Harlem Capital recently closed its debut funding round with $40.3 million, making it one of the largest venture capital funds with a diversity mandate. John Henry, a venture partner at Harlem Capital, and Jarrid Tingle, one of the firm’s managing partners, joined The Final Round to discuss how they intend to generate impact through investments in companies run or founded by women and minorities.
How to support diverse founders during the next IPO wave
The IPO market swelled in 2019, when unprofitable companies like Uber (UBER), Lyft (LYFT), and ill-fated office-sharing start-up, WeWork achieved record-breaking, and unsustainable, valuations. Despite this oversaturated funding environment, however, raising money for women and minorities remains difficult.
“One thing that drove us personally is 2019 has been a record year for IPOs, and those obviously generate so much liquidity in the market,” says Henry. “But the percentage of that capital that went to women and minorities were surely a fraction of it. And so we are really excited and elated to now be in a position where we can set up diverse founders to capitalize on any future IPO waves.”
According to Henry, diversity investing can be seen as a “fluffy category,” which could explain what he and Tingle describe as a “slow roll” into their funding.
“Once we got some premier, top-tier institutional backing, it’s kind of paving the way,” says Henry. “I think it’s a turning point for how people will view diversity folks investing in the future.”
Investing in a community of women and minority-led businesses
Unlike its rivals, Harlem Capital continued to invest in businesses it believes in – those led largely by women and minorities – while it fundraised.
“We've always been sourcing opportunities, meeting people, and thinking about where we want to go,” says Tingle. “But now we're super excited to have this [funding round] behind us. Now we're focused on just finding the best top talented entrepreneurs wherever we can, whether in New York, whether in Illinois. We just really want to get it done.”
And what they want to get done is ambitious. Harlem Capital’s strategy is to invest in thirty companies – the firm has already found eight, with hopes of two more within the year – then another ten in 2020 and 2030, respectively. Both graduates of Harvard Business School, Tingle says he and fellow managing partner, Henri Pierre-Jacques are “happy to be back” in New York City, where they hope to “build a dominant presence, get people together, and build a community” of women and minority business leaders through Harlem Capital’s investments.
“We believe that talent is distributed equally, but opportunity is not,” says Tingle. “There are very qualified entrepreneurs all over the country. The issue, though, is that in VC, people tend to aggregate in clusters. And so Silicon Valley, Bay Area, New York, Boston, LA, they are where the capital has been and where people tend to locate their companies.”
“And an interesting anecdote around geography is evaluation,” says Henry. “Folks say that the true valuation of the business is coming from the Midwest. And then as you go out to the coasts, the cost of living, what have you, drives these valuations up. So what happens when you can find an undervalued business in the Midwest, and then in their later rounds, kind of get that pop? That's what we call the inclusion alpha, which is what we're very much seeking.”
Evaluating diversity as a business case
According to Tingle, Harlem Capital currently treats diversity as a business case. Rather than sharpen its focus on specific industries, the firm is instead investing broadly in women and minority-led businesses.
“When we started fundraising, we actually did get some pushback,” says Tingle. “‘OK, but what sectors are you focused on?’ And we said no. The problem is so bad. When minorities only receive 3% of VC funding, we can't afford to be very focused on industries. No one even knows where these entrepreneurs live or where they're starting companies. We're actually a thought leader. We've done a report. We actually found 200 black Latino founders that raised over a million dollars. But to this point, no one's ever done it. You first have to map where the opportunities are, and then you can get a focus from there.”
Olivia Balsamo is a writer and producer at Yahoo Finance. Follow her on Twitter: @OliviaBalsamo.
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