Diversity Term Sheet Rider Aims To Increase Diversity In Venture Capital Dealmaking
Act One Ventures, Greycroft Partners, First Round Capital, Maveron, SVB Capital, Harlem Capital Partners, Fifth Wall, Plexo Capital, Precursor Ventures and Equal Ventures are the first firms to commit to a new initiative which aims to increase the representation of minorities in all venture capital deals.
Signatories to The Diversity Term Sheet Rider for Representation at the Cap Table pledge to embed the boilerplate rider language into their standard term sheets, creating an opportunity between their firms and all founding teams to identify and bring diverse investors to the cap table. Silicon Valley Bank, Cooley, Fenwick & West, Stradling, Gaingels, Aumni and Crunchbase have also committed to raise awareness within their networks with the intent of helping this become an industry standard.
The Diversity Rider aims to increase the representation of minorities in all venture capital deals, even when firms invest in non-diverse teams. By inviting Black and other underrepresented groups of diverse check writers (DCWs) to co-invest with brand name funds at the early stages, it improves their track record among prospective limited partners (LPs), while founders will benefit from the addition of diverse networks joining their cap table.
"We are encouraged by the efforts being made by all firms – small and large – who recognize we must do more in the wake of George Floyd and Breonna Taylor's deaths which inspired the creation of this rider. Our goal is to ignite more in depth discussions around the lack of diversity in tech and venture," said Alejandro Guerrero, Principal at Act One Ventures. "This rider will sustain our collaborative efforts as an entire industry to improve access for underrepresented minorities, every single time a deal gets done. Through this, we will expand co-investing access, evolve diversity discussions at the cap table and create more diverse deal flow across the industry. As evidenced by research, diverse teams outperform and deliver better returns. Not only is this the right thing to do, but it will have a positive impact on the bottom line."
"Offering a chair to diverse groups and ensuring that they have the opportunity to be in the room during every single deal-making process will lead to a larger and necessary systemic change within the venture community," added Michael Silton, Managing Director at Act One Ventures.
Act One has offered the following boilerplate language for the Diversity Rider to include in term sheets, outlining the firm's commitment to include at least one DCW as a co-investor in the financing of new or follow-on deals:
Diversity Rider: In order to advance diversity efforts in the venture capital industry, the Company and the lead investor, [Fund Name], will make commercial best efforts to offer and make every attempt to include as a co-investor in the financing at least one Black [or other underrepresented group including, but not limited to LatinX, women, LGBTQ+] check writer (DCWs), and to allocate a minimum of [X]% or [X] $'s of the total round for such co-investor.
To support firms in finding DCWs, Act One is working with Crunchbase as part of its Diversity Spotlight Initiative to compile a list of underrepresented investors who are actively writing checks and would welcome co-investment opportunities.
"Supporting and committing to diversity and inclusion offers significant competitive advantage, particularly in younger companies that have the opportunity to integrate best practices into their core foundation," said Dana Settle, Founding Partner at Greycroft. "This rider opens doors to conversations around diversity and inclusion in the venture community and demonstrates to our founders and partners that this is a top priority for us."
"For diverse investors, it is challenging to enter the venture industry without resources or the right network. Short term, the rider helps to solve this by ensuring that these groups get a seat at the table and have the opportunity to develop new relationships which can lead to future success," said Henri Pierre-Jacques, Managing Partner at Harlem Capital Partners. "Long term, this is a step forward in changing the mindset in venture to ensure more investors are frequently considered for co-investment and follow on opportunities."
© The Sortino Group Ltd
All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency or other Reprographic Rights Organisation, without the written permission of the publisher. For more information about reprints from AlphaWeek, click here.