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How venture capital can close the racial wealth gap

Jackson Georges Jr.
28 Feb 2022
How venture capital can close the racial wealth gap

Although a recent Crunchbase report found that funding to Black founders reached $1.8B by June 2021 — up from $1B for all of 2020 — there’s still much work to do. Of the record $161B in venture funding invested in the U.S., single-digit percentages went to Black, Latinx or female entrepreneurs.

In celebration of Black History Month, we’re highlighting fund managers whose firms are supported by CapitalG as part of Alphabet’s $100M initiative into black-led firms. These fund leaders work to invest in companies that strengthen historically underserved or underrepresented communities.

Sean Mendy is a founding partner at Concrete Rose Capital in Silicon Valley. A Bay Area native, Sean is also an Entrepreneur in Residence at Sixth Street and a venture partner at Next Play Ventures. We talked with Sean about his VC journey and the state of black venture funding.

Tell us about your VC journey. How have your previous experiences prepared you for life as a fund manager?

Sean: I grew up in Silicon Valley watching how tech and venture shaped the local community. I saw how ownership in early startups could lead to massive wealth creation. And I also saw who was participating in that experience, and noticed who was not.

After college, I came back to the Bay Area thinking I would address some of these inequalities, starting as founder of a tech-enabled diversity recruiting start up and then spent a decade  leading a nonprofit in Silicon Valley.

About five years ago I started to feel frustrated when I realized that the work that we were doing was addressing the symptoms of income inequality as opposed to the root cause: opportunity.

Now I believe focusing on the racial wealth gap is how I can drive the most impact. When it came time to raise a fund, I had a shortlist of who I thought would care about the racial wealth gap. While the inspiration was impact, we quickly realized there's just a massive opportunity, with 3% of the venture funding going to Black and Latino folks, despite us being 30% of the population. When we put that in front of these leaders, they had a visceral reaction to it, feeling this needs to be addressed or things are going to explode.

Tell us about the types of companies you look for to invest in.

At Concrete Rose we invest in three different types of companies, all early-stage, and pre-seed. The first group is underrepresented founders of Black and Latino-led companies. We do not have a diversity mandate; we can invest in all types of founders. But we want to attack this market dislocation and we have demonstrated that we can win access to those deals. We’ve also found that it's great to collaborate with other funds that focus on other forms of underrepresentation such as gender or sexual orientation.

Our second focus is on companies built to meet the needs of underrepresented consumers. Again, that's about market dislocation. It’s evolved from looking for fintech companies targeting Latino families to  now asking ourselves, “what  types of companies should think about underrepresented customers, and can we influence them to do so?” In this area, we also spend a lot of time on sustainability and climate, because Black and Brown folks are being hit the hardest by the impact of climate change.

A third area that differentiates us from most diversity-focused funds is that we'll partner with founders of all backgrounds. We’ll invest in an all-white, all-male founding team coming out of Stanford Business School, provided they have an authentic and demonstrated commitment to diversity and inclusion. We partner with them to actually achieve diversity within their organization and to operationalize inclusion and their core values.

I should also note that we were among the first funds to pledge that half of every dollar we make will go to organizations that address racial inequality - two years before George Floyd. What we’ve learned is that founders have chosen to partner with us as a result of our mission and that pledge.

What should the VC ecosystem do to become more intentional about investing in Black founders?

Inertia is a problem, and I think discriminatory practices and an unintentional and unconscious bias over the years have gotten us to this point. Even very well-meaning folks are continuing the compounding of this homogeneity that exists in Silicon Valley. It’s a result of not intentionally working to mitigate and address it. Unconscious bias is real. There's a lot of talent and genius that is not reaching its potential due to a lack of process and a lack of folks working to mitigate bias.

So really, we have a massive opportunity to generate alpha because there's a very significant market dislocation around underrepresented founders and underrepresented talent. The first thing is to recognize the actual market dislocation that exists. It’s not good business to ignore 80-to-90% of the population when you think about women and people of color not receiving [equal]investment. Once you’ve had that realization, be intentional about going beyond immediate networks.

My hypothesis is that a third of Silicon Valley really wants to solve these problems. Another third can be convinced to try, and then there’s a third who simply aren’t interested. I’m not interested in reaching that last third—I’m interested in the two-thirds that are willing to be real allies and get on the team.

Finally, what does Blackness mean to you?

When I think about the Black experience in America I think about resilience, creativity, and genius. Black people literally have been dealt the worst hand for centuries. And we’ve created magic and excellence out of that. We have had to be inventive and creative to realize our genius with limited resources. Blackness should be celebrated by doing things to ensure that we're eliminating the barriers that keep us from optimizing our future.

The question is, are we truly leveling the playing field? Are we truly nurturing Black geniuses? Are we celebrating Blackness by putting Black people in a position to realize their genius and to realize their potential? That’s what we need to do.

Click here to read part 2 of our fund manager highlight, Simeon Iheagwam of NOEMIS Ventures.

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