We recently hosted our inaugural Diversity Week, a series of events featuring diverse entrepreneurs discussing their companies, backgrounds, and unique perspectives. The first event in the series was a conversation with former Mayor of Sacramento and NBA All-Star, Kevin Johnson, and SeedInvest Co-Founder & CEO Ryan Feit, on the recent launch of our Black Capital initiative. [1] They discussed the impetus and vision behind the partnership, as well as the evolving landscape of the venture capital industry.

The Concept of Black Capital

Black Capital by SeedInvest aims to promote economic inclusion for the African American community by providing access to the venture capital ecosystem. [2] This collaboration was created with the vision to elevate communities of color to gain financial independence, build wealth, and decrease economic inequality in this country.

The idea for Black Capital originated during the period when Kevin Johnson was serving as the Mayor of Sacramento, at the same time as President Barack Obama was in the White House. Despite African Americans being in some highly visible positions of power, Mayor Johnson did not see any obvious improvement to the issue of economic inequality in the country. He wanted to find a way to make a difference, specifically focused on increasing economic inclusion for the African American community.

The SeedInvest Vision

Part of the vision behind SeedInvest was to democratize access to early stage venture capital, a potentially attractive asset class, having returned 14.1% compared to 6.3% for the S&P 500 over the last 20 years. [3] [4] SeedInvest’s involvement in implementing The JOBS Act opened up investing to 240+ million Americans who previously could not invest. This made it possible for everyone to participate in venture investing, typically done by venture capitalists and angel investors, and share in the potential for outsized returns. [5]

“Kevin did such a good job at articulating the issue, and it aligned very well with what we have been building at SeedInvest. The Black Capital initiative is really core to the SeedInvest mission and the issue we are trying to solve.” – Ryan Feit

The State of Black Economics

African Americans make up 13% of the US population, but a staggering 38% of the prison population. In 2019, African Americans had the lowest college enrollment rate, and 72% of those students went into debt to pay for their education, compared to 56% of white students. Furthermore, at $171k, the median net worth of a white family in 2016 was almost ten times greater than that of a Black family. At the same time, less than 1% of venture capital funding goes to black founders. This demonstrates that not many African Americans are participating in the venture capital space, and Black Capital intends to level the playing field. In light of recent events, and the focus on the African American struggle in the US, this initiative is needed now more than ever.

The Mission

Black Capital and SeedInvest were both founded on the shared belief that everyone should be able to access alternative investments, including equity crowdfunding, and democratizing access is pivotal to that goal. Black Capital is intended for everybody–no particular race or ethnicity should feel like they cannot invest.

“We are going to be intentional about our outreach to get African American investors to invest alongside others. We are also being intentional about funding Black and minority-led companies, assuming they get through SeedInvest’s comprehensive due diligence process.” – Mayor Kevin Johnson [6]

Two Ways to Participate in Black Capital

Black Capital is unique, allowing investors to invest at their comfort level, giving everybody the opportunity to invest in venture capital. investors should feel free to start small, and be empowered to set themselves up for success.

  1. Black Capital Access | A program that allows individual investors to easily build a diversified portfolio of up to 25 startups with investment minimums as low as $200, 50 times lower than those of traditional venture capital. [7] Through Access, members are able to gain exposure to early stage investing and have investments automatically created on their behalf in qualifying startups raising on SeedInvest’s platform. This is all possible without needing to be an accredited investor, and makes it easy to diversify.
  2. The Black Capital Fund | The fund will leverage SeedInvest’s proprietary platform–including unique sourcing channels, access to a robust investor base, proprietary technology, and a strong position within the early-stage ecosystem–to offer accredited investors a unique vehicle through which to build a diversified portfolio of startup and early-stage investments. [8]

“The partnership is not only strategic, but it also positions itself in the market as something very unique. Yes, we have a fund, but we also have a crowdfunding vehicle.” – Mayor Kevin Johnson

What Black Capital Means for Founders

Fundraising shouldn’t be painful, and yet too often it is the reason founders give up. Black Capital looks to make that process more efficient, so that founders can spend less time fundraising and more time building their business.

“Many people want their investments to have meaning, and this has changed a lot over the past decade, particularly with millennials. Investing in startups not only gives you return potential but you’re also investing in companies that can change and improve lives–you have the power to make a difference.” – Ryan Feit

Black Capital will primarily invest in early-stage startups, companies raising their first or second capital round, between $500K-$15M. Black Capital is industry agnostic, which is the stance SeedInvest has taken since its inception. The aim is to fund as many black founders as possible, although not exclusively. There is so much talent among so many black founders who simply don’t have access to capital, because such a small fraction of venture capital funding goes to them.

The Risks

Knowledge is power, which is why education is at the core of both SeedInvest and Black Capital. The venture capital asset class is new to many people, so SeedInvest hosts regular webinars, including a monthly SeedInvest 101 Webinar for new investors, and the Blog and Academy contain a wealth of educational content.

  1. Diversification | Don’t invest unless you’re planning on building a diversified portfolio. Diversification of startups across a variety of sectors and stages is beneficial as each industry has a different risk and reward profile, as well as a different tolerance of economic climates–some will be less volatile than others, and may be less correlated with public stocks. [9]
  2. Illiquidity | Investors should have a clear understanding that any money invested will be tied up for a long time, as private, early-stage companies represent high-risk, long-term, illiquid investments. As such, we advise all of our investors to err on the side of caution and expect to hold their investments for an average of 5-7 years before a potential liquidity event.
  3. Allocation | We do not recommend investing in private companies if more than 10% of your overall savings are in non-traditional, alternative assets (e.g., venture capital, private equity, hedge funds, etc.) even if properly diversified within the asset class.

A Seat at the Table

Black Capital is working towards closing the disproportionate wealth gap that exists in this country. This initiative, which leverages equity crowdfunding, provides African American investors with access to early-stage startups, giving everyone a chance to participate in the venture capital asset class.

“Venture capital has proven to be an effective vehicle for wealth creation in the past amongst a select few – we just want to ensure these same opportunities are made available to all.” – Mayor Kevin Johnson [10] [11]

If you are an accredited investor and are interested in investing into The Black Capital Fund ($50k minimum), reach out to blackcapital@seedinvest.com to get in touch with the team.

 

[1] Kevin Johnson has a potential conflict of interest as he will serve as a General Partner of the Black Capital Fund. In this role, Mr. Johnson will receive both management fees and carried interest. In addition, the success of investments made by the Black Capital may be correlated to the amount invested in similar portfolio companies through the Black Capital Access program. SeedInvest’s selection criteria does not suggest higher quality investment opportunities nor does it imply that investors will generate positive returns in investment opportunities on SeedInvest. Learn more about due diligence in the SeedInvest Academy
[2] SeedInvest’s selection criteria does not suggest higher quality investment opportunities nor does it imply that investors will generate positive returns in investment opportunities on SeedInvest. Learn more about due diligence in the SeedInvest Academy
[3] Data from Cambridge Associates LLC September 30, 2019 U.S. Venture Capital Index® and Selected Benchmark Statistics Report. The Early Stage Index includes pooled end-to-end return, net of fees, expenses, and carried interest; past performance is no guarantee of future returns. Startups raising capital on SeedInvest are not necessarily representative of those which have generated positive historical returns. 20-year period includes at least two sub-periods of unusually large returns 1990s and the most recent few years. Indices are unmanaged and an investor cannot invest directly in an index. Index returns do not reflect the cost of investing in an index. These indexes are not necessarily representative of the companies listed on SeedInvest and do not reflect projected returns. While early-stage venture capital has historically generated larger returns than both the S&P 500 and Barclays Credit Bond Index over the last 20 years, past performance is no guarantee of future returns. In addition, early-stage venture capital investing has a higher rate of failure, volatility, and less liquidity. Only those prepared for the potential of extreme volatility, a lack of liquidity, and to lose the entire amount of their investment should invest in early-stage venture capital.
[4] Is the risk profile of Cambridge Associates US VC Index similar to companies on SeedInvest? The risk/return profile of the Cambridge Associates US Venture Capital Index (the “Index”) is materially different from that of any one early-stage company. The Index is not used or selected by SeedInvest as an appropriate benchmark to compare relative performance of any SeedInvest product or service, but rather is included herein solely because it is a well-known and widely-recognized index. Investments cannot be made directly in an index.
[5] Should I expect similar future results? Past performance is no guarantee of future results. In addition, early-stage startup investing has a higher rate of failure, volatility, and less liquidity than other investments alternatives. Only those prepared for extreme volatility, a lack of liquidity, and the risk of losing their entire investment should invest in early-stage startup investments. While it is important to diversify amongst multiple startup opportunities, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets in order to ensure you maintain a well-diversified portfolio across multiple asset classes.
[6] SeedInvest’s due diligence process is no guarantee of success or future results. All investors should carefully review each investment opportunity and cancel their subscription within the allotted time-frame if they do not feel comfortable making any specific investment based on their own DD. Learn more about due diligence in the SeedInvest Academy and our vetting process in our FAQs
[7] Diversification is only across multiple early-stage investment opportunities within the asset class. There is no guarantee that this program will lead to a well-balanced portfolio of companies across industry types or stages across the asset class. In addition, enrolling in this program will not lead to diversification across your entire investment portfolio. In order to achieve diversification, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets. While larger portfolio of startups investments has historically correlated with increased likelihood of higher returns, past performance is no guarantee of future results. Startups raising capital on SeedInvest are not necessarily representative of those which have generated positive historical returns. In addition, early-stage startup investing has a higher rate of failure, volatility, and less liquidity. Only those prepared for extreme volatility, a lack of liquidity, and the risk of losing their entire investment should invest in early-stage startup investments.
[8] Diversification is only across multiple early-stage investment opportunities within the asset class. There is no guarantee that this program will lead to a well-balanced portfolio of companies across industry types or stages across the asset class. In addition, enrolling in this program will not lead to diversification across your entire investment portfolio. In order to achieve diversification, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets. While larger portfolio of startups investments has historically correlated with increased likelihood of higher returns, past performance is no guarantee of future results. Startups raising capital on SeedInvest are not necessarily representative of those which have generated positive historical returns. In addition, early-stage startup investing has a higher rate of failure, volatility, and less liquidity. Only those prepared for extreme volatility, a lack of liquidity, and the risk of losing their entire investment should invest in early-stage startup investments.
[9] Diversification is only across multiple early-stage investment opportunities within the asset class. There is no guarantee that this program will lead to a well-balanced portfolio of companies across industry types or stages across the asset class. In addition, enrolling in this program will not lead to diversification across your entire investment portfolio. In order to achieve diversification, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets.
[10] Should I expect similar future results? Past performance is no guarantee of future results. In addition, early-stage startup investing has a higher rate of failure, volatility, and less liquidity than other investments alternatives. Only those prepared for extreme volatility, a lack of liquidity, and the risk of losing their entire investment should invest in early-stage startup investments. While it is important to diversify amongst multiple startup opportunities, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets in order to ensure you maintain a well-diversified portfolio across multiple asset classes.

This post was written by Alice Hankin on August 28, 2020

Introducing Black Capital by SeedInvest


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