Fostering diversity and inclusion in tech will require systemic change. But it's not often that tech insiders take a financial hit to make that happen.
VC firm Base10 is doing just that with its new $250 million fund. Called the Advancement Initiative, the fund invests in late-stage companies and gives 50% of its carried interest — the profit on startup investments that fuels VC returns — to historically Black colleges and universities.
HBCUs award nearly 18% of all Black students' STEM bachelor's degrees, despite only 8.5% of Black undergraduate students attending these institutions, according to the National Science Foundation. That makes them a particularly important source of diverse talent for venture-backed startups. By focusing on long-term financial partnerships with HBCUs, Base10 hopes to be an example of how the tech industry can move beyond one-time commitments and corporate programs that can fade away when they lose their sponsor.
"When you look at the ability to make a systems-level difference, then HBCUs are a really powerful leverage point," Laura Weidman Powers, the cofounder of Code2040 who's joining Base10 as an operating partner in conjunction with the new fund, told Protocol. "The fund really has the potential to be used as a model not just for HBCUs or Base10 but to think about how to align these capitalist structures with impact in a way that is authentic and entwined, as opposed to an afterthought."
HBCUs such as Howard University and Florida A&M are anchors in the fund, investing as well as being beneficiaries from the fund's unusual structure. Other limited partners include the MacArthur Foundation, Sorenson Impact Foundation, Plexo Capital and others.
The HBCUs are not standard limited partners. For starters, Base10 doesn't charge the HBCUs management fees on the money they invest or pay any carry, and the fund will donate 50% of its carried interest to participating HBCUs, further boosting their returns.
That money could potentially go a long way. On average, HBCUs have an endowment of about $15,000 per student, compared to $410,000 per student at similar institutions, according to a 2018 study from the U.S. Government Accountability Office. HBCUs will be able to use some of that money to fund scholarships, libraries, infrastructure and other resources for students.
"I found that piece of it very intriguing," said Jamison Hill, a partner at Base10.
Hill, whose father graduated from North Carolina A&T, sees HBCUs as the foundation of his family's success.
"This set of schools has been so important to not only my own family's trajectory but to the trajectory of thousands of Black people across the nation," he said. "Imagine what cutting that gap in half will do for those schools, for the students of those schools … let alone erasing that gap entirely."
Since closing the fund in March, Base10's Advancement Initiative has invested in eight companies, including Attentive, Aurora Solar, Brex, CircleCI, Keep Truckin, Nubank, Plaid, and Wealthsimple. Its participation in Brex and Plaid's rounds is particularly notable, since those were seen as highly competitive deals at rich valuations, suggesting that the Base10 fund's structure could be giving it a useful differentiator from other firms writing checks.
The fund specifically focuses on high-growth companies in part because HBCUs said they needed opportunities for high liquidity.
"It didn't make a whole lot of sense to launch a seed stage fund that might lock up capital for years," Hill said.
Instead, HBCUs were more interested in companies that were close to the initial public offering window and could provide that liquidity potentially within the next 18 months. Nubank and Plaid, for example, are considered likely IPO candidates this year.
In addition to the fund, Base10 is launching a campus training program that will match HBCU students with internships and jobs in tech.
"As VCs, we think about how to put capital to its most productive use and I can think of no more productive use than supporting [HBCUs]," Hill said.
