Over the past three years, a group of investors has quietly donated $10 million to enable nine historically Black colleges and universities (HBCUs) to invest in their venture capital firms.

Why it matters: The Historic Fund is a unique effort to provide access to — and potential financial returns from — venture capital to HBCUs by tackling a fundamental challenge: their lack of capital to invest.

The big picture: Unlike many of their predominantly white peers, HBCUs have been largely absent as limited partners in VC funds.

• They also have much smaller endowments. None approach the $1 billion mark, while 136 predominantly white institutions do (and 69 have at least $2 billion), per an HBCU Money analysis of 2022 data from the National Association of College and University Business Officers (NACUBO).

What they’re saying: “The real story for me is not the VCs, it’s the HBCUs and it’s the endowment gap — and the gap’s been growing in part because of the success of venture firms,” explains Josh Kopelman, co-founder of First Round Capital one of the Historic Fund’s organizers.

• About seven years ago, First Round partners tried to recruit HBCUs as limited partners, but their lack of capital investable in illiquid assets sent them home empty-handed.
• “So what if we gave an allocation [in our fund] but we also agreed to fund that allocation?" he suggested. Positive returns could mean even more money for the schools than direct donations.

How it works: The Historic Fund is set up as a fund-of-funds, with the money donated by individual general partners from 10 venture firms.

• The capital is then invested into the newest funds raised by those venture firms in proportional amounts, with no fees or carry charged by the Historic Fund. That is, if an investor donated $1 million, the fund-of-funds invests $1 million into their firm’s fund.
• There are also plans to eventually set up ways to expose the participating schools' students to careers in venture capital.
• "We wanted to give them the experience of being LPs," says Historic Fund executive director Adanma Raymond.

Zoom in: The participating firms are Acrew Capital, B Capital, Cowboy Ventures, First Round Capital, FirstMark Capital, Foundry, General Catalyst, Spark Capital, Union Square Ventures, and fund-of-funds First Close Partners.

• Participating HBCUs include Benedict College, Bennett College, Fisk University, Florida A&M University, Hampton University, Morehouse College, Virginia State University, Virginia Union University and Xavier University of Louisiana.

Between the lines: The involvement of First Close Partners, a fund-of-funds Kopelman is also affiliated with, is also no accident.

• While some of the participating firms are led by investors of color, First Close is enabling the schools to indirectly invest in its portfolio of more than 50 funds with managers from underrepresented groups.
• It's also a member of the Historic Fund's investment committee, giving it even more of a seat at the table.

Yes, but: It's unclear what shape the initiative will take beyond this first fund. Relying on individual VCs' personal generosity may be unsustainable in the long run.

• And how some of these venture funds (which have closed at various times over the past two years) perform could impact the schools' desire to keep investing in the asset class.
• "The economy is mixed but I actually... this is a good time to get into venture because people can have a more realistic perspective," General Catalyst chairman Ken Chenault tells Axios.

The bottom line: "This is like seed to early-stage," says Chenault.

• "We're gonna prove out some of our hypotheses and we're gonna make some adjustments."

For many of the HBCUs participating in the Historic Fund's maiden effort, the unique lack of risk has enabled their first-ever investment in venture capital.

What they're saying: "It's a challenging conversation [with the school's board] to say, 'Oh and by the way, we're going to go ahead and tie up some cash for about 10 years," Bennett College president Suzanne Walsh tells Axios.

• For schools with such small financial resources (Bennett's endowment is about $15 million), this is about "the deferred maintenance of the science building... or an investment from the endowment," she explains.

Beyond the dollars: Another aspect that school representatives cited as most exciting is working with the Historic Fund on events, programs and other initiatives that will expose their students to the VC industry.

• "Venture capital and private equity has become all the rage," says Fisk University executive vice president Jens Frederiksen.
• "And we know that there are not a lot of venture capitalists out there that are from the underrepresented category," notes Rodney Hall, Virginia State University's deputy chief of staff.

Between the lines: For Walsh, this is also an additional angle to pitch to prospective donors.

• "It's not necessarily an exciting conversation, I think, for some donors to say, 'Please invest in our endowment just generally,' but when there are areas where they already have expertise and they already have interest in supporting" it can be more appealing, she explains.

The bottom line: This was as low-risk and high-reward as possible for HBCUs.

• HBCUs are missing from the discussion on venture capital's diversity (Axios)
• HBCU Money’s 2022 Top 10 HBCU Endowments (HBCU Money)
• Venture capital reckons with its racial disparities (Axios)

Investor Robert Smith made headlines when he told Morehouse College's 2019 graduating class he'd paid off their school loans.

• Question: Which huge celebrity also donated to the school that year? (Answer at the bottom.)