In February 2018, the Aspen Institute's Center for Urban Innovation hosted a day-long workshop in Detroit around Venture Capital's approach to equity and inclusion. Transform Finance Executive Director Andrea Armeni attended this workshop, for which CUI has just released a concise summary of the day's conclusions.
Topics of conversation included:
- Strengthening reporting of venture funds that focus on inclusion for women and people of color
- How to make VC more accessible to a broader range of founders
- The role of capital more broadly in driving equitable outcomes
- Current narratives around investing in entrepreneurs of color and women-owned businesses
- Concrete action steps for investors, field builders, and philanthropy in creating a more inclusive Venture Capital landscape for both investors and entrepreneurs
It is no secret that VC has diversity issues and that everyone stands to benefit by providing more access to capital for women- and minority-owned businesses. After all, more diverse VC and startup industries would contribute to shrinking the racial wealth gap, disrupting the entrepreneurship status quo, and encouraging new voices in leadership roles.
While we have much progress to go in that endeavor, we at Transform Finance believe that at the same time, we have to look at the ultimate impact of the companies being invested in, regardless of who runs them, and whether that capital is the best type of capital.
What we have largely found is that impact enterprises doing transformative work are often not fit for Venture Capital. In particular, VC is wholly focused on the exit of portfolio companies in search of returning the entire portfolio with one successful "unicorn." As Aner Ben-Ami highlights, strategies that are based on unicorns miss out on the full range of companies that could benefit from more patient, flexible approaches.
Impact enterprises and companies more beholden to their community stakeholders typically are not focused on fast growth, but rather long-term success. These companies, returning closer to 2-3x rather than 10x, are often called “zebras” in contrast to unicorns. Yet the VC model overlooks these opportunities and, potentially worse, forces entrepreneurs to fit the archetype they seek. This often compromises mission, and prevents long-term stewardship of the company's direction by the founder.
As we construct new narratives and practices around diversity in Venture Capital, we must simultaneously steer the industry towards supplying the right kind of capital for impact enterprises. Beyond Venture Capital, we must apply the learnings from February's convening to all asset classes.
This notion was one of the initial sparks for our project on racial justice and finance, which seeks to tease out the ultimate impact of investments on racial injustices across a whole portfolio. Going beyond the diversity of fund managers and entrepreneurs, we are also looking at the nonobvious racial impacts on issue ares such as jobs, health, and place. In applying this racial justice lens to all asset classes, from municipal bonds to public equities, we hope to contribute to the movement for racial justice by creating a toolkit for influencing investment capital away from historically harmful practices. This is a natural complement to the amazing work being done by the group in the room last February around diversifying one of the finance industry's primary offenders, Venture Capital.
Interested in learning more about Transform Finance's approach to racial equity in Venture Capital and beyond? Reach out at email@example.com.