‘The more diverse the investor pool is, the more diverse the investments’

In 2018, U.S. companies raised a total of $130 billion in VC funding, yet only 2.2{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} went to female-founded companies and 0.07{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} of total funding was allocated to businesses founded by women of color. That’s where the Fearless Fund, a $20 million venture capital fund, comes into play.

The Fearless Fund is focused on pre-seed and seed-stage funding for women-owned BIPOC businesses across food and beverage, beauty and other CPG brands. Its limited partners include Paypal and the City of Atlanta. According to Arian Simone, Fearless Fund co-founder, the company’s portfolio brands, which include Range Beauty and online retailer AMP Beauty LA, increased revenue by at least 300{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} year-over-year in 2020, despite Covid-19 challenges. This is counter to the fact that 41{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} of Black-owned companies have folded due to the pandemic.

Simone pointed out that the lack of investment is not the only issue at hand, especially since the vast majority of the venture capital industry is made up of white men.

“To change the number on the investment side, we need to change the number on the investor side. The more diverse the investor pool is, the more diverse the investments,” she said.

Glossy sat down with Simone to discuss the Fearless Fund, its specialized 12-week Get Venture Ready program for entrepreneurs and the funding ecosystem that has to be dismantled in order to make progress.

What does your investment strategy look like?
“The criteria is that you need to be a woman of color and co-founder in the business — and full-time, too. You also need to be generating an annual recurring revenue of $100,000. But the reality is that our brands are far beyond that. You need to be on a runway rate of about $20 million to $30 million in revenue in the next 2-3 years. That’s critical, because the lifecycle of an average fund is 10 years. We need to know that you can grow and scale rapidly for there to be an exit that makes sense for our limited partners and us.

What will always get an investor’s attention is a compelling brand story and great traction in the marketplace. If you can sell [the story] well and you can prove it, you have our attention. That 5-10 minutes that you have with an investor, you need to bring your all, and that’s what’s going to get people to listen.”

What are the biggest barriers that women of color face in the venture capital world?
“Barriers in general for women of color are lack of access to capital, lack of access to education and then the lack of access to the network. A typical white male startup probably has a Stanford or Ivy League graduate founder, and he’s coming out of school with a trust fund or good credit, then he has a friends-and-family network where he can raise about $200,000. On top of that, there are angel networks via their alumni associations, and then they go to Silicon Valley and receive however many millions they need. But if you don’t have that network, and you go and present to a venture capitalist, they’re going to tell you: ‘You’re too early, go raise from your family and friends.’ One young lady came to me almost in tears and said, ‘But I don’t have any family and friends.’ It’s an ecosystem-driven problem.”

How does the Fearless Fund try to alleviate these issues, besides access to funding?
“We offer our Get Venture Ready programs to [provide] the education they need to be venture-ready and gain knowledge about the industry. It’s not built from the standpoint of the network. Many women of color don’t necessarily even have the knowledge and wherewithal when setting up their cap tables or making sure the corporate governance is in place before presenting to investors. We also serve as an [investment network], in addition to [a source of] capital. But the barrier to entry and network issues are things that we even have to experience ourselves [as a fund]. When I walk into the boardroom, it’s pretty much all white men. It just is what it is, but we experience that ourselves.”

How much impact do you think the Fearless Fund and others like it can make in diversifying venture capital?
“I see movement, and I think there will continue to be movement, especially under [Joe Biden’s] presidency. These types of funds make a mark as of now, but they don’t make a dent. What I mean by that is what we’re doing is needed work, and it’s impactful work, but to move a percentage point of 0.07{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} in venture capital that women of color receive, then billions in venture capital is needed. Everybody is doing great work, but more is needed. These issues did not happen overnight, and they’re not going to be resolved overnight, either. We need as many alliances and as many allies and as many partners as possible to help this mission.”

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