Investing While Black: Diversity in Finance & Tech
Investing While Black is a blog series I’m putting together to touch on Black investment strategies across all asset classes because of the scarcity of folks in the space having the right conversations. My hope is to spark those convos. Let’s get into it...
The Financial Times recently had an article about the amount of Blacks in senior finance positions actually decreasing (as a percentage of the total) over the past 10 years despite all the virtue signaling and diversity programs. This relative lack of progress can also be seen in venture capital/private equity and the companies that get funded, which will be my focus in this article.
When most so-called diversity experts hazard a guess why this is, they usually go on about various recruitment metrics, hiring processes, and creating a sense of belonging, while completely missing the point. A lack of diversity in these roles at non-Black-owned companies is NOT a hiring problem, and definitely not a problem that most diversity programs are even designed to solve. The root problem is a lack of Black economic agency. By the time this issue shows up in HR departments, it’s already too late.
The problem really starts in classrooms, but I won’t get into education reform today. That’s a job for the non-profit foundation I hope to start in the next few years. For now, let’s identify where the problem is in finance: investors. In the VC/PE world these folks are usually called limited partners (LP’s), who sit at the top of the capital food chain.
So if you want to know why there aren’t enough Black general partners (GP’s) and principals at VC/PE firms, look no further than the LP’s that fund them. If LP’s tell the GP’s that they’ll only invest in their funds if at least 20% of the partners are Black, then 20% of the partners will be Black, almost over night, assuming the other partners are not openly racist. It’s that simple.
But it’s easier said than done. It will surprise no one to learn than most LP’s are not Black. They have no long-term incentive to do what I mentioned above, nor should we expect them to based on past experience. In short, people who have been shown to be incapable of increasing diversity in these industries shouldn't be trusted to do so going forward. Blacks in VC and tech should not rely so heavily on non-Black people for funding.
The solutions we develop to address these perennial issues MUST be rooted in ownership, not employment. Diversity initiatives that focus primarily on employment are actually counterproductive in that they increase Black dependency rather than capacity building. We don’t need to work for these firms. We have worked for them long enough. We need to own them and provide the capital to support them. Non-Black allies who genuinely want to help can contribute to these efforts. Anybody saying anything different is either dreaming, too scared to acknowledge the truth because of their own token status at a non-Black firm, or actively undermining efforts at Black economic self-determination.
Now on to implementation. We've established that the solution to increasing Black participation in VC/PE and tech is to increase the contributions from Black LP's, and since there is currently not enough investing power coming from existing Black LP's, we need to create more of them. In order to do this, we need to look to one of the 3 C’s of economic development...cooperation (the other two are culture and coordination in case you missed that lesson elsewhere on this here blog).
Most Black people do not have access to the institutional or individual concentrations of wealth needed to fund our investment managers at scale or even come up with the minimum investment necessary to invest in even one fund. Instead, we must organize collective, decentralized pools of capital starting by making use of organizational infrastructure that already exists (churches, fraternities/sororities, professional organizations, social clubs, etc.). In other words, a network of Black investment clubs. One tool we can use to do this is TribeVest.
There are countless Black people working 9-5's with no real investments outside their home and 401K. They have some modest capital to invest, but very few have exposure to the alternative investments that can generate real wealth in a reasonable amount of time like angel investing, venture capital, private equity, real estate, top tier hedge funds, etc. Generational wealth comes from liquidity events, not income.
Let's take my fraternity, Alpha Phi Alpha, as an example. If only 10% of the current members contributed an average of just $100/month, it would add up to $8.4M a year...every year. Even if we just invested in an ETF that represents the S&P500, that consistent principal investment along with compounding returns would generate a substantial capital base in relatively short order. This would reduce the organization's reliance on corporate donations and provide alternative sources of employment for our members rather than devoting our talents to majority-owned corporations that have proven time and time again that they do not truly value us or even respect our humanity beyond hollow symbolic gestures. Now scale that across all Black organizations and, in a generation or two, our perennial unemployment and underemployment crisis is solved, and we can finally focus on reaching our full potential as a community rather than mere survival.
NSBE would be another perfect example, specifically for increasing the numbers of Blacks in VC and tech. Every NSBE professional chapter should have an investment club with a pre-seed/seed stage investment arm for Black tech startups, who could then pull from the membership when looking for talent. The question is, do these organizations have leaders with the knowledge, cultural orientation, vision, and will to pull this off?
We have the collective resources to implement all the solutions we need. We don't have to keep going along to get along, playing the game, and subjecting ourselves to the psychological torture of "double consciousness." If we continue to beg others for jobs and "opportunity" instead of creating our own, we'll only have ourselves to blame when our kids are right back here 30 years from now wondering why diversity programs still aren't working and the wealth gap hasn't decreased at all. Furthermore, once we've built this economic infrastructure along with the institutions to keep it going, we won't have to ask anyone for opportunities...they'll be coming to us.
If you want to be part of the solution, I invite you to join us over at Black Star Capital Network.