When my younger brother and I were small kids, we would sit in our room and try to think back to the very beginning of time. I remember feeling quite small and helpless in those moments. I fought that feeling this week while working through how Black folks could reshape the world of venture capital. Roughly 1 percent of venture-backed startup founders in the U.S. are Black, and no one appears to have figured out the killer app to growing this number. What if we could build a flywheel where Black folks are focused on executing deals with Black folks at the institutional investor-, venture capital- and entrepreneur level to build the world we want to see?
When Uber went public earlier this year, a number of venture capitalists posted tweets sharing stories about how they had the opportunity to invest in the business but passed for one reason or another. Those painful lessons shape how they invest moving forward, taking greater care as they evaluate startups to ensure they are paying attention to what could be the next billion-dollar company. Institutional investors should learn this same lesson when it comes to placing capital with Black-run venture capital firms.
Stanford university researchers just released research on racial bias among white male institutional investors showing that institutional investors rated high performing Black male fund managers more harshly than white male fund managers performing at a similar level. It also showed that institutional investors had difficulty distinguishing between low-performing and high-performing Black male fund managers. As a brief aside, I would be very interested to see this research conducted for Black women.
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Researchers highlight that institutional investors may be flubbing on their fiduciary responsibilities to their investors by missing out on returns Black male fund managers could generate for them. They recommend that institutional investors focus on building out their pipeline of Black male fund managers and conduct training to help ensure their decisionmakers see the competence of Black male fund managers. Bahiyah Robinson at VC Include is doing incredible work on this front. The National Association of Securities Professionals and National Associations of Investment Companies are both doing a lot of work on this front as well.
What if rather than solely focusing our energy on training establishment institutional investors on the merits of Black fund managers, there was also a concerted effort to build a flywheel of Black institutional investors placing capital with Black venture capitalists who then invest in Black entrepreneurs?
Changing the game at the institutional investor level could get this flywheel going for the other portions of the venture cycle for Black folks. Black venture capitalists secure commitments from Black institutional investors, and then invest in Black startups. Black startups build good-sized businesses that generate strong returns for their Black investors who distribute those returns amongst their limited partners and create a class of new investors among early employees who were able to cash out some or all of their stake in the business.
After this cycle completes, all three groups run it back. The institutional investors commit more capital with VC firms this time. Venture investors write bigger checks to founders who are in a position to shoot bigger shots while also investing some of their personal capital in their friends’ ideas. It would take decades, but this flywheel could spin Black wealth into something special that would have institutional investors asking to get in on the deal activity.
I’m reminded of a fireside chat I attended earlier this year where Richelieu Dennis highlighted how he built Shea Moisture for Black folks, and the quality of the product attracted customers from other ethnic groups to purchase the product as well. Something similar could happen in the asset management world.
I’ve yet to run across data on the number of Black investors at the institutional level, but there are some key people who quickly come to mind. Angela Miller-May is chief investment officer of the $11.5-billion Chicago Teacher’s Pension Fund. Vuyani Hako manages the $135-billion Public Investment Corporation. Uche Orji oversees the $1.5-billion Nigerian Sovereign Investment Authority. Marisa Grant runs the Montgomery County Schools Pension Fund. Joseph Boateng guides the investment of Casey Family Programs’ $2.2 billion. This is a small yet compelling sample. I imagine a comprehensive list of Black-run institutional investors and the assets they have under management would be eye-opening for many.
Currently, Black asset managers control somewhere under $897 billion out of the $69 trillion managed globally. While this is a significantly smaller chunk to make moves with, nothing would be more powerful for establishment institutional investors than feeling the mistake of not seeing high-performing Black venture capital firms. But that’s not the main objective. The aim here is for Black folks to generate the economic wealth of which we’re capable.
Sherrell Dorsey at The Plug identified 46 Black-owned venture capital firms, making up 4 percent of the 1,047 firms identified by the National Venture Capital Association in 2018. While I imagine there are a few more firms in the U.S. hiding out of sight, there’s no reason there can’t be way more Black-run firms funding entrepreneurs building the future.
Unlike the feeling I had trying to think back to the beginning of time with my brother, Black people are not small and helpful in the world of finance. We’ve got capital to make moves. They may be smaller than what the heavyweights are doing in the industry right now, but we have everything we need to build an incredible ecosystem. That ecosystem can have asset managers with hundreds of billions, if not trillions of dollars under management, VCs with billions under management, entrepreneurs building trillion-dollar companies. As a result, our grandchildren will live in a world where they are alright. Our role in global politics will look different. We won’t be constantly asking the establishment to invite us to the table. I like that world. Let’s build it.
Kwame Som-Pimpong leverages relentless research, a knack for connecting dots, human-centered design approach, and effective communications strategy to help organizations realize their strategic objectives. Over a 10-year career, Kwame has supercharged grassroots political organizing efforts, assessed the effectiveness of U.S. federal agencies, managed an international program, founded a digital media startup, and advised government agencies on delighting their end-users. He earned a BA in Political Science from Davidson College and Master of Public Administration from the University of Georgia.
