DIVERSITY IN VC: Diversity Rider Created by Venture Capitalist in LA
In addition to the importance of diversity in VC teams – whether they’re at private firms or affiliated with universities – another critical piece that’s garnering more attention these days is the diversity rider.
A diversity rider is a call-to-action focused on increasing opportunities and access to wealth in the VC industry for under-represented communities like Black, LatinX, female, and LGBTQ+.
Firms adopting the rider language pledge to bring folks from these communities into deals as co-investors, thereby instantly increasing diversity at the core of the deal-making process.
And the catalyst who crafted this rider and who’s evangelical in his mission to get as many VC firms around the country as possible to commit to it, is right here in SoCal: Alejandro Guerrero, a principal with Act One Ventures in LA.
This firm is is community-focused and targets early-stage companies.
He crafted this rider and to date, more than 20 firms have committed to it. This is the language:
In order to advance diversity efforts in the VC industry, the Company and the lead investor, [Fund Name], will make commercial best efforts to offer and make every attempt to include as a co-investor in the financing at least one Black [or other underrepresented group including, but not limited to LatinX, women, LGBTQ+] check writer (DCWs), and to allocate a minimum of [X]% or [X] $’s of the total round for such co-investor.
Guerrero said he spoke with many firms during the course of creating the rider, and many provided “incredible” feedback that ultimately helped shape the final language.
“I’m very appreciative of the ones who have committed so far.” he told inter-TECH-ion. “Some other firms have said they would like to see how things play out before making a move.”
He encourages all venture firms and various check writers to join the movement. By pledging support, they commit to use the rider language in every term sheet.
Guerrero said he’s hopeful over the coming months and years many more will commit to the rider and he’s continuously having conversations to that end.
However, he added, that he’s “under no illusions that everyone will make this commitment.”
“Ultimately the rider is about creating access and forging connections to build networks for under-represented folks, particularly access to an asset class that has historically been one of the most lucrative in the world. The divide between the wealthy and the poor really boils down to these issues of privilege and access, and that’s where we want to help change the game and create a more diverse VC world.”
These are some of the VC firms that have committed to the diversity rider to date:
• Greycroft Partners
• First Round Capital
• SVB Capital
• Harlem Capital Partners,
• Fifth Wall
There are also industry partners that are engaged to help amplify the reach and effect of the diversity rider, including:
• Silicon Valley Bank
• Cooley, Fenwick & West
• and Crunchbase
More About Act One
Guerrero and Michael Silton raised Act One Ventures’ first fund in 2016 after having worked together since 2013 at UCLA Ventures. They applied their individual experiences as founders into the principles by which the firm would operate.
The most important pillars were built from lessons learned through failures and challenges that are unique to startup founders. These experiences shaped the way they communicate with founders using their own personal experiences and leveraging their network to help the founders succeed.
They set out to invest in “great” founders, no matter their background. They felt that so much diverse talent was being overlooked and these teams were also outperforming their less-diverse counterparts, which made investing in them a smart business decision.
So Act One’s portfolio shows a strong commitment to well-rounded founding teams. Today, 70% of Act One’s portfolio companies are founded by people of color, LGBTQ+, or women.
Both of the firm’s funds have existed on three key principles, and now there is a fourth:
• Create access to resources by bringing Act One’s networks to the diverse founders it backs
• Help these founders build diverse teams through its inclusion rider in every term sheet
• Lower the capital commitment threshold to allow more diverse LPs to invest
• Bring other diverse check writers into deals either as co-investors or follow-on investors