Most venture capital doesn't get to underrepresented groups. This Emory fund aims to change that
Just 3% of venture capital in the United States goes to underrepresented minority entrepreneurs. Emory University’s Goizueta School of Business is looking to change that dynamic with a new student-led venture capital fund.
Founding partner Willie Sullivan and managing partner Humza Mirza joined All Things Considered host Rickey Bevington to explain the Peachtree Minority Venture Fund.
Rickey Bevington: Humza, let's start with you explaining why venture capital is so important to someone who's starting a business. What can this money do?
Humza Mirza: Venture capital? It's like coal to a fire. It infuses a business with the ability to develop products, build the company, build an organizational structure. And it's really that initial lifeblood that can get a company going.
Rickey Bevington: Who specifically benefits from it now and who's being left out?
Humza Mirza: If we look at the venture capital space in its entirety, I think a great statistic I can go off of is that in 2018, $141 billion was given in venture capital funds. Only about $4 billion of that was given to underrepresented minority founders, which equates to about 2.8%. We find that a lot of that money over-indexes towards white and Asian American founders, and that underrepresented minorities — specifically Blacks, Latinx and Native Americans — are historically and currently left out.
Rickey Bevington: Willie, I would like for you to specify when Peachtree Ventures says "underrepresented minority founders," who really are you targeting?
Willie Sullivan: "Underrepresented minority" is a pretty common category when we're speaking about the United States and academia or in business. So we're using that definition, which is Black, Latinx and Native American Alaskan Native, because these are three groups who have historically and still currently have been held back from fully participating in the United States economy and through different systemic issues, are still unable to forge the kind of relationships necessary to thrive in business and the economy overall.
Rickey Bevington: Investors, though, want to make money. So what explains their historic lack of investment in minority founders, overlooking great business ideas that could certainly return on their investment?
Willie Sullivan: Yeah, a lot of that stems from venture capital and investing in general — whether that's venture capital or private equity — is really relationship-based. And so when you're making an investment into a new company, a lot of venture capital dollars ... a lot of that money is going to people who went to a handful of Ivy League schools like Harvard and Stanford. And those schools are overly very white and Asian. So it's not surprising that this is a relationship-based industry and people's relationships are really guiding where they're putting their investment dollars.
Rickey Bevington: Humza, this is the first-of-its-kind fund in the United States, of course, addressing the problems that both of you just illustrated. Where is this money coming from?
Humza Mirza: Last year, Willie and a few other founding partners, they pitched this idea to Dean Karen Sedatole of Goizueta Business School. Obviously, it seems like a no-brainer to us. Dean Sedatole really took to it and, from the Roberto Goizueta endowment fund, provided us a $1 million seed fund essentially towards this venture that we will be using to make investments for the next few years. As the fund grows and as you bring profits, as an evergreen model, we'll just continue to take the profits that we have from our ventures back into the fund, which will just go back out to founders that we deal source, do due diligence on and ultimately make investments on.
Rickey Bevington: And how do you choose who gets an investment and how much will you be putting into each company?
Humza Mirza: So this — this fund and organization is done in tandem with a class that we were building focused on venture capital principles, but also talking about bias and the history of underrepresented minority founders. So over the course of a semester during this class, we will be deal sourcing: conducting due diligence on any industry. So, you know, companies that are industry-agnostic, specific to founders who are Black, Latinx and Native American, doing due diligence and making investments in two types of rounds. First: angel, friends and family rounds. These will be $5,000 to $15,000 investments in pre-revenue companies. Then looking at early seed stage rounds: about $25,000 to $50,000. And this will be for companies that have a little bit of revenue, a little bit of traction. And like I said in the beginning, we just want to add that initial boost, that coals to fire.
Rickey Bevington: As an educational project, Willie, what do business school students learn from this?
Willie Sullivan: Student-run venture capital funds are not new. They've actually been around for about 20 years. The ones that exist now, which are at a lot of the top business schools across the country, are really focused on the experiential learning of being able to make business decisions not in the abstract, but in the actual — in the real world. And so that's kind of a key thing that these students will get, is we didn't have a venture capital fund at Goizeuta Business School for students. And so this is creating the first one as well for us. And so that experiential learning of touching money, being able to go into a company, seeing how it's actually functioning, conducting due diligence, creating financial models, coming up with term sheets and all of the technical things that you do when you're evaluating a company. So that's one side.
The other side is really focused on our students. Because they're not working in other venture capital fund within the school they are going to only focus on this underrepresented minority founder, who is going to have — these founders are going to have unique challenges because of their identity and the communities they live in. And so we hope that we're going to have a multiracial, multiethnic group of young investors who are really understanding the dynamics of these markets and these communities, and that they leave this course and the fund a lot more smart. So when they go and work on a large venture capital fund or corporate venture capital fund, they're bringing that knowledge of these underrepresented minority communities with them, regardless of what they identify as.
Rickey Bevington: What has been the reaction from the establishment, so to speak, of the venture capital world, given that this is really a very new idea?
Willie Sullivan: Yeah, so we're following in a good tradition that has been happening over the past maybe five to seven years of venture capital funds that are specifically targeting more diverse types of founders like Harlem Capital and also Backstage Capital. But the difference between us and them is that we're student-run and we're basically trying to change venture capital from more of a ground level, at the student level. People are really interested to see what we can accomplish here as far as our goals of educating students and making these investments and showing through this education model that you can get returns by investing in a company or in a founder of this type of identity. But I would say people are pretty excited.