Investing in ‘Rockstars’: How One Fund Is Building Businesses with Women of Color

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Wharton’s Katherine Klein speaks with Gayle Jennings-O’Byrne and Pialy Aditya about WOCstar Fund and investing in women of color.

A visit to the WOCstar Fund website is the first indication that this venture capital firm does things a little differently. Stock photo images and formal copywriting are forgone in favor of a header that says, “We invest in rockstars,” followed by a splashy graphic that states women of color in the startup scene are “WOCstars.” It’s a bold message from the firm’s general partners, Gayle Jennings-O’Byrne and Pialy Aditya, who are using their early-stage investment fund to boost tech startups owned by women of color, a category that has been undercapitalized for decades.

“Our motto is, ‘We leave no woman behind,’” Jennings-O’Byrne said. “A lot of venture is an 80/20 rule (where 80% of returns come from 20% of investments), but our goal is that we are ‘builder capitalists,’ as opposed to venture capitalists. We’re not venturing into this. We’re building with them. And that, I think, is the magic sauce that makes us different. It also is why we have deals that others don’t see.”

Wharton management professor Katherine Klein recently interviewed Jennings-O’Byrne and Aditya on the Dollars and Change podcast. The podcast is produced by the Wharton Social Impact Initiative, where Klein is the vice dean. (Listen to the podcast above; you can listen to additional episodes here.)

Minority women founders have been historically overlooked, underestimated and underfunded. The median investment for most businesses is nearly $1 million, but that figure drops to a scant $213,000 for women-owned firms and $185,000 for minority-owned firms, according to a 2018 report by Morgan Stanley that described the gap as a “trillion-dollar marketplace inefficiency.” Jennings-O’Byrne and Aditya believe the difference comes from an unconscious bias by the mostly white male investment community. Their goal is not only to change the trajectory of success for minority female entrepreneurs, but also how those businesses are viewed by investors.

“Unfortunately, there is an unconscious bias that exists in the industry.” –Pialy Aditya

“Unfortunately, there is an unconscious bias that exists in the industry, or in many industries, but specifically in the venture capital industry,” Aditya said. “You tend to have an affinity for certain things. We all do. So, VCs tend to invest in what they know and what they like and what they’re familiar with. When you’re a person of color, you have a different background and a different experience. When it comes to actually coming up with an idea or trying to solve a problem, you’re solving a problem that your traditional white VC male hasn’t seen, just because they don’t have that point of view.”

Financial Game Changer

Jennings-O’Byrne is a Wharton graduate who spent more than 20 years in Silicon Valley and on Wall Street. Aditya earned her MBA from Harvard and worked as an investor and entrepreneur. In 2009, she launched fashion tech platform Mintbox, which had a successful exit.

Both are women of color who champion the work of minority and female founders, and they want others to see the enormous profit potential of such startups. The business case, the research, the fund managers, the pipeline of deals, and the track record exist. Jennings-O’Byrne cited one report that shows returns from investments in teams that are diverse and inclusive are 30% higher than returns from all-white-led teams.

“A financial game-changer would be if the same new ‘pop-up’ diversity funds, corporate initiatives and various investors invested directly into investment funds led by people of color,” she said. “New and emerging funds like us and our peers have track records, experience and know the founders and firms best.”

Klein asked what corporations, foundations and institutional and individual investors can do to help boost underrepresented entrepreneurs. The women offered some simple advice: Invest in funds founded by people of color.

“If we don’t put the tools and the capital in the hands of those who best know these communities of entrepreneurs, society as a whole will miss out on some great technology and products as well as job creation and revenues,” Jennings-O’Byrne said. “If we don’t change, there are going to be so many investors that are missing out on some really good investments.”

“I like money, and I like winners.” –Gayle Jennings-O’Byrne

Aditya said they apply the same due diligence rigor in selecting investments that other VC firms do. They even built out their due diligence process with support from Fellows of Wharton Social Impact Initiative’s WISE Program. They learn as much as they can about the founder and the product, require proof of concept, evaluate the market, estimate the potential for disruption and analyze the long-term prospects. They also do a lot of “tough love” and “hand holding,” so the entrepreneur gets a lot of feedback and support.

“Most companies that we see won’t get funded by us,” Aditya said. “But we do provide a lot of resources directly and on the WOCstar website for the founders to go back and figure out better ways to build their company or put their pitch deck together, and other accelerators or resources for them to go to. Maybe it’s not even venture capital. Maybe it’s other sources of funding.”

They dismissed the idea of concessionary returns — sacrificing returns in favor of social benefits — telling Klein that they are in the long game and looking for the best outcomes.

“I like money, and I like winners,” Jennings-O’Byrne said.

Aditya added, “I think efforts that frame investing in women or people of color as charity or impact, or as somehow less competitive — well, that just shows a natural bias.”

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