This $250 million growth fund will divert half its profits to historically Black colleges and universities

·5-min read

There's been a lot of talk about racial equality in the year since George Floyd was murdered in Minneapolis, but achieving it is far easier said than done given the current state of affairs. Consider: According to the U.S. Government Accountability Office, historically Black colleges and universities have $15,000 on average in endowment per student, while comparable non-HBCUs have $410,000 on average in endowment per student.

That matters, a lot. While higher learning institutions are almost universally focused on diversifying their student base, HBCUs are largely responsible for the nation's Black middle class, and the larger the endowment, the stronger the school and its ability to support its educators, researchers and, in the case of public HBCUs, its public service mission. Venture capitalist Jamison Hill says that his own father, who attended North Carolina A&T State University in Greensboro, has long maintained that "if it weren't for that experience, there's no way he could have gone on to get a high-paying job, where he met my mother, who laid the foundation for the success of our family."

Hill, who most recently spent more than six years with Bain Capital Ventures, is now doing something to protect that legacy, along with a kind of dream team that features Laura Weidman Powers, who has co-founded or led numerous impact-focused startups and nonprofits, including Code2040; and Luci Fonseca, who helped establish the Institute for Black Economic Mobility at McKinsey & Co. and focused previously on impact investing at Salesforce Ventures.

More specifically, all three have joined the four-year-old venture firm Base10 Partners to invest a new, $250 million growth-stage fund. It's Base10's first later-stage vehicle, but it's not an opportunity fund and follow-on checks aren't part of the model. Called the Advancement Initiative, the fund's focus is instead on ringing up meaningful returns by investing in companies on the cusp of going public, then directing half the firm's profits (or "carry") to HBCUs to create student scholarships and support university endowments.

It's a brilliant play on the part of Base10, a Bay Area outfit that closed its second early-stage fund last year with $250 million in capital commitments. With a mission that is easy to support and gives founders a frictionless way to do good by doing well, the fund has already managed to work checks into eight high-fliers -- Attentive, Nubank, Brex, Plaid, Aurora Solar, Wealthsimple, CircleCI and KeepTruckin.

In each case, the fund participated in heavily oversubscribed rounds with the blessing of founders who made room for its capital, as did other investors. (As an added sweetener, Base10 has promised to create scholarships in the name of each of these portfolio companies to fund the education of HBCU STEM students. Think: The Plaid Scholarship, The Brex Scholarship, and so forth.)

It's certainly a fresh take on how the venture world can help close the racial inequality gap in the U.S., one that could conceivably prove even more effective than other initiatives, particularly if it inspires copycat efforts. HBCUs confer nearly half of all STEM degrees for African-American students, says Base10, yet all 107 HBCU endowments combined are equal to just 7% of Stanford's roughly $30 billion endowment.

So how will it work? For now, says Hill, the idea is to operate the fund as any growth-stage fund, meaning the overarching criteria is to back companies with the potential to produce outsize returns, no matter the skin color of their founders. Ultimately, however -- "our hope is that this is not one and done," says Hill -- the idea is to drive change even further by layering in requirements about who can receive a check from the outfit.

As for the Advancement Initiative's returns, some will flow directly back to particular HBCUs because they are limited partners in the fund. These include the private university Howard University in Washington, D.C. and Florida A&M University in Tallahassee, Florida.

Indeed, while the fund's LPs also include organizations that serve minority communities and mission-oriented foundations, the Advancement Initiative was particularly focused on "removing any barriers to HBCUs investing," says Weidman Powers, adding that it invited them to invest with "no fees, no minimums, [and] no real closing date."

The rest of the returns being directed to HBCUs will flow into a donor-advised fund, one's that focused on increasing financial inclusion for those institutions that don't currently have endowments large enough to support a private market strategy.

All of this assumes, of course, that there will actually be profits. After all, even the best laid plans don't always work out. Still, given the late-stage of the companies it is backing, the business models of the companies being pursued (all produce meaningful revenue), and the buzz surrounding them, these bets are about as low risk as it gets in venture capital.

In the meantime, the fund's pitch is resonating. "We've found that a lot of companies are very willing to have a conversation with us," says Fonseca, who says the idea is to plug between $10 million and $20 million into each of the fund's portfolio companies.

"The toughest part is just getting in front of the CEO," she adds. "Once we get in front of that person and we tell that story, we tell them the vision, they're immediately sold."