One Man's Effort to Get VCs to Commit to Bringing Underrepresented Investors into Startup Deals
Rachel Uranga covers the intersection of business, technology and culture. She is a former Mexico-based market correspondent at Reuters and has worked for several Southern California news outlets, including the Los Angeles Business Journal and the Los Angeles Daily News. She has covered everything from IPOs to immigration. Uranga is a graduate of the Columbia School of Journalism and California State University Northridge. A Los Angeles native, she lives with her husband, son and their felines.
Ten venture capital firms have committed to include a "diversity rider" — a promise to startups that they made their best effort to find underrepresented investors — in their deals.
The project was the brainchild of Alejandro Guerrero, a partner at Los Angeles-based Act One Ventures and the child of Mexican immigrants, who often found he was the only person of color in the room when investment deals north of six figures were being made.
"This is about moving diversity forward and there's two themes of how we address that: Money and access," he said.
Inspired by the George Floyd protests and the push it gave the industry to recognize long standing inequities, Guerrero reached out to several venture capital firms and investors with a proposition: add diverse investors in on the deal.
In the end, Greycroft Partners, First Round Capital, SVB Capital, Harlem Capital Partners, Fifth Wall, Plexo Capital, Precursor Ventures and Equal Ventures signed on.
Each of the firms are committed to adding "boilerplate rider language into their standard term sheets" that encourages the addition of underrepresented investors to cap tables.
Alejandro Guerrero often found he was the only person of color in the room when big investment deals were being negotiated.
Studies have shown diverse investment teams deliver better returns, Guerrero points out.
"The same way you would have to have a conversation about, 'how much money do you want to raise, at what dilution'," he said. " You want to throw in there, 'who has a diverse investor?'"
Historically, the answer has been few.
A 2018 Deloitte study found 80% of investment partners at U.S. venture firms were white; 15% were Asian/Pacific Islander; 3% were Black; and 3% were Latino. Women accounted for 14% of partners.
In Los Angeles, one of the country's most diverse metropolises, the figures were even worse. Just 2% of VC investment partners identify as African American or Latino and less than 10% of VC-funded companies are led by women or people of color, according to PledgeLA.
The chasm is more than numbers to Guerrero.
"Sometimes it is uncomfortable being the only person of color in the room, being the only Latino person in the room," he said. "You know we're talking about a town in Los Angeles that's 50% Hispanic."
The largely exclusive world of venture capital has remained largely white in part because of the way it operates, relying on tight-knit networks that circle back to people of similar backgrounds. Guerrero said he thought a lot about that and the systematic inequalities that the Black community faced as he watched the video of police killing George Floyd.
"If you're a person of color, or an underrepresented individual you can kind of feel how you know you've been overlooked for opportunities," he said. "You haven't gotten those chances, not because you don't work hard or you're not there, but because you don't come from those networks, you don't have that wealth, you don't have that privilege and that's what's hindering you and that's not your fault. Sometimes you just don't hit the birth lottery."
The effort is an attempt to unlock access to investors of color and underrepresented groups, but it also build their reputation and eventually generate more wealth through increasing who owns a stake in companies.
"Long term, this is a step forward in changing the mindset in venture to ensure more investors are frequently considered for co-investment and follow on opportunities," said Henri Pierre-Jacques, managing partner at Harlem Capital Partners, in a statement.
It comes as others in the industry are trying to address longstanding inequities. Softbank launched a $100 million Opportunity Fund to invest in minority-owned businesses and Andreessen Horowitz announced the Talent x Opportunity Fund.
Guerrero said he's hoping that it will catch on not only with venture firms but will encourage founders to ask for diverse investors.
Firms interested in joining the initiative can sign up here.
Geekwire contributed to this story.
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GoodRx earned dot.LA's top 2020 Startup award on Wednesday, beating out the popular sneaker reseller GOAT, the meditation application Headspace, mobile gamer Scopely and viral-video app TikTok.
"GoodRx started in Los Angeles, and will always be a Los Angeles-based company," said co-CEO Doug Hirsch. "We're so excited about the support we've received over the last decade from both entrepreneurs and investors and just incredible people that make up the ecosystem here in California and specifically in Los Angeles."
Pivot of the Year: Curative Inc.<img lazy-loadable="true" src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDYyOTExNS9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTY0MjU5MTI5NX0.pM73tZDRm3V9A5JyHu-R1NjWai-HOH7TuGI-Ga6P-lY/image.png?width=980" id="13389" class="rm-shortcode" data-rm-shortcode-id="267f3b38acca6bfb5532720fad230a8b" data-rm-shortcode-name="rebelmouse-image" />
Social Justice Award: Alejandro Guerrero<img lazy-loadable="true" src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDYyOTE4My9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYzODg3MDA5NH0.fQxq4punqafEMqsX3dMO9HXRclVmF30A1jttfz9oE7s/image.jpg?width=980" id="a7a8c" class="rm-shortcode" data-rm-shortcode-id="9b45abeacaa70b07c0267c0b4ac201b2" data-rm-shortcode-name="rebelmouse-image" />
Rising Entrepreneur: Morgan DeBaun<img lazy-loadable="true" src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDYyOTE5My9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTYwNjE2MzEyMn0.-Snvn1-Ba9IARx0fhjR2Y8KWxIw-32c3_pD2w2aiM70/image.png?width=600&coordinates=49%2C0%2C49%2C0&height=600" id="17428" class="rm-shortcode" data-rm-shortcode-id="835305e0ba6360729fece3121835b003" data-rm-shortcode-name="rebelmouse-image" />
Rising Startup: Openpath<img lazy-loadable="true" src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDYyOTE5NS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYwNDc1NDk4N30.eoL8XlFuNIPVukXQEgiF6qcUcvPKGJ0e4m97C1BYy3Y/image.jpg?width=980" id="b37fe" class="rm-shortcode" data-rm-shortcode-id="5821d2b30f5f8bef78c7e781f8e7508e" data-rm-shortcode-name="rebelmouse-image" />
Entrepreneur of the Year: Shivani Siroya<img lazy-loadable="true" src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDYyOTIyNC9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYwNTAzODE0MH0.K-_u9V5IDY7KI8sWes70QQc9ciswIY_-Yw13fSsxGSY/image.jpg?width=980" id="51619" class="rm-shortcode" data-rm-shortcode-id="d71bd28ff9f08d1728227d1326c998f2" data-rm-shortcode-name="rebelmouse-image" />
Startup of the Year: GoodRx<img lazy-loadable="true" src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDYyOTI0Ny9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY0NDEwMDYyNX0.6-l952IAHHCBtktsdktNPjD1Jei1TeSFy9Ij_3b71hE/image.jpg?width=980" id="e84f6" class="rm-shortcode" data-rm-shortcode-id="e7abea2960ef53726b8d60446a278b86" data-rm-shortcode-name="rebelmouse-image" /><p>The prescription-discount app GoodRx became one of the first Los Angeles tech companies to go public this year.</p><p>Co-founded by former Facebook executive Doug Hirsch and Trevor Bezdek, the Santa Monica company makes money by collecting fees from pharmacy benefits managers.</p><p>GoodRx is the most downloaded medical app in the United States and boasts 70,000 pharmacies on its platform. It's also profitable. The company earned $54 million in profit for the first six months ending in June, up from $31 million over the same time last year.</p><p>The company expanded into telehealth with the purchase of Heydoctor in 2019. </p><p><strong>Finalists</strong></p><p><strong>GOAT</strong>: Fast-growing global luxury shoe and apparel retailer.</p><p><strong>Headspace</strong>: A meditation app that recently raised $100 million in debt and equity.</p><p><strong>Scopely</strong>: A mobile video game company that acquired FoxNextGames from Disney in January. </p><p><strong>TikTok</strong>: The video-sharing platform was the top grossing app on iOS App Store globally in Q2 2020.</p>
Minutes into filling out my absentee ballot last week, I was momentarily distracted by my dog Seamus. A moment later, I realized in horror that I was filling in the wrong bubble — accidentally voting "no" on a ballot measure that I meant to vote "yes" on.
It was only a few ink marks, but it was noticeable enough. Trying to fix my mistake, I darkly and fully filled in the correct circle and then, as if testifying to an error on a check, put my initials next to the one I wanted.
Then I worried. As a reporter who has previously covered election security for years, I went on a mini-quest trying to understand how a small mistake can have larger repercussions.
As Los Angeles County's 5.6 million registered voters all receive ballots at home for the first time, I knew my experience could not be unique. But I wondered, would my vote count? Or would my entire ballot now be discarded?
My distractingly sweet dog, Seamus.
Photo by Tami Abdollah