi Rafih, the founder of the London-based No Label Ventures, has a fund that focuses on backing immigrant founders within Europe. He says that the community is still undervalued in the startup ecosystem compared to the U.S., where such immigrants account for more than 50% of all unicorns. “If we can focus on solving obstacles faced by immigrant founders and make them more visible to VCs, we think we can deliver outsized returns to our investors,” he told TechCrunch+. This means often being the first investor in a round and connecting a founder with other investors and corporate clients, as well as helping with visa issues.
“It is crucial to recognize that a wealth of data supports the notion that embracing diversity can de-risk investments and lead to better financial outcomes.” B. Pagles Minor
No Label is trying to fill the gap left by some larger funds, which often don’t support diverse talent and instead leverage the network they’ve built over the years. Many larger funds also simply do not know how to diversify their network, or they don’t know or agree that investing with diversity in mind can create outsized returns.