Bringing Diversity to Venture Capital Investing, With Check Warner
💸 Check Warner is an early-stage VC and co-founder of venture capital fund Ada Ventures - a $50m early-stage investment fund that supports overlooked and underrepresented tech founders.
💜 Having recognised the lack of diversity in the investment world, Check also co-founded the non-profit, Diversity VC, to help promote inclusion and eradicate affinity bias within the investment industry.
💥 Today on The Wallet:
1️⃣ Check gives us an introduction to venture capital, the role that VC’s play in supporting early-stage startup founders, how a fund is built and how founders can prepare for conversations with investors.
2️⃣ We discuss the positive knock-on effects that come with funding underrepresented groups and markets, and how we can get more money into their hands.
3️⃣ Starting a business is hard, and there can be a lot of pressure on your personal finances — especially in the early days. Check explains how Ada Venture supports founders financially and emotionally, and the work they do to make the investment space fairer and more inclusive for founders who are also parents.
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1. the challenges of building a fund
To build a VC fund, you first have to come up with a strategy and convince people that your strategy is going to generate fantastic financial returns. With a VC, it’s likely that you’ll have to lock up your money for about 10 years — so you have to be able to show that you can make outsized returns. Once you have your strategy down, you need to go around and speak to investors and convince them to invest money in your fund.
There are two ways that VC’s get paid: the first is charging a 2% annual fee on the total amount of a fund, and the second amount is when the VC gets paid on the profit that they make (this is called carried interest).
If you invest in a broad enough and diversified portfolio, with enough exposure to several companies, investing in companies can be very lucrative. While investing in individual companies at a very early stage is very risky, investing in a fund with a properly diversified strategy is a great way to make money.
Setting up a VC fund to support underrepresented companies can be very challenging. In part, this is because investors want to see data to support the idea that overlooked companies aren’t ‘bad’ — they’re just overlooked, and it’s challenging to find the historical data sets to support this.
You have to be resilient and be prepared for things to sometimes be difficult financially, too.
“Understand what’s important to you, understand what ‘rich’ means to you, and let that be the driver. Keeping up with the Joneses isn’t going to help you financially get to your goals at all.”
2. taking risk requires a safety net that a lot of people don’t have
Check admits that part of the reason she was able to take the risks she could was because of her privilege.
Part of what Ada Ventues is trying to do is support entrepreneurs that may not have the background that allows them to live at home with their parents or rely on their partner’s financial support while they set up their business.
There is a self-fulfilling prophecy that wealthy, white male founders help fund other privileged, white male founders. This is called the affinity bias. Ada Ventures seeks to tackle this: not only through the founders that they invest in, but also with their scouting community and with their angel investors.
More generally, it’s important the female and underrepresented founders make enough money to then go back and help fund other female and underrepresented founders. Helping to build this community is something that Check is really excited about.
3. tips for if you want to get involved
Please note that this is not investment advice.
Consider how much you have in total and look at your overall asset group. Think about a small proportion of that — money that you are prepared to lose.
Look at crowdfunding platforms and take advantage of EIS/SEIS.
Invest in at least 20 companies that are all early-stage, so that you have enough exposure and aren’t putting all your eggs in one basket. Ideally, one or two of those companies will do exceptionally well.
As you start to get more understanding of which area of technology you have the most expertise in, then you can start sourcing deal flow from other places, like angel investors.
Even if you’re investing just £50 in a crowdfund, it’s always fascinating to learn about this space.
RESOURCES:
You can follow and connect with Check at:
Ada Ventures: https://www.adaventures.com
Diversity VC: https://www.diversity.vc
Twitter: @checkwarner
We shared some resources in this episode, all the links are below: