It’s no secret that the world of VC has a diversity problem.
Sure, it’s getting better, but the industry is still overwhelmingly homogenous. According to a 2018 study by Richard Kerby of Equity Ventures, just 3% of VCs are black. In comparison, 70% of VCs are white. And the gender divide in venture capital fares no better: just 18% of VCs are women.
This isn’t ideal, as venture capitalists tend to fund people that look like them. And while some firms have pledged to invest in minority founders, they are far and few in between. As a result, diversity continues to be a widespread issue in the startup space and beyond.
Enter Harlem Capital.
Founded in 2015, Harlem Capital is now one of the largest diversity-focused VC firms. They’re aiming to invest in 1,000 diverse founders in 20 years.
Founders Jarrid Tingle and Henri Pierre-Jacques didn’t originally plan on starting a VC firm. During their undergraduate years—Henri at Northwestern and Jarrid at Wharton—they fell into the investment banking track, as many of their peers did.
It wasn’t until a stint at a mid-market private equity firm and subsequently Harvard Business School that the two realized the opportunity in starting a fund that was geared toward investing in diversity. “There’s no rational reason why this problem exists,” says Jarrid in an interview with TechCrunch. “It persists because VC funds in general have been closely held and clustered around Silicon Valley… a lot of investors are frankly missing out on a lot of opportunities.”
To date, Harlem Capital has invested in a range of startups with diverse founders, including Aunt Flow, Blavity, and Wagmo. They’ve also partnered with prolific LP firms such as TPG and have no plans of slowing down.
We sat down with Jarrid and Henri to hear their story and what they’ve learned so far.
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Tell us more about how Harlem Capital got started.
Henri: In December 2015, we started an angel syndicate and began investing across venture, small business, and real estate. Eventually, we realized that we liked venture the most. We also realized that most of our investments were in diverse founders. Diversity was not our thesis to start, but over time that became where we focused the syndicate.
A few years later, Jarrid and I were roommates and launched the fund in June 2018, between our first and second year of school. In November 2019, we hit our cap of $40 million. It was a long 18 months but a great experience overall.
How did you decide to invest in 1,000 diverse founders in 20 years?
Henri: We did a deep dive on what we wanted our mission and values to be. In business school, when you make your mission statement, you’re supposed to have a metric to track it. So if we wanted to help diverse founders, what would that mean from a numbers perspective? How many do we want to help? What’s the timeline?
We started with 100, but that felt way too easy. 1,000 was a stretch—we wanted to really push ourselves. VC investors are often pushing their founders to do extraordinary things. Why not have that mentality as a firm?
How were you able to raise $40 million?
Jarrid: We were originally targeting $25 million. We thought it would be a reach, given that we were pretty young and didn’t have VC experience outside of our angel fund.
At the beginning, we reached out to individuals, our network, and high net worth individuals. But there was only so much an individual could give us because VC is going to be a very small part of their portfolio. So we eventually realized we needed institutions to come in. We didn’t originally have a plan for an anchor fund like TPG.
We started raising between our first and second year of business school and came back with $3 million. Then, we got a couple million in the fall of our second year. Once TPG came in we were at $12.5 million. After we had a foundation and TPG as LPs, others became more interested and a lot of it came in at the end.
We were also investing as we were raising. We did a small first close in November 2018 so people could see what our strategy was in real time. Finally, we got a lot of institutions over the line once we said we want to close by Thanksgiving 2019.
How were you able to raise from such a prolific PE firm?
Henri: We got connected to TPG’s HR team through one of our LPs. Our LP knew we had a talent partnership with KKR and thought we could do something similar with TPG. That conversation eventually led to an investment. Jon Winkelreid, the co-CEO, became an advocate at the firm. We went through several months of diligence and legal back and forth and eventually got to a deal.
Long-term, we want to raise a significant amount of capital, so having somebody like TPG who’s in New York and San Francisco and has done growth equity is helpful.
What’s your investing strategy?
Jarrid: As we were raising, we were investing $200-250K per company. We didn’t want to be overallocated.
Now that we’re above our target, we’re writing checks from $750K to $1 million. We realized it’s helpful to have more ownership. We originally thought we could get a big chunk of equity in subsequent rounds, but for competitive deals, that’s tough to get. Sometimes you can’t get pro-rata, let alone a big check. So now we’re strategically writing larger amounts upfront, targeting 5-10% ownership.
Why did you choose Carta as your fund administrator?
Jarrid: Before Carta, we were working with a more traditional firm. We were content, but Carta reached out and I like to get to know third parties and see what we don’t know.
Carta did a couple of demos and it just opened my eyes up—I knew all their automated features would help us be more efficient. It would also free up time for our team to help us with everything. So it really was a win-win. The price is competitive as well, so there literally was no downside.
The only risk we took was that Carta was a startup. But we figured Carta is so disruptive it actually might be more risky to stay with the other firm, who may go out of business because Carta is so much better.
What advice would you give to VCs who want to invest in diverse founders?
Henri: I think the stereotype is because we’re black we’re automatically going to see more black deals. But that’s not necessarily the case. We intentionally seek out diversity.
Jarrid: It’s important to be as accessible as possible. Our emails are on our website, which a lot of firms don’t do.
Henri: Some firms don’t even have websites. They say you should get in touch, but if you can’t get somebody who can introduce yourself to us, then you’re not a networked CEO. I think that’s a really false disclaimer.
Jarrid: There are so many great entrepreneurs all over the country that may not have the networks or may not be tapped into the events or accelerators that generate a lot of deal flow. If we’re actually trying to make everything more equitable, it’s helpful for us to be accessible.
Henri: Also, go the extra mile for people who don’t have VC friends or other founders who’ve raised millions of dollars. They don’t have the luxury of getting the feedback they need. At the end of the day everybody’s a human, so taking a human approach goes a long way.
Jarrid: We’ve also leveraged social media and earned media, which is great. People know our brand and they think of us even when we’re not directly interacting with them on a regular basis. 43% of the deals we invested in last year were directly from management—we continue to see great quality founders outside of our networks.
What about investing in women specifically?
Henri: Our first investment was in a company called Aunt Flow, which creates tampons and pads for schools and enterprises. It’s a pretty big signal for an all-male GP team to invest in tampons. People see that we’re open to products we’re not a user of, and that goes a long way.
After that, it became circular. As you invest in more female founders and as you provide more female founders advice, it gets easier because they introduce you to other female founders. 44% of our deal flow right now comes from women. And it keeps increasing—it was 18% in 2016.
You need to measure these things. We realized we had our own biases—we were passing on some women, saying they were too early, but they had more revenue. And we realized we should be going to events and speaking at women founder-focused events.
But the biggest crux was just investing in more women founders. That really shot it up for us.
Why did you decide to not focus on a particular industry?
Jarrid: When Henri and I were in private equity, we were always just trying to find good businesses—we never had an industry lens to specialize in.
Also, we’re focusing on a relatively small part of the market from a capital perspective. Women and minorities only receive about 3% of VC funding. Software’s maybe 40% of the market in terms of capital, and healthcare’s around 30%. But if you look at minorities, it’s a much smaller pool. So we thought if we add an industry lens on top of this, it’ll actually reduce our pie and make it tougher to achieve our goal, which is ultimately to back underrepresented entrepreneurs.
What’s in store for Harlem Capital in the future?
Henri: We’re at 22 founders right now, and we’ll be at 23 in the next few weeks. It’s not linear—as your fund size grows (we want to raise $1 billion of capital in the next 10 years), you invest in 30 or 40 companies per fund. You’ve got three funds at times. The beginning will be a slow ramp and then you’ll see an exponential curve the last five to ten years.
This post was co-authored by Liz Huang.
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