One Man's Effort to Get VCs to Commit to Bringing Underrepresented Investors into Startup Deals
Aug 26 2020
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.
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"This is about moving diversity forward and there's two themes of how we address that: Money and access," he said.
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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.
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In the end, Greycroft Partners, First Round Capital, SVB Capital, Harlem Capital Partners, Fifth Wall, Plexo Capital, Precursor Ventures and Equal Ventures signed on.
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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.
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<img lazy-loadable="true" src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMzU4NDgxNi9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYzOTkwMjc3NH0.dPgv3ylrX_tObQG9DWy4bstuBzDAH7zfN1okv-vQ_-M/image.jpg?width=980" id="98517" class="rm-shortcode" data-rm-shortcode-id="23043530da6e7eff8f080f980bcf9c81" data-rm-shortcode-name="rebelmouse-image" />
Alejandro Guerrero often found he was the only person of color in the room when big investment deals were being negotiated.
<p>Studies have shown diverse investment teams deliver better returns, Guerrero points out.</p><p>"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?'"</p><p>Historically, the answer has been few.</p><p><a href="https://www2.deloitte.com/content/campaigns/us/audit/survey/diversity-venture-capital-human-capital-survey-dashboard.html" target="_blank">A 2018 Deloitte study</a> 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.</p>
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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, <a href="https://www.pledgela.org/" target="_blank">according to PledgeLA.</a>
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The chasm is more than numbers to Guerrero.
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"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."
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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.
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"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."
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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.
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"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.
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It comes as others in the industry are trying to address longstanding inequities. Softbank <a href="https://www.cnbc.com/2020/06/03/softbank-announces-100-million-fund-for-minority-owned-businesses.html" target="_blank">launched</a> a $100 million Opportunity Fund to invest in minority-owned businesses and Andreessen Horowitz <a href="https://a16z.com/2020/06/03/talent-x-opportunity/" target="_blank">announced</a> the Talent x Opportunity Fund.
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Guerrero said he's hoping that it will catch on not only with venture firms but will encourage founders to ask for diverse investors.
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Firms interested in joining the initiative can <a href="https://airtable.com/shrPPPhaCqOv741GB" target="_blank">sign up here</a>.
</p><p><em><a href="https://www.geekwire.com/" target="_blank">Geekwire</a> contributed to this story.</em></p>From Your Site Articles
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Here are the latest updates on news affecting Los Angeles' startup and tech communities. Sign up for our newsletter and follow dot.LA on Twitter for more.
Today:
- Applications Are Open for Techstars Music Accelerator Program
- Wrapbook, Provider of Payroll for Productions, Unwraps $3.6 million in Seed Funding
- PatientPop, a Digital Health Marketing Firm, Raises $50 million
<ul class="ee-ul"></ul>
PatientPop Raises $50M as Demand for Online Healthcare Rises
<img lazy-loadable="true" src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMzE4MDE0Ni9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY2MzE4OTQ0OX0.wJwNz-HrIONbuhfSBaEv6hdEVrtiUxxpbfvQvLix2UY/img.jpg?width=980" id="6cc92" class="rm-shortcode" data-rm-shortcode-id="7e40cffcab79e931224cafaf79cde2be" data-rm-shortcode-name="rebelmouse-image" /><p>As doctors and hospitals are scrambling to get their services online, PatientPop, a company that does just that has raised $50 million as investors bet heavily on new forms of delivering healthcare.</p><p>The Series C funding is led by HLM Venture Partners with participation from previous investors Toba Capital, Transformation Capital and Silicon Valley Bank. And it includes new investors like Commonfund and Vivo Capital.</p><p>"This is more important than ever as providers quickly adapt their digital strategy and presence to attract and retain patients, and seek the technology and tools they need to successfully operate their practice throughout the COVID-19 pandemic," said co-founder and co-CEO of the Santa Monica-based company, Luke Kervin.</p><p>PatientPop works with the patient's electronic medical record and electronic health record to connect them to doctors that best fit their needs. It also allows patients to track and book their appointments.</p><p>According to FairHealth's monthly telehealth tracker in May calls went up 9.19% compared to last year.</p><p>The platform also works with doctors to use SEO in order to have them grow their online presence and increase bookings. It also offers PatientPop Pro to make it easier for doctors to manage their marketing efforts. </p><p>"PatientPop will no doubt continue to help doctors adopt new technologies that are critical to practice success," said principal of Vivo Capital, Nathan Dau in announcing the raise.</p>Techstars Music Accelerator Aims for Diversity in 2021
<img lazy-loadable="true" src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMzU4MjI0Ni9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY1ODEyNTEzMn0.CyMwaQnB7_ZnL18XwBLnYjldj0KuwIGDJjQjfk3kQ70/image.jpg?width=980" id="6f12c" class="rm-shortcode" data-rm-shortcode-id="c275e678cf80a04ddb3f5fa889eb6076" data-rm-shortcode-name="rebelmouse-image" />By Nadya C/ Shutterstock
<p>Applications for the 2021 Techstars Music Accelerator open today. </p><p>The L.A.-based program will begin on February 16th, 2021 and culminate in a demo day in mid-May. It will accept applications until November 13th. </p> <p>"Now, more than ever, we need to do our part to support incredible entrepreneurs, regardless of their cultural background, economic status or physical location," wrote program director Bob Moczydlowsky in <a href="https://medium.com/@bobmoz/techstars-music-2021-unprecedented-challenge-and-opportunity-fa939f9d207f" target="_blank">a blog post</a>.</p> <p>Techstars Music 2021 will be virtual, meaning participating startups don't have to relocate to L.A. The entire selection process will be conducted by video conference. </p> <p>"As investors," Moczydlowsky's post continues, "we think this is a once-in-a-generation opportunity to build a gigantic business in music and live events. We also think it is the perfect opportunity to build a more equitable and diverse music business."</p> <p>To that end, the program is committing to having 50% of its CEOs be "diverse," with a focus on Black, LGBTQ+ and female founders. This benchmark will remain in place for future cohorts as well. </p> <p>The Techstars Music program is a collaboration between Techstars and several groups in the music business. This year, partner companies include Warner Music Group, Sony, Peloton and Amazon Music. Such members provide capital to the program and also help run it. Participants also get access to many other mentors from the music, tech and venture capital worlds.</p> <p>Prior program participants have collectively raised over $90 million after the program, Moczydlowsky wrote.</p><p>The application portal can be found <a href="https://www.f6s.com/musicaccelerator-2021/apply" target="_blank">here</a>.</p>Wrapbook, Provider of Payroll for Productions, Unwraps $3.6 million in Seed Funding
<img lazy-loadable="true" src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMzU3ODgzNS9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTYyOTM5MjkzOH0.V6atS0zD42fGSSGuRiqnE7GHs5YygbWuk9vPUg41gcc/image.png?width=980" id="cb7f9" class="rm-shortcode" data-rm-shortcode-id="f65d372ca6d9b3ff8f4fd73ff0e059bd" data-rm-shortcode-name="rebelmouse-image" />Wrapbook is seeking to be the leading payroll processing platform for the entertainment industry.
<p><a href="https://www.wrapbook.com/" target="_blank">Wrapbook,</a> which is seeking to be the leading payroll processing platform for the entertainment industry, announced Tuesday it has raised $3.6 million in seed funding. <a href="https://www.equal.vc/approach/" target="_blank">Equal Ventures</a> led the round with participation from Uncork Capital and 4S Bay Partners.</p><p>"Wrapbook is the easiest way for employers to compliantly pay employees for a week of work," Wrapbook co-founder and CEO Ali Javid said in a written statement. "We are here to help employers and employees be paperless to assist with COVID-19 and be compliant [with] AB5 in entertainment and across project based industries."</p><p>The company previously raised from One Planet Ops and NYU Innovation Venture Fund in March on a SAFE (simple agreement for future equity) at a $5.5 million valuation that converted during this seed round, according to Pitchbook.</p>From Your Site Articles
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Valence, a tech platform and professional network launched last year that connects Black founders, announced its inaugural funding network Thursday. The list includes investors at top firms including Sequoia Capital, Accel and Upfront Ventures.
"For years, Black entrepreneurs have been told that Silicon Valley is a meritocracy, but at the same time most haven't had access to the top networks, the warm introductions, and the mentorship that underpin lasting success in tech. Valence is upending this completely by bringing the top VCs to compete for the best Black entrepreneurs." said Valence co-founder and general partner at Upfront Ventures, Kobie Fuller. "We want to even the playing field with the goal of exponentially growing the number of Black-owned startups that get funded."
<p><a href="https://dot.la/lots-of-talk-but-little-action-how-can-venture-capital-solve-its-whiteness-problem-2646188887.html" target="_blank">Only 4% of VC employees are black</a>, according to a 2018 survey by the National Venture Capital Association, an industry trade group. Just 10% of VC-backed companies in Los Angeles are run by a person of color or a woman, according to PledgeLA. </p><p>However, the true numbers are likely much lower because those survey – like all others examining diversity — are self-reported. </p><p>Valence also announced that is has appointed tech and entertainment veteran Guy Primus as chief executive officer.<br/></p><p>"Facilitating success in the innovation economy is key to Valence's mission. By creating the Valence Funding Network, we are eliminating one of the most formidable structural obstacles to success—the access to venture investors." said Primus. </p><p>Here are the inaugural funding members: </p>
<ul><li>645 Ventures</li><li>Nnamdi Okike</li><li>Accel</li><li>Rich Wong</li><li>Base10</li><li>Ade Ajao</li><li>Bessemer</li><li>Elliott Robinson</li><li>Capital G</li><li>Gene Frantz</li><li>Collab Capital</li><li>Jewel Burks</li><li>Concrete Rose</li><li>Sean Mendy</li><li>Defy Partners</li><li>Nabeel Hyatt</li><li>Techsquare Labs</li><li>Upfront</li></ul>
<ul><li>Neil Sequiera</li><li>Equal Ventures</li><li>Richard Kerby</li><li>First Round</li><li>Josh Kopelman</li><li>Forerunner</li><li>Brian O'Malley</li><li>Foundry</li><li>Brad Feld</li><li>General Catalyst</li><li>Peter Boyce</li><li>GGV</li><li>Hans Tung</li><li>Greylock</li><li>Sarah Guo</li><li>Jordan Fudge</li><li>Spark Capital</li><li>Rebecca Kaden</li></ul>
<ul><li>High Alpha</li><li>Scott Dorsey</li><li>Lightspeed</li><li>Mercedes Bent</li><li>Lux</li><li>Deena Shakir</li><li>Outlander</li><li>Paige Craig</li><li>Precursor</li><li>Charles Hudson</li><li>Redpoint</li><li>Annie Kadavy</li><li>Sequoia</li><li>Jess Lee</li><li>Sinai Ventures</li><li>Paul Judge</li><li>Union Square</li><li>Kobie Fuller</li></ul>
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- Valence Gets $5.25M to Change How Black Professionals Meet - dot.LA ›
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