1. Performance
Recent Morgan Stanley reports Trillion-Dollar Blind Spot and Beyond the VC Funding Gap and numerous other sources have found that compared to conventional venture strategies, investment strategies focusing on social / gender / racial equity offer advantageous deal flow, superior return potential, and lower risk.
Reinventure Capital employs a social impact investment strategy pioneered by our President Ed Dugger; his former fund returned 32% IRR over ten years, with more than three quarters of portfolio companies contributing to the overall fund return.
2. Certainty
While there are no guarantees in investing, demographic shifts favor businesses and funds that serve a rapidly evolving market.
FSG reports, “changing demographics are causing the buying power of people of color to increase much more quickly than that of White Americans.” Yet as noted in the Morgan Stanley reports above, conventional VCs are slow to incorporate this reality into their practices, leaving best opportunities on the table.
Reinventure Capital focuses exclusively on high-value companies led by people of color and women, many of which are solving unmet demands within those same populations.
3. Selection
Contrary to oft-repeated complaints, there is no absence of either qualified impact fund managers or founder teams. There is no pipeline problem. Rather, there are abundant high-quality investment prospects spanning public and private markets, commercial stages, geographies, sectors, etc. Tideline found that impact investors who seek out, develop and manage interest-aligned networks are able to discover different and superior investment prospects.
By cultivating and exercising our network of founders and impact investors, Reinventure Capital sees hundreds of aligned founder teams per year, many of whom identify Reinventure as their preferred investor.
4. Prudence
It’s human nature to gravitate to people and practices that are familiar, widely agreed, or popular, in defiance of readily available evidence. Which is why we hold those who find success by not following the herd in such high esteem, even (or especially) when defying conventional wisdom is obviously the right approach. Impact investors have demonstrated that overlooked founders and first fund managers alike outperform their “proven” peers. Intentionally going against herd thinking to proactively select “unproven” prospects is prudent and rational evidence-based investing.
Reinventure employs an evidence-based strategy that is orthogonal to herd habits.
5. Rationality
A Ross School of Business analysis found, “Dislocations occur when financial markets experience abnormal and widespread asset mispricings. This study argues that dislocations are a recurrent, systematic feature of financial markets, one with important implications for asset pricing.” The hyperconcentration of the US venture capital sector—~90% of capital placed in companies led by white men from a dozen universities—is a large and persistent dislocation, offering concomitant advantage.
Reinventure capital employs a contrarian strategy proactively seeking mispriced risk and opportunities to generate both financial and social justice returns.
For more on Reinventure’s investment thesis and the context in which it is framed, see our article archive.