Black VCs could face bigger hurdles in venture market slowdown

Fragile progress recently made by Black investors is suddenly in jeopardy.

It was only a few years ago that Black people began making significant inroads as professionals inside the overwhelmingly white male bastion of venture capital.

And while a growing number of them surely have broken through systemic and cultural barriers to operating in the VC ecosystem, they still struggle to attain acceptance and clout in the private markets’ best-performing asset class. Many have formed their own funds out of frustration with work at established venture firms, where people of color sometimes receive empty partner titles but not full-fledged investor status.

“The industry is full of a bunch of bullshit diversity theater,” said Elliott Robinson, a Black partner with Bessemer Venture Partners, speaking Thursday on a panel hosted by the nonprofit BLCK VC. “Very little has changed beyond the titling, and it certainly hasn’t changed in the roles and responsibilities, and the economics.”

During the height of the Black Lives Matter movement in 2020, the financial and corporate worlds were abuzz: Unprecedented dialogue focused on white privilege and its contrast to the dream deferred for Black investors, who aspired to finance diverse entrepreneurship while getting their own shot at VC success.

America’s reckoning on race the past couple of years hinted at a tilt toward a new era of equity and inclusion in a system long rife with inequity and exclusion.

Sure enough, countless corporate and financial leaders rallied for change, including stepping up capital allocations to minority investors or promoting their own diversity programs. And some change has come, such as an uptick since 2019 in representation of diverse owners in private market assets, according to the latest Knight Foundation study on the issue. While the exact reasons for that are unclear, one factor may be the growth of mandates by pensions, foundations and other funders to steer more of their capital to firms led by minorities and women in particular.

But now another reckoning looms. This time it’s driven by a market slowdown rather than a social awakening, and it could upset gains made by Black investors, whom LPs tend to regard as emerging managers, rather than established players with consistent records of delivering payouts to fund backers.

As the past several years of hyper-growth of VC-backed company valuations cools off, some LPs are more likely to reduce their risk profile in alternative assets.

“Typically, if you look at the last two big cycles, those dollars or what’s left of what they allocate, they typically go back to what they knew, and those are funds that have been around a long time, managers that they know, managers that have returned liquidity,” Robinson said. “My fear is what I saw happen in ’08-’09–some folks don’t make it.”

Black-led VC funds already are playing on an unlevel field when it comes to their ability to participate in the upside that most venture investors have…