A16z launches donor-advised fund for underserved founders with $2.2M in initial contributions

[Editor’s Note 6/5: We’ve updated the title and article to make it clearer that the fund will grow with donations and matching.  – Matthew Panzarino]

Andreessen Horowitz announced today in a blog post that it is launching a fund designed to invest in underrepresented and underserved founders.

The Talent x Opportunity (TxO) fund, which a16z says was in the works for six months, starts with $2.2 million in donations from the firm’s partners. TxO will be invested in a small group of seed-stage startups the first year and expand in size going forward.

“We are looking for entrepreneurs who did not have access to the fast track in life but who have great potential. Their products can be non-tech or tech; they should be from underserved communities (all backgrounds welcome); and ideally, their business will have an interesting model, niche market, and/or a little traction to indicate the promise and potential,” the firm wrote in the post.

A16z says the goal of TxO is to be “much like an accelerator for the unseen, where the outcome is to go get VC money,” and will provide entrepreneurs with networks and training programs. We reached out but the firm did not offer comment on whether it will invest in startup follow-on rounds.

A16z has $12 billion in assets under management across its funds, so a $2.2 million fund is not groundbreaking from a monetary perspective, but the fund will grow with donations and returns over time. TxO is also notable because of the way the firm wants to invest it.

The firm will invest the donation-based fund in exchange for equity in the businesses, but several characteristics make TxO different from a traditional venture fund:

  • The initial $2.2M put in by A16z partners will be augmented by donations.
  • The fund is a Donor-Advised Fund which means that it offers tax benefits to the donor and acts as a giving vehicle.
  • All returns by investments to the fund will remain in the fund to finance future entrepreneurs.

Ben and Felicia Horowitz are matching an additional $5M in any donations to the fund. The launch of TxO comes in the wake of the killing of George Floyd by Minneapolis police and the subsequent police violence during protests throughout the country over the last week.

In a thread on Twitter after this article was published, fund leader Nait Jones added additional details about how the fund will deploy and what kinds of investments it is looking for.

Others in the venture capital community have rushed to show support for the Black Lives Matter movement, after days of protest. SoftBank, which had a racist controversy lately through one of its portfolio companies, launched a $100 million opportunity growth fund this week to invest in founders of color.

Black entrepreneurs and investors, who have been investing in diverse entrepreneurs day in and day out, are dubious of the flood of reactions from others, given the fact that the venture capital industry has been slow to change in the face of inequality.

Many say that it should not take the deaths of countless Black men and women for the tech community to change the way they invest in diverse entrepreneurs. The rush for initiatives thus can look more opportunistic than well-intentioned.

Fundamentally, the broader venture capital community needs to do two things: hire the people and wire the investment.

“It’s not complicated: Invest in Black founders. You don’t have to invest in ALL Black founders. You can keep your thesis and yes even your so-called ‘standards’ and find multiple Black founders to invest in,” Arlan Hamilton of Backstage Capital wrote to TechCrunch on Tuesday. “If you need help, I have 130 portfolio companies + I can introduce you to a curated list of a dozen Black investors to hire.”

Some firms are brainstorming pre-seed investment funds targeted for companies led by black founders. One firm, which declined to comment because the efforts are still too early in the planning stage, said the fund could focus exclusively on companies coming from historically Black colleges and universities (HBCUs).

A16z itself declined to share how it will source companies, and instead pointed to its blog post. In the post, the firm said that it has spent the past six months finding the “names on hidden genius founders you would not see in Silicon Valley.”

But the firm’s sourcing strategy is imperative to how successful it is in the fund’s goal to invest in more diverse entrepreneurs. Networks in venture capital are largely male and white, so specific pipelines are needed. Will it source from HBCUs? Will it attend Black tech conferences to find talent? Will it co-invest with Black-led firms like Cleo Capital, Backstage Capital, Precursor Ventures or Harlem Capital?

The answers to these questions will be imperative in understanding how the firm can support founders beyond a check.

The TxO fund will be led by Naithan Jones, who has been with the firm for five years. Jones was plucked by Ben Horowitz, a partner at Andreessen Horowitz, who had invested in his seed-stage company, AgLocal. In a blog post from 2017, Jones detailed what the conversation looked like.

“Ben was calling to find out if I’d be interested in working at one of the a16z portfolio companies or at a16z itself. I was shocked, stunned. The last thing I expected was for them to call me and see if I wanted a job. It turned out that as I was running my company into bankruptcy, the firm was getting to know me. They saw skills and talents that they believed they and their network could use. They looked into the real me. They didn’t see ‘black, no college degree, outsider.’ They saw Nait Jones.”

A16z has made dedicated monetary efforts to fund Black entrepreneurs previously. In 2018, the firm launched a Cultural Leadership Fund. The fund, which has an undisclosed size, was created with high-profile limited partners, including Will and Jada Smith, Chance the Rapper, Kevin Durant, Nasir Jones and Shellye Archambeau. The Cultural Leadership Fund donates all of its annual management fees to nonprofits that advance more African Americans into tech.

The TxO fund is different because, unlike CLF, it will not deliver returns to LPs. Any returns will go back into the fund to reinvest.