Diverse Emerging Manager Identifies Missed Opportunities In Venture Capital

The Latino population is expanding rapidly, but not in the at-risk community, where the numbers are gradually changing.

One in four children born in the US is Latino; the ratio is more than one in two in states like California, New Mexico and soon Texas. However, according to VC Human Capital Survey, only 5% of investment partner positions are Latino. The percentage of US venture dollars invested in Latino founders is 1.5% through the third quarter of 2023, down from 2.5% in 2021, according to Crunchbase.

Two Latino business school classmates are changing that. They started angel investing together and then launched an emerging manager venture capital fund, Red Bike Capital, based on their success. Bank of America is a limited partner (LP). The fund invests in technology to improve financial inclusion, boost trade, boost sustainability and deliver better health outcomes.

Rachel ten Brink is a General Partner at Red Bike Capital. Her Cuban parents immigrated to Costa Rica, where she was born. Later, he immigrated to the United States to attend Babson College and then worked at Gillette. Ten Brink earned his MBA at Columbia and over the next 15 years helped grow billion dollar brands. In 2014, she co-founded and became the CMO of Scentbird.

Ten Brink started thinking about what made her tick a few years ago. “I love helping early-stage founders,” he exclaimed. “Just when they start to see the product market adapt, and that’s when you start to see companies take off.”

His passion for helping startups happened organically. At first, ten Brinks advised the founders and later joined their advisory boards. Together with his former classmate, Herman Goihman, he realized that he had an excellent business flow. The couple started an angel investment together.

The duo has complementary skills. Ten Brink focused on marketing and revenue generation. She is also an alumnus of Y-Combinator which raised $29 million in venture capital. Goihman is a seasoned investor and fintech expert who began his career as an investment banker and has held senior investment roles at Bank of America and Taconic Capital. Your credit experience is especially relevant as interest rates rise and approval rates fall.

“We’ve done 18 angel investments, which have gone pretty well,” he said. “Eighty percent of the investments were in women and people of color. Investors asked ‘how did you get into these companies? They won’t leave my phone.'”

This interest spurred the launch of Red Bike Capital, an early-stage venture capital fund that invests in:

• Fintech with a focus on credit and financial education
• driving commerce through SaaS, which allows users to connect and use cloud-based applications on the Internet
• digital health and well-being

“We invest in the best founders, period,” Ten Brink said. “Our goal is to deliver best-in-class performance and we want to be a permanent fixture in the technology ecosystem.” Four out of five out of ten Brink and Goihman angel investments were women and POC. With a deep network in the startup ecosystem, Red Bike receives 75% of its deal flow directly from founders who refer other founders.

Most of Red Bike’s limited partners (LPs) are accredited investors. “Sixty percent of our LPs are female and diverse,” Ten Brink said. “We are passionate about providing generational wealth opportunities for diverse people, especially Latinos. We are such an underrepresented community in venture capital!” Almost 20% of the US population is Latino.

The limited partners invested in the fund for several reasons:

• It is an operator-led fund. They bring a track record of success, industry relationships and experience navigating challenges.
• Ten Brink’s network includes Y Combinator, Techstars and 500 Startups, and serves on the board of Latinas in Tech, the largest organization of Latina tech professionals.
• The fund focuses on providing high returns.
• Some also want to close the funding and wealth gaps for women and POC. They believe that when you support diverse founders, like Ten Brink, they come back, invest in other diverse founders, and continue to build the flywheel.

Interestingly, ten Brink has become known for its network. As an immigrant, he didn’t have friends or family with money to risk investing in a company. Ten Brink had to proactively build these relationships, which is why she is an active mentor and advisor to various accelerator programs. The relationships she made at the universities she attended are an essential source of rapport, as are the other support and networking organizations she belongs to.

Accredited and qualified investors are an important source of capital for many emerging managers. There are regulatory issues regarding the number of investors you can have in the fund. If your fund is $10 million or less, you can have 249, and if your fund is over $10 million, you can only have 99. These limits limit the number of small check investors in your fund.

Nearly three-quarters of male or female accredited investors would invest in a venture fund if they could write a check for $25,000, according to How women (and men) invest in startups*. The investigation recommends changing the policy to increase the number of accredited investors to 499 and the fund value to $50 million. “It would be a catalyst for emerging fund managers if the exemptions were extended,” Ten Brink said. “Policies like this can structurally change the ecosystem.”

Ten Brink and Goihman’s track record as angel investors established their credibility among accredited investors. The need for an institutional track record makes today’s fundraising environment particularly challenging for emerging managers. However, institutional investors such as Bank of America (BoA) have developed other due diligence processes to guide investment decision-making. Having BoA as an LP elevates emerging funds like Red Bike and provides a stamp of approval, ten Brink commented.

This uncertain fundraising environment poses additional challenges. While Cambridge Associates find that growth companies are consistently among the top 10 companies in the asset class, accounting for 72% of the most profitable companies between 2004 and 2016, 86% of committed capital is to managers of experienced funds, according to PitchBook NVCA Q1 2023. Risk monitor. Ten Brink responded by writing an article in Forbes, which included the following advice:

• Invest in those who can do more with less.
• Lower ratings are an opportunity.
• Many big companies, like Microsoft, Uber, Slack, and Airbnb, got their start in tough times.
• A slower round means more rigor in investing.
• Limitations breed creativity.

“My diversity as a woman and as a Latina is part of my superpower,” Ten Brink said. “I see opportunities that others miss and connect with founders in a way that others don’t.” Its otherness gives it a competitive edge.

What is your competitive advantage?