Protocol | Fintech

SoftBank wants to prove its $100 million Opportunity Fund isn’t just diversity theater

After the murder of George Floyd, SoftBank poured $100 million into a fund for diverse founders. Is it making the impact it promised?

An illustration of hands grasping for falling paper money.

For diverse founders who are part of the Opportunity Fund's portfolio, there's no denying the money has been essential.

Illustration: Malte Mueller/Getty Images

In the days after the murder of George Floyd last May, executives at SoftBank were scrambling, along with leaders across the tech industry, to find a way to contribute to the nationwide push for racial justice.

A group of investors, including SoftBank's Dami Osunsanya, quickly came together to ask themselves a question. "How do we make sure that while other parts of SoftBank had been thinking about diversity, we really put capital at the hands of founders?" Osunsanya recalled.

Within a week, the SoftBank Opportunity Fund was born — a $100 million fund that invests in companies led by Black, Latinx and Native American founders, who have been historically overlooked by venture funds. Since 2015 Black and Latinx founders have received just 2.4% of all venture capital raised, according to Crunchbase.

The Fund started out with "one thing to prove," said Osunsanya, now the head of value creation at the Opportunity Fund: "You can generate outsized returns in a portfolio, just on Black founders."

A little over a year later, the fund has invested around $50 million toward that goal in 60 different companies led by diverse founders, many of whom have struggled to find financial backing elsewhere.

And yet, that $50 million — and even the full $100 million in the Opportunity Fund overall — is just a tiny sliver of the $100 billion SoftBank has poured into its larger Vision Fund. That gap suggests that, for all its lofty goals, SoftBank is still a long way from leveling the playing field for diverse founders, even within its own portfolio.

"We would hope, 20 to 30 years from now, you don't need a dedicated pool of capital — that it's all very much embedded," Osunsanya said.

Open Door Policy

For diverse founders who are part of the Opportunity Fund's portfolio, there's no denying the money has been essential.

Jeremy Almond, co-founder and CEO of the fintech startup Paystand, never expected to be in tech, let alone raise more than $50 million in venture capital. His mother, who is originally from Mexico, immigrated to the United States and married a blue collar bricklayer. Neither of his parents went to high school.

As a Mexican American founder, Almond quickly realized he was an outlier in the largely homogenous financial services industry. So he vowed to be the change he wanted to see. Paystand has an office in Mexico, and the majority of its employees are members of an underrepresented group, he said. Still, if his employees were to see his bosses — the board and the investors — they wouldn't see much representation.

Because of this, Almond decided that his cap table was going to "be led by somebody that was from an underrepresented background," and that the majority of his investment "was going to come from folks that could represent change for a financial services industry that has been a glass ceiling for too long." The Opportunity Fund was one of those investors.

The fund has not just invested in founders of color, but also hired investors who are female, Black and Latinx themselves. Osunsanya calls this the "make the hire, send the wire" approach.

It's also working to find founders who don't come through the traditional channels and referrals by allowing founders to apply for investment directly on the Opportunity Fund website. "The open door policy is very important to us," said Gosia Karas, investment director and head of growth stage investing at the Opportunity Fund. "A lot of the groups which we invest in don't necessarily have the usual networks needed to be connected to venture capital people."

Casting a wider net for founders is critical, said Maryam Haque, executive director of Venture Forward, an organization that supports diversity in venture. As an investor, she said, there's a tendency to focus on "your network, and your network consists of people that went to the same school as you, or looked like you, or kind of do the same things as you."

You know what's cool? $100 billion.

The Opportunity Fund wouldn't share an average check size, but according to the startups Protocol spoke with, investments can range anywhere from $100,000 to the tens of millions. For those smaller investments, the Opportunity Fund offers the possibility of a larger investment from the Vision Fund.

That's the hope for Cesar Talledo, co-founder and CEO of Nestybox, a software company that builds tools for developers. "We are going to be pitching with them again," Talledo, who raised around $100,000 from the Opportunity Fund, said. Talledo was introduced to Opportunity Fund investor Paul Judge through Y Combinator, which also invested in Nestybox in the summer of 2020. After raising his pre-seed round, Talledo remembered Judge saying, "Now you can go and tell all the investors that SoftBank invested in you." That strategy seems to be working. "Investors are now more interested than they were before," Talledo said.

But that $100,000 from the Opportunity Fund is still lower than the amount Talledo got from Y Combinator, which offers all of its startups $125,000. And it's also a startlingly low number for SoftBank in general, which invested over $85 billion through their Vision Fund I as of March 31, according to their annual report. In comparison to the billions SoftBank invests in individual companies on a regular basis, $100,000 sounds paltry.

The overall size of the Opportunity Fund raises questions as well. While the Opportunity Fund is one of the largest of its kind dedicated exclusively to diverse founders, it's still smaller than other SoftBank funds. And while SoftBank has committed $100 million to invest in people of color across the entire United States, they've committed to investing as much into a single city through the new Miami Initiative.

Osunsanya says there's good reason for this. SoftBank is primarily a growth engine, known for pumping fledgling startups full of cash to make them grow. "So what that meant for the Vision Fund was a minimum $100 million dollar check size, average one billion dollars," she said. But the historic underfunding of startups by diverse founders meant that when SoftBank went looking at the potential pipeline of startups for its Opportunity Fund, it was difficult to find "100 or 50 Black, Latinx, Native American founders that could take a billion dollars, or could even take a $100 million check size," Osunsanya said.

Haque, for one, isn't convinced by the pipeline argument. "We definitely don't buy into there being a pipeline issue or a lack of talent," Haque said. "If we focus on making sure that we have more people with more diverse backgrounds with the power to write those checks, I think it really does help to recognize all of the pockets of opportunity that we've been missing."

It may be premature to either celebrate the Opportunity Fund as a resounding success or dismiss it as a PR stunt. But it still has plenty to prove, says Haque. "What I hope is something that comes out of a lot of this is, is that we get to see the returns that founders from underrepresented backgrounds can drive, and it kind of dispels that approach that venture has generally had in the past, which is that sort of pattern matching approach," she said.

To Osunsanya, the fund is well on its way. "We're seeing that this is the right thesis," she said. She estimates her team has seen upwards of 2,000 companies with a Black, Latinx or Native American founder, and the investment committee plans to continue funding startups through the end of the year. It's also exploring a potential Opportunity Fund II.

While the vision remains, the challenges are great, maybe even greater than what SoftBank can achieve on its own, said Karas. "It's just a path that we as a society are really embarking on," Karas said. "And it's the right one."

Correction: An earlier version of this story mentioned that the fund had hired Native American investors, but it has not. This story was also updated to reflect Gosia Karas' full title. This story was updated on Oct. 25, 2021.

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