You may have heard this before: Venture capital investing is not very diverse
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The past few days have seen a few commitments from established venture capital funds. SoftBank launched a $100 million fund to support people of color. Andreessen Horowitz launched a $2.2 million fund to support founders from “underserved” communities, with a plan to expand it to $15 million over time.
But if I’m being honest here, that’s not that much. I spoke with Sarah Kunst, the managing director of Cleo Capital. The following is an edited transcript of our conversation.
Sarah Kunst: They’re real amounts of money, but compared to the size of the industry and the amount of underfunding that has happened — Black founders get less than 2% of all venture capital dollars, despite being 15% of the population and starting companies at disproportionately high rates — that historical imbalance is certainly not going to be solved with this cumulative $115 million in commitments. That $115 million cumulative is already small, and then when you realize that it’s not particularly earmarked for Black or Hispanic underrepresented minorities, you have to question how much is actually going to get into the hands of the people who have historically been underfunded the most.
Molly Wood: And also, if we were talking about structural change, why earmark money at all?
Kunst: Exactly. My fund, Cleo Capital, we don’t have a mandate around gender or diversity. That being said, my portfolio is incredibly diverse. We have a lot of Black founders, we have a lot of Asian and Indian and Hispanic founders. We have a lot of gay founders. We just find great people, and we invest in them, and they make us a lot of money. Our two best-performing companies in the portfolio are founded by women of color, and the other one is founded by a man of color and his business partner, and both are immigrants. The exact things that people are saying — how do we do it, how do we find it, we have to have this carve out or this sort of remedial training or whatever it is — there are funds like mine that have just been able to do it, and we’re making a lot of money from doing it.
Wood: Research has shown trillions of dollars are being left on the table by not investing in more founders of color. Why isn’t that economic argument working, if nothing else?
Kunst: We see the same thing with gender. I’ve been on NPR. I’ve been on these shows a lot to talk about gender and race over the years, and we saw a lot of these same things after #MeToo where there’s massive economic arguments. There’s only really two schools of thought. You either fundamentally believe that only white men are capable of greatness, which is a really dark thought that I hope you’re very quiet about, or you are leaving money on the table. And there’s not really another option. I think when people realize that and when people accept that, they say, “Oh, I’m leaving money on the table.” And by the way, the job of venture capital is not to invest in amazing founders. It’s not to make the world a better place. It is to make money for our investors. We are a cash machine. You give us $1, we’re supposed to give you $3 to $5 back. So to leave money on the table in a business where your only job is to make money isn’t OK.
Wood: How hopeful are you that we will see change?
Kunst: We have to be honest about it. I think that one of the most dangerous things is, it’s been amazing to see so many other people around the country, around the world, who aren’t Black see this and see their protests and see everything that’s happening and realize that it’s not just police brutality, there’s a whole systemic thing that’s going on inside their own workplaces, inside their own homes, inside their own hearts. It’s great to see that realization, but thinking that you can undo 400 years of this? America is a country that was founded on genocide and the economic engine was built by slavery. You can’t undo that with a couple Instagram posts.
You look at the wealth gap between races and it’s almost 100% tied to the fact that Black people were largely denied home ownership, and were denied home loans, and were redlined into low-income neighborhoods, while their white counterparts were allowed into neighborhoods where property values then went up much more. When you look at the historic and intractable roots of these things, to think that they can be changed quickly is just not accurate. It’s going to take a long time. It took us a long time to get here; it’s going to take us a long time to get out.
That being said, I’m heartened by the fact that now people are having these conversations, when for a long time, they didn’t. It is a step in the right direction, but it is a 400-year process to get here, and we have been pushing back against it, certainly in the 1960s with civil rights leaders, and there have been people like the Reverend Jesse Jackson who have been in this fight for 50 to 60 years, but it also breaks my heart for people like him to say, “You’ve been doing this for 60 years, and this is all we have to show for it?” How disheartening that must be. I am glad that people are paying attention now, and I think that it’s still going to take years and decades to really make progress.
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That trillions number — trillions of dollars being left on the table by not investing in more founders of color. I know that sounds a little unlikely, but you’ll find the research to back it up. Morgan Stanley put out a survey last October saying the amount of value that VCs could be missing out on is as much as $4 trillion. I had this conversation a while ago with Morgan Stanley’s Carla Harris at the time. And Marketplace reporter Kristin Schwab did a piece earlier this week on SoftBank’s $100 million fund and how little investment goes into Black- and minority-owned businesses, even when they do get funding.
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