Future venture capitalists looking to raise funds for the first time often face a chicken-and-egg problem: to raise funds, they need to demonstrate a history of promising start-up investments; to build such a portfolio, they have to raise funds.
It’s a challenge felt even more by emerging fund managers from under-represented backgrounds, say Homebrew partners Satya Patel and Hunter Walk. “What we heard over the past few years when we were approached by new managers hoping to raise funds was that these were a lot of opportunities for them to get advice or a mentorship, but what they really needed was capital, ”says Patel.
Today, Patel, Walk, and eight other general partners of established venture capital firms are trying out an experiment: raising their own funds together, across the companies, to bring in the resources of some of the industry’s elite sponsors faster. in emerging funds. Called Screendoor, the fund is a more than $ 50 million investment vehicle that will seek to support up to 15 under-represented investors raising their first institutional fund, while providing formal and informal training and support without levies or fresh.
The ten partners behind Screendoor include Aileen Lee of Cowboy Ventures; Eva Ho of Fika Ventures; Kirsten Green of Forerunner Ventures; Chris Howard and Leah Solivan of Fuel Capital; Patel and walk to Homebrew; Kanyi Maqubela of Kindred Ventures; Charles Hudson of Precursor Ventures; and Shauntel Garvey of Reach Capital. Institutions that invest in Screendoor include the investment branches of Davidson, Duke, Harvard, Michigan, Princeton and Virginia; the James Irvine Foundation; and the investment firms Hall Capital and Sapphire Partners.
By pooling capital in a fund of funds like Screendoor, these institutions can invest and build relationships with new fund managers that they might not otherwise be able to support, says Walk, as early funds often raise too small amounts. for one the university endowments or the venture capital strategies of a large foundation. Each Screendoor sponsor is an investor in at least one of the companies represented by the founders of Screendoor, which means Screendoor partners can use their own reputation as a bridge. “This can be a training ground for emerging managers to anticipate direct relationships with some of these great institutions,” says Walk.
And while Screendoor’s own general partners are themselves VCs and therefore potential co-investors and peers, the investors they support will not be asked to share the flow of transactions or more information than they do. would with a typical LP. Screendoor will make investments through a three-person rotating investment committee, starting with Patel, Hudson and a representative of its sponsor, the James Irvine Foundation. “Screendoor promises access to talented emerging managers and allows us to begin a relationship with these investors before their first institutional increases.
“We are not only participating as financial partners, but we will also bring time, alongside the hands-on mentoring that Screendoor managers will receive,” said Jesús Argüelles, director of investments for the foundation, in a statement. “Over time, I hope we will establish direct relationships with many of these companies.
Screendoor is launched as a wave of new funds and initiatives has mushroomed in the venture capital industry, historically slow to major but galvanized changes in the last few months since the death of George Floyd. These include the fund launch of Zane Venture Fund and Collab Capital in Atlanta; a new fund from Harlem Capital in New York; MaC Venture Capital in Los Angeles; and Sixty8 Capital in Indianapolis, among others. And other programs, such as a new scout program launched by BLCK VC with Lightspeed and Sequoia, have sought to inject more investors into the ecosystem.
But that progress has been incremental at best, always a relative drop in the bucket compared to the billions raised by traditional funds. This has excluded these investors from what Patel calls the Silicon Valley “virtuous cycle”, in which investors support tech companies which, in turn, produce more angel investors and venture capital when they exit. “What is unfortunate is that the virtuous circle has been inaccessible for a large part of the population,” says Patel.
Screendoor hopes to help build its own virtuous circle of under-represented investors supporting under-represented founders who elevate under-represented employees. But he doesn’t claim to have all the answers. The organizers of Screendoor will “open up” their process for any other group seeking to emulate or improve it, said Patel and Walk; they also plan to expand Screendoor’s investor group with future funds.
Screendoor is already in talks with potential fund managers, but the group has yet to make any commitments. Interested investors can apply through an open application on the fund’s website; what constitutes an under-represented fund or a first institutional fund is flexible. “Anyone who thinks they are bringing something to the ecosystem that is currently under-represented by the way capital has flowed into the business has a chance to tell us about it,” says Walk.
And while Screendoor’s partners don’t charge fees or carry funds, it’s not a charity. The fund will hire a full-time analyst or similar position to manage its portfolio and the structured training and advice offered by its partners. And with these partners’ own LPs supporting Screendoor, everyone involved expects financial success. “The fund’s investors don’t invest out of charity, they expect higher returns than the industry here,” Patel said.