Black LPs fuel a16z’s third Cultural Leadership Fund

Venture capital firm Andreessen Horowitz announced last week that it closed its third Cultural Leadership Fund (CLF), an investment vehicle led by partner Megan Holston-Alexander.

The fund formed four years ago with a mission to explicitly raise money solely from Black investors. As part of the new fund’s rollout, a16z listed dozens of new investors, many of them high-wattage names like singers Pharrell Williams, Abel “The Weeknd” Tesfaye and Lionel Ritchie.

The debut fund, closed in 2018, was an $18 million investment vehicle while Fund II filings indicated a $23.6 million close. While the firm declined to disclose the exact size of Fund III, our calculations suggest it was somewhere around the $18 million mark. A16z says it has raised more than $60 million across all of its Cultural Leadership funds.

The fund co-invests with a16z’s main funds and thus has stakes in north of 300 companies across crypto, consumer, enterprise, fintech, healthcare and biotech. The firm declined to disclose average check size and its target ownership percentage as well as which stages it is focused on.

CLF’s focus is to get more Black investors on cap tables, and, if all goes well, future exits could promote wealth creation and a fortuitous cycle. The firm declined to answer if its focus on diversity also extends to which startups it chooses to co-invest with; but the firm does have a separate fund that focuses on diverse founders.

Two years ago, in the wake of George Floyd’s murder, the firm launched a donor-advised fund, Talent X Opportunity or TxO, for underserved founders with $2.2 million in initial contributions. Entrepreneur Naithan Jones spearheaded the effort when it first debuted, but the investor left after less than two years to work as the head of growth at Royal. The fund’s efforts are now led by GP Jeff Jordan, as well as investors Tauri Laws-Phillips and Kofi Ampadu.

So far, only two cohorts of founders have publicly gone through the TxO accelerator, while a16z says it has a new cohort starting in July.

TxO is different from CLF because the former offers an accelerator-like program and $100,000 check in exchange for 7% equity. TxO LPs don’t make profits from the fund’s investments, as all earnings are put back into the fund to be reinvested into other entrepreneurs.

“TxO will not invest in deals a16z has already invested in,” a16z wrote in a FAQ page. “Rather, the Fund seeks to invest in entrepreneurs who are building companies around cultural breakthroughs who generally lack access to traditional venture capital investment.” The firm went on to say that it’s “not an active goal” of the initiative to get TxO graduates follow-on investments from a16z’s venture fund.

CLF sounds more traditional but does still include a donation angle. All of a16z’s management fees and carry are donated to nonprofit organizations to help African Americans break into technology roles. So far, the firm has donated more than $2.5 million.

The announcement comes just weeks after the firm announced a $4.5 billion web3 fund and a $600 million gaming fund. In the beginning of 2022, a16z raised $9 billion for its venture, growth and bio funds.