Venture capital firms to include "diversity riders" in term sheets
Ten venture capital firms on Wednesday will announce that they're now including "diversity riders" in term sheets submitted to startups, requiring that best efforts are made to bring underrepresented investors into the deals.
Why it matters: This is a tangible effort to diversify cap tables and, in so doing, expand access to investors who have historically been excluded.
The backdrop: Diversity riders are the brainchild of Alejandro Guerrero, a principal with Los Angeles-based Act One Ventures. He tells Axios that he "went through a deep grieving process when George Floyd got murdered" that led him to explore ways to move the diversity needle forward within his industry.
The rider language is as follows:
"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."
Details: Firms committing to include the riders are Act One Ventures, First Round Capital, Fifth Wall, Greycroft, Harlem Capital Partners, Maveron, Plexo Capital, Precursor Ventures, SVB Capital, and Equal Ventures.
The bottom line: "Venture capital firms obviously compete against each other, but this is a way to create a new level of trust and cooperation when it comes to making introductions to underrepresented investors in our networks, or maybe in our founders' networks," Guerrero says.
- "The thing I've learned in having conversations with other investors over the past three months is that everyone is ready to do more."