After years of promises from the venture-capital industry to invest in more startup founders of color, one firm is taking a novel approach: sharing their investment profits with students at predominantly Black universities.
San Francisco-based Base10 Partners said Thursday it has raised a $250 million venture fund to invest in tech companies, and that a portion of the profit from that fund would be given to historically Black colleges and universities to fund student scholarships, with a focus on majors relevant to a career in tech.
Venture-capital partners typically claim carried interest—a share of a fund’s profit—as a large part of their income. Base10 partners said they will forgo half of their carried interest—which is 20%—and donate it for scholarships and other forms of financial aid for students at HBCUs.
Base10 Partners, founded in 2017, is the largest Black-led venture capital firm in the country. About $50 million of the new fund came from HBCUs themselves through their endowments, said
Base10 co-founder and managing partner.
HBCU endowments are about half the size of those of other schools, according to a government report from 2018. That has limited their involvement in venture-capital funds, which can be lucrative but highly risky investments, said Mr. Ajao. Base10 said it welcomed smaller-than-typical check sizes from the HBCUs and waived fees for them. By creating a pipeline for more HBCUs to engage with venture capital, and more Black students to get a start in tech, Base10 hopes to begin to expand opportunities and support for underrepresented minorities in Silicon Valley.
“They are hitting the nail on the head 1,000%,” said
co-founder of Act One Ventures and an advocate for more diversity in venture capital. “We need to start to include a different type of LP that has been excluded from this asset class,” he said, referring to limited partners who invest in venture funds.
Florida Agricultural and Mechanical University, one of the HBCUs involved in Base10’s fund, has a $110.7 million endowment; Stanford University, a major venture-capital investor, has a $29 billion endowment. Florida A&M invests $6.2 million of its fund in venture capital, and the Base10 investment represents close to a quarter of that, said
dean of the School of Business and Industry at Florida A&M.
Freada Kapor Klein,
co-chair of the Kapor Center, which works to improve diversity in tech and is an investor in the new Base10 fund, said she is encouraged by the size of the fund and that it is led by Black investors. The investing partners at many venture capital firms are white and allocate tiny dollar amounts to fund minority founders, she said, adding that venture firms with Black investors are more likely to fund Black startup founders.
The murder of George Floyd a year ago and months of social unrest that followed prompted an outpouring of pledges from the technology industry to improve racial equity.
In the year since Mr. Floyd’s death, Black-founded companies represented 2.8% of the startups that received venture-capital funding, accounting for 1.2% of that funding, according to Kapor Center research. That is little changed from the prior year, when Black-founded startups accounted for 2.5% of venture-capital recipients and 1% of the total dollars invested.
“There has been relatively little progress,” Ms. Kapor Klein said.
The impact of the Base10 program will largely depend on the success of the firm’s investments, which so far include solar-panel startup Aurora Solar Inc., credit-card startup Brex Inc., financial services firm Plaid Inc. and Brazilian digital-banking company Nubank.
Mr. Ajao declined to specify return objectives for the fund or disclose the returns on the firm’s other funds.
Write to Heather Somerville at Heather.Somerville@wsj.com
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Appeared in the May 28, 2021, print edition as ‘Venture-Capital Firm To Aid Black Colleges.’