The Rise of Diversity-Focused Venture Capital

By Michael Carter
Published September 10, 2019 | 3 min read

Michael Carter, Global Head of Technology Investment Banking, outlines how funds like Plexo Capital are embracing diversity and unlocking profitability in the venture capital space.

When you’re looking for growth, side-lining large percentages of society makes no sense. The latest population statistics from the U.S. Census Bureau show that women make up just over half of the population and people of color around a quarter. Yet in the world of venture capital, these demographics are significantly under-represented.

According to research from Richard Kerby, a partner at Equal Ventures, only 3% of investment team members at VC firms identify as black. Just 1% identifies as Hispanic, with 26% identifying as Asian. Women make up only 18% of investment professionals.

The business case for diversity is no longer disputed. Countless studies show companies that are embracing inclusion are more commercially productive and profitable. It seems incredible that VC firms have overlooked this opportunity. That is until the launch of Plexo Capital.

 

Lo Toney and the rise of diversity-focused venture capital

Lo Toney is a former partner (now advisor) with Google Ventures (GV) where he incubated Plexo Capital which is a hybrid fund based on GV's strategy to increase access to differentiated deal flow. GV's strategy was to make limited partner (LP) investments into seed stage VCs led by a woman or a person of color to gain access to new networks and increase size of the consideration set of deals. Plexo Capital scales up the strategy that was successfully tested at GV.

The fund strategy is based on a thesis that women and people of color have a non-traditional path to venture and end up with two distinctive characteristics. First, women and people of color end up with networks that provide access to differentiated deal flow, and second, they have a different lens to evaluate early stage companies without a lot of data to show traction and identify opportunities that others might miss.

An important part of the Plexo Capital strategy is to invest directly into the most promising companies sourced from the venture funds where Plexo Capital made an LP commitment.

By backing seed funds led by women and people of color as a limited partner and investing directly in some of their portfolio companies, Plexo Capital seeks to tap into a source of differentiation that has been largely ignored.

With backing for its $50 million fund from partners including Google Ventures, Intel Capital, Cisco Investments, the Hampton University endowment, the Ford Foundation – as well as a $5 million investment from RBC – the window of opportunity is now open.

 

Reaping the rewards of a broader outlook

A passionate advocate of diversity, Lo Toney’s vision of a new generation of VC investors and entrepreneurs that mirror the world in which we live is being realized through Plexo Capital.

RBC’s backing of Plexo Capital shares that ambition. We embrace diversity and inclusion because we recognize they are drivers of innovation and growth, enabling us to create a rich and varied environment of experiences, skills and approaches that delivers for our clients.

According to Lo Toney, just 1-2% of the portfolios of the average US VC are invested in companies founded or led by women or people of color, compared to 35-40% of the portfolios of VCs that Plexo has invested in.

A fund dedicated to promoting diversity within the technology sector is a boost for next-generation tech companies trying to challenge and disrupt the status quo within the sector. According to the latest statistics from The U.S. Equal Employment Opportunity Commission, over 80% of tech executives are white and, compared to the private sector overall, there are half as many African-Americans and Hispanics in the tech sector.

Opening the industry up to a wider demographic would offer the chance to increase social diversity and profitability. It’s essentially a huge pool of opportunity and potential that could underpin a stronger and more resilient US economy.


Michael Carter
Global Head, Technology Investment Banking


DiversityInclusionInnovationPlexo CapitalTechnologyVenture Capital