A New Model For Corporate Diversity Investing

After several years of gradual increases in corporate awareness about the business value of Diversity & Inclusion (D&I), the turbulent events of the past eight months have led to a dramatic rise in corporate D&I activities, ranging from vague statements of support to substantial monetary investments.

While this sudden increased awareness is welcome, some have questioned whether this is the beginning of a wave of sustainable change, or whether it is just a transient phenomenon. Moreover, an increasing number of D&I supporters are pointing out that the traditional approaches to corporate D&I have failed to demonstrate significant progress – a particularly troubling observation given the billions of dollars poured annually into D&I initiatives, with little progress to show in the past several decades.

While many corporations wax poetic about the value of D&I, there is often an unstated belief that the primary benefits of corporate D&I are reputation management and risk management. Reputation management recognizes that D&I can have a positive or negative impact on a company, especially in today’s social media-driven world, where missteps – and, occasionally, acts of inclusion – are likely to be amplified and have a sudden, material impact on product sales and stock prices.

Aside from managing the possible risk associated with a tarnished reputation, D&I-related risk management is almost entirely focused on minimizing the risk of costly lawsuits brought by current or former employees who accuse corporations of various forms of wrongdoing or mistreatment on the basis of one’s race, gender, religious belief, or other personal traits.

The events of the past 6 months, starting with the murder of George Floyd and including the Covid-19 pandemic, should make corporate leaders realize that the focus of D&I-related risk management cannot be limited to inside a company’s own walls. For some companies, the civil unrest had an immediate impact in terms of stores being shut down and in some cases vandalized during protests. Other industries have been dramatically impacted by the preponderance of Black and brown people among essential workers, which, coupled with the disproportionate health impact of Covid -19, has led to shutdowns and other disruptive events.

The combination of these tumultuous events has made it clear that our society is a complex, highly interconnected ecosystem, and that corporate risk management needs to widen its lens to consider the role of each corporation within a much broader societal context: rather than simply focusing on diversity in terms of representation of their workforce or their suppliers, corporations should realize that investing in making all of society more inclusive and equitable is of paramount importance – if not because of the value that it can create for the company, at least because of the risk that it can mitigate. Specifically, these recent events make it clear that our economy faces enormous risk from the civil unrest fueled by our country’s growing income inequality and troubled race relations. Ignoring these sources of risk could and should be seen as a violation of a corporation’s fiduciary obligation to its stakeholders.

These compelling ideas were shared with me by William Crowder and Garnet Heraman, two veterans of the Venture Capital (VC) and Impact Investing world, who recently founded Aperture Venture Capital, which they describe as the “diversity investing API for the world’s leading corporations.” In a nutshell, Aperture is a new seed-stage venture fund that brings together corporations, mission-driven investors and founders from diverse backgrounds to reshape the startup landscape in a way that traditional VC firms have been unable to do. Crowder and Heraman created Aperture in response to the stunning lack of diversity in VC and tech in general, which leads to the vast majority of VC funds going to white, male startup founders.

The Aperture fund promises to yield multiple benefits for corporations. First, most corporations focus their D&I efforts on philanthropic activities or HR activities. Participating in the Aperture fund instead allows companies to extend their D&I activities into corporate investing, further showing their commitment to D&I in a core area tied to corporate finance.

Second, there is growing evidence that investing in diverse startups is a sound strategy: a recent Kauffman Foundation study of over 260,000 startups, found that diverse founding teams yield higher returns when cash is returned to investors, exceeding the average returns relative to white founding teams by 30%.

Third, participating in Aperture’s fund gives corporations access to a broad ecosystem of diverse founders and startups – something that is notoriously hard to do for investors who themselves do not come from a diverse background.

The value of connecting startups and corporations has been recognized before. For example, leading accelerator TechStars has launched multiple corporate-backed accelerators in partnership with corporate giants such as Barclays, MetLife and Comcast NBCUniversal; in this model, the accelerator program is designed and managed by TechStars, while the corporations have some influence in the selection of startups and have priority access to them. In an alternative model, some corporations have launched their own accelerators, such as the SAP.iO Foundries, SAP’s global network of accelerators that work with promising startups whose products have the potential to integrate with SAP solutions; this approach gives the corporation greater flexibility in designing a program that matches its specific needs, but it requires that the corporation hire its own staff, design its own program, and find its own startups. An interesting, hybrid model is provided by UK-based L Marks, which has essentially created a two-sided marketplace, helping corporations develop innovation programs and then looking for startups who could be a good match.

Aperture takes a new approach to corporate startup investment, one that is motivated by, and firmly grounded in, the value of startup diversity. By creating an ecosystem of corporations and founders – rather than a collection of stand-alone corporate accelerators – they create fertile ground for diverse startups to access valuable capital, resources and access to potential key clients, while the participating corporations are able to tap into a much wider network of diverse startups than they would be able to do on their own. Corporations retain some of the flexibility in how they may want to work with startups, in a way that best aligns with their objectives and that takes advantage of their unique strengths and resources. And the founders benefit from having access to a broad set of corporate resources.

While some corporations – most notably Morgan Stanley with its Multicultural Innovation Lab – have already realized the value of working with founders from underappreciated segments, a single corporation cannot offer the breadth of resources as a network of corporations, and it will have to conduct its own outreach to attract startups with diverse founding teams.

In contrast, much of the strength of Aperture’s model lies in Crowder’s and Heraman’s deep experience in working with founders from diverse backgrounds, and the networks they have built: in his VC roles at Comcast, Morgan Stanley and Dreamit Ventures, Crowder has been an early investor in more than 100 companies with diverse founders, including being part of one of the largest Series A rounds raised by a Black woman founder (Lisa Skeete Tatum, who raised $13 million for Landit). Heraman is a serial entrepreneur, angel investor and impact investor focused on building highly scalable innovation ecosystems in underrepresented communities, including the creation of an opportunity-zone fund focused on a joint venture with Morehouse College in Atlanta. Between them, Crowder and Heraman have both the network and the credibility needed to tap into a segment of the entrepreneurial ecosystem that is largely invisible and inaccessible to traditional VC firms.

Crowder, who had been disappointed by the lack of significant change since he first got into investing in 2011 when he joined DreamIt Ventures, was looking for an opportunity to level the playing field for founders from diverse backgrounds. When a mutual friend reconnected him with Heraman – whom he had met years earlier – they began to discuss the idea, and saw an opportunity to “bring together corporations that want to support the mission, go into the market, invest in the startups and provide them with unique resources.”

Right after they started pitching their idea, the pandemic hit and the economy tanked, and people thought their idea was crazy. But then “the murder of George Floyd happened, and since then there hasn’t been anybody that has not wanted to talk to us,” Crowder told me.

“Our one-line unique value proposition is that we offer a way to transform existing corporate strategy into a diversity investing apparatus,” Heraman said in a recent conversation. “Corporations have no problem with the notion of helping [diversity and inclusion] via philanthropy. But Black, brown, female founders don’t need charity, they need investments.”

Heraman also underscored another benefit for corporate partners: “Aperture will play a role in unleashing diverse entrepreneurs already resident in a corporation or its legacy portfolio companies. This means that diverse employees who have an innovation and want to launch a startup of their own will have an organic path to engaging with a fund where the managers look like them, and understand the strategic market space. The overall effect is a powerful virtuous cycle that supports the retention of both human and intellectual capital, while also expanding the pool of potential startups for the fund.”

Aperture’s approach is refreshing as much as it is powerful. At a time when some corporations have been accused of “performative” D&I, i.e., the practice of talking about their support of D&I without actually doing something tangible, Aperture offers corporations a way, quite literally, to put their money where their mouth is.

Paolo Gaudiano


Diversity, Equity & InclusionI explore the complexities of diversity & inclusion

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