Beyond Social Responsibility: Black-led Venture Funds Generate Outsized Returns, Help Close Racial Wealth Gap

NEW YORK - EntSun -- Report by Culture Shift Labs Shows How Investments in Diversity-Led Companies Are Growing

NEW YORK, NY – A new report shows how investments in diverse companies by Black and minority-owned venture capital firms could generate outsized returns, help close the racial wealth gap and create thousands of good jobs.

The research by Culture Shift Labs comes at an opportune moment as U.S. companies committed over $35 billion towards racial equity investing in response to events of 2020. But beyond being socially responsible, investments by diverse VC founders and ethnically diverse management teams in minority or women-owned companies are simply good business, the report shows.

"We think the future is bright for Black VCs and the firms they lead," said Andrea Hoffman, CEO and Founder of Culture Shift Labs. "We foresee a very beneficial expansion of the ecosystem and increased economy-wide opportunity in the Black-led VC community."

In late 2020, Culture Shift Labs undertook a three-month study of 84 Black VC firms in the country to gather baseline data on their size, character, and capacity. These firms have a total AUM (assets under management) of more than $4.3 billion. Among the study's key findings:

• Black-led VC firms seek to nearly double their AUM in 2021 – from $4.3 billion to over $8 billion.
• Just 50 new Black-led VC firms with full funding would be poised to invest in range of 1,000 to 1,250 companies in the coming years, potentially creating as many as 10,000 to 15,000 jobs.
• When these companies get acquired or listed in the public stock exchanges, the wealth they create could contribute significantly towards closing the racial wealth gap.
• There is good business to be had in backing diverse founders and ethnically diverse management teams. One pioneering firm, a Mid-Atlantic-based operation with a diverse-led investing team, found that in the first 12 months, 100% of the portfolio gains were attributable to women-led companies, and over 75% of the gains were attributable to mixed-ethnicity teams, far exceeding normal and customary returns in their target asset classes.
• Fund investors seeking to accelerate their investments in diversity may be able to do so by engaging and looking closely at LP investment or deal syndication opportunities with these +80 firms.

Culture Shift Labs, a diversity and innovation consultancy, is a recognized leader in integrating social and financial returns in ways that improve businesses and society. With firsthand insight into the Black-led VC community, the firm produces the largest annual gathering of Black venture investors (Culture Shifting Weekend NYC), and also built the largest community of Black venture investors including owners and those that work in VC. This community also includes LPs interested in supporting these VCs; our LP community grew from 40 in January 2020 to over 138 by November 2020.

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Research shows that diverse leadership teams tend to be more innovative and make better management decisions. Black-led VC firms also share a willingness to look with a less biased eye at diverse-led businesses.

Also, investing in diverse marketplaces provides better economics. A study published in the Proceedings of the National Academy of Sciences found that in racially and ethnically diverse marketplaces, pricing bubbles (exaggerated valuations) were far less unlikely to occur. The study found in diverse markets, market pricing was 58% more likely to reflect the true value of the assets. Better market pricing equals better deal prices for the investor.

"The bottom line is that for whatever reason ­– be it ethical or be it the pursuit of returns – it looks like billions are inching towards investing in diverse founders and their ventures," the report found. "The year 2021 could very well be a game changer for those 80 or so Black-led VCs and their diverse-led investment opportunity pipelines."

For a copy of the full report, see https://cultureshiftlabs.com/the-vc-research-report/

Culture Shift Labs is a diversity and innovation consultancy that provides services under three pillars: Advising, Strategy, and Activation. Since 2006, it has been a recognized leader in integrating social and financial returns in ways that improve businesses and society. Culture Shift Labs serves F500, Tech Companies, Investors (Private Equity, Venture Capital, Impact, Family Offices), and Non-Profits.

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