Why diversity is needed to prepare venture capital for the future


By Reggie Tucker

Reflecting on all the accomplishments of black investors, I am encouraged by our progress. However, I also believe that venture capital must lead by example on how to continue this positive momentum and evolve the approach towards greater diversity in investment management.

In the old model, VCs went to the same schools, lived in Silicon Valley, hung out in the same circles, and invested in the same opportunities. My peers look to other VCs and LPs who are invested in deals and funds for validation, instead of thinking for themselves. This homogeneity of experience reduces the openness of funded opportunities, which has a particularly negative impact on founders and managers of newer and more diversified funds.

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According to the latest VC Human Capital Survey, only 4% of VCs are black, up just 1% from 2018. Just over 1% of VC-backed companies have a black founder, a cast that does not reflect composition. of our country. Increasing diversity will force VCs and LPs to think independently and make decisions that challenge the status quo.

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VC is an industry that embraces bold new innovation. Look at what is happening in crypto with the decentralization, disruption and democratization of many markets.

West Manhattan’s Reggie Tucker

While the broader VC space offers innovation and a lower barrier to entry for entrepreneurs with compelling new ideas, projects receiving funding may demonstrate racial bias. To increase the representation of black founders in the space – a necessity to provide investors with the widest range of opportunities and the most attractive investments – there must be a call to action for VCs who fund founders as well. than LPs who invest in fund managers creating actionable deal flow.

This call to action will require the engagement of a wide range of LPs, including public pension plans, endowments and foundations, venture capitalists, in addition to family offices, high net worth individuals and angel investors. With focused and increased efforts, LPs can help diversify fundraising VCs, key to better representation among funded founders and guiding the future of our industry.

Future progress

Having invested across the full spectrum of alternative investments, I fully recognize that early stage venture capital is more nuanced. There is an art to early-stage investing that does not always lend itself well to the standardized analysis that some LPs rely on, as much of it falls on the assessment of talent, as well as opportunities and current and long-term market risks.

For those funding start-ups, take a calculated risk and be different. For those who invest in venture capital fund managers, evolve your investment process so you can make investment decisions that allow you to build conviction and invest earlier in the life cycle of a new platform. These two things together could help continue to increase diversity in the world of VC.

I’ve been a Day One investor in new platforms and an early anchor investor in many others. Throughout these experiences, I developed my own level of comfort in taking and sizing risks accordingly, which I brought to Manhattan West.

We’ve had great success engaging with new managers – often building blocks that align both parties – allowing our platform to act both as a great example of the power of diverse managers and as a support for new companies that have delivered fantastic value.

We are not the only example of positive progress. PledgeLA Venture Capital increased its investments in black founders by 71% last year, up from 7% to 12%. While these numbers don’t indicate unbridled change, they do prove that when the leadership team puts in the effort to drive change, it is possible.

Preparing for the future, as an industry

For minorities looking to break into the VC space, there are great programs that can help you at every stage of your career. MLT and Togio Foundation prepare aspiring VCs for early career opportunities. I’ve also participated in programs through NASP SoCal, which hosts the “A Day in Private Equity” program each year. Whereas BLVC builds on this and offers relevant direct training and resources and a direct connection to the risk space.

The Cap Table Coalition helps emerging and angel investors build a track record, providing funding to diverse founders and expanding opportunities to invest in hard-to-reach deals with top managers. Finally, The Bridge, The Investment Diversity Exchange, and NAIC bring together like-minded LPs and GPs to continue discussions on these issues.

These programs not only equip diverse VCs with the tools and education necessary to succeed, but perhaps, more importantly, create community on the ground. Networking and community are invaluable for young black and diverse founders.

To advance

Opening the capital open to increase and secure more balanced founder funding and venture capital fund commitments will allow us to move beyond the “chat” and continue to invest and continue to drive innovation forward.

Venture capital is a relational business, and we all need to get in the habit of broadening and deepening our networks, so demographics don’t determine investment activity and outcomes. Raising awareness of the lack of black representation in the venture capital world and continuing to advance efforts towards a more diverse and inclusive industry can help the venture capital community be ready for the future.

Reggie Tucker is managing director of venture capital at Manhattan West, a minority-owned strategic investment firm in Los Angeles. Tucker has a long investment career in public and private markets. He joined Manhattan West from the Orange County Employees Retirement System (OCERS) where he served as general manager and oversaw all private markets.

Illustration: Dom Guzman

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