I wasn’t a camp kid. I never went to camp.
But somehow as a small child I nevertheless learned and sang that horrible Little Red Wagon song:
You can’t ride in my little red wagon
Front wheel’s busted and the axle’s draggin’
chug. chug. chug.
[Nth] verse, same as the first,
a little bit louder and a whole lot worse:
(repeat)
As I write this, just past the halfway mark of 2021, breathless headlines are accumulating about the unprecedented sums of capital committed over the past 18 months to and by venture capital funds here in the States. In short, the venture capital sector saw its biggest year ever in 2020, and so far 2021 capital flows already exceed the 2020 pace.
Following on all the public announcements made in 2020 of intentions to address racial / social / gender inequity in the financial sector, as well as all the calls for a post-pandemic new normal, these headlines are both disappointing and entirely unsurprising. The song is immediately recognizable as a little bit louder and a whole lot worse.
A new normal?
If a new normal is unfolding, it is not evident in the numbers. Earlier this month The Plug reported that the corporate and institutional LPs it surveyed invested $284M in Black fund managers in 2020 and 2021. While this figure does represent progress on the part of the participating LPs, it is also worth keeping in context: the $284M total is equivalent to a single modest-size conventional venture fund. As established funds ballooned and funding rounds increased in size, the proportion of capital flowing to BIPOC and female fund managers and founders held steady or decreased.
Widely characterized as capital allocators “fleeing to safety,” this phenomenon is more accurately described as an emphatic reassertion of the status quo: increase the volume several more decibels, reassert hegemony, and chug along.
“Brands that don’t have a multicultural strategy don’t have a growth strategy.” — Claire Sulmers, Founder & CEO Fashion Bomb Daily
As Ms. Sulmers so eloquently put it, the irony here is that if investors were truly fleeing to safety, they would be fleeing away from hyperconcentrated portfolios carrying concomitantly elevated risk, and toward funds and strategies grounded in the reality that BIPOC and female founders and customers represent superior investment prospects as well as substantially all growth opportunity in the US economy.
Although we like to think of ourselves — particularly in the finance sector — as rational, fact-based decision makers, the evidence shows that human beings in all sectors consistently make decisions based on a variety of non-rational and even counterfactual factors, including social proof.
[A serviceable definition, courtesy of Wikipedia: “Social proof is a psychological and social phenomenon wherein people copy the actions of others in an attempt to undertake behavior in a given situation…Social proof often leads not only to public compliance (conforming to the behavior of others publicly without necessarily believing it is correct) but also private acceptance (conforming out of a genuine belief that others are correct).”]
“There is no normal life, Wyatt. There’s just life. Now get on with it.” — Doc Holiday, in the movie Tombstone
Conforming with established practice feels very reassuring, sensible, and safe, even though it is actually a choice to sacrifice performance, forego opportunity, and miss out on the tangible and intangible rewards of exercising our own faculties.
Moreover, conforming with established practice precludes — or at least indefinitely postpones, which is essentially equivalent — meaningful progress in the necessary shift from brittle extractive and exclusionary economic models that channel fantastical wealth to a few, to resilient sustainable and inclusive economic models that generate wealth and opportunity for many.
It’s also dead boring.
Ditch the wagon. Or better yet, upcycle it into something better.
As regular readers of these posts know, Reinventure has no interest in the little red wagon song, its broken model, its exclusionary self-congratulation, its pointless repetition, or its tuneless shouting.
Reinventure invests exclusively in US-based companies led and controlled by BIPOC and/or female founders, at breakeven, and poised to grow profitably. We find vigorous, robust high quality deal flow in the form of founder teams who are widely misperceived as low-return and high-risk, growing self-sustaining companies into economic engines that create wealth and opportunity for all stakeholders — investors included. Moreover, many of these companies are commercializing profitable solutions to social, economic, environmental, educational, financial, health, or other system-level problems that conformist wisdom variously deems intractable, unavoidable, niche, or a distraction from financial prudence.
We aren’t interested in conformity because we know both from our own experience and from observing our peers [see a sampling on our website, under Channel Capital, or connect with groups like VC Include, NAIC, DAMI, or BLCK VC to learn more] that higher standards are readily attainable and far more rewarding than replicating the status quo for yet another ugly verse.
Join us.
Or if you have already traded in the little red wagon for a much better song, we would love to find ways to join forces with you.
Either way, please contact us to explore how we can get up to good trouble together. And please let’s share so others can join you as well!
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Photo credit: Gary Sandoz on Unsplash
*While there’s no such thing as a guarantee in investing and no one can reliably predict the future, Ed’s prior track record delivering 32%IRR to investors provides direct evidence that it is indeed possible to consistently invest for both financial returns and social value creation. If you are an accredited investor and would like to learn more about investments that can advance social, racial, and gender equity by supporting high-value companies led by women and/or people of color, please contact us to start that conversation.
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The information contained in this blog does not constitute, and should not be used or construed as, an offer to sell, or a solicitation of any offer to buy, securities of any issuer, fund or other investment product in any jurisdiction. No such offer or solicitation may be made prior to the delivery of definitive offering documentation. The information in this blog is not intended and should not be construed as investment, tax, legal, financial or other advice.