To work toward its goal of investing in 1,000 diverse founders over the next 20 years, Harlem Capital has closed a $40 million debut fund. Harlem Capital was initially targeting $25 million for the first, early-stage focused fund, but after 18 months of fundraising, landed an oversubscribed close.
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To date, Harlem Capital has invested in eight companies through Fund I, from Aunt Flow, a Columbus, Ohio-based company that produces organic cotton menstrual products, to Wagmo, a dog wellness plan upstart. It plans to make 30 investments out of this vehicle, and span the country while doing so (current portfolio companies are all over, in Boston, Salt Lake City, Atlanta, Chicago, Columbus, Baltimore, and San Diego).
Harlem Capital plays around in the seed and early stage space, and considers itself “industry agnostic.” However, per its website, the firm says it doesn’t generally invest in cannabis, biotech, hardware, or crypto. In other words, “capital intensive businesses.”
Now let’s go back to its broad mission statement: 1,000 diverse founders over the next 20 years. I chatted with the partners over at Harlem to learn more about what this means, and how they’re going to do it.
A Defined Network
Jarrid Tingle, a managing partner and co-founder of Harlem Capital, said the firm defines diversity “as women of any race and people of color, so think Black, Latinx, Native American, any people who have been limited.”
He continued that Harlem Capital fields about 50 percent of its deals through direct emails. A quick look at the firm’s website explains why: the “Investment Criteria” tab outline the seven key things a company needs to get a check, from a base revenue of $100,000 to at least one full time founder. Explicitness, when sourcing underrepresented founders, is key to another diversity-focused fund: Charles Hudson’s Precursor Ventures. When I chatted with Hudson for a previous story on the slow progress of VC dollars to minorities, he said that Precursor had a simple approach to deal flow.
“This might sound weird, but I don’t think we do anything in particular to attract female founders. We are a team of 3, two of the people on our team are black females and I think that does help some,” Hudson wrote in an e-mail. “I think most of what we try to do is to signal to the market that we are interested in building a diverse portfolio; that’s why we put the faces of the founders we backed front and center on our website.”
It’s worth noting that while Harlem Capital is investing in diverse founders as a focus, its investment criteria is clearly fiscally-focused (both co-founders hailed from private equity). In other words, this is not an impact fund. For example, the ideal founder would ideally have had some momentum or help before Harlem Capital steps in, as the firm looks for revenue, an attractive valuation, and an investment realization of four to seven years, per its website.
“Because we want folks that are underrepresented, we cast a net as wide as possible and are easy to find,” Tingle said. That includes adding his personal e-mail, along with his co-founder’s, on the website. The other 50 percent of deal flow comes from more traditional methods, like personal networks and other firms.
One unique way that Harlem Capital is finding diverse founders who may not have easy access to capital is by partnering up with Techstars. Henri Pierre-Jacques, co-founder of Harlem Capital and a managing partner, said that “Techstars is the most diverse top tier accelerator.
“Fifty percent of the classes [at Techstars] are minorities, and we really felt like that is the kind of accelerator we want to partner with.” He said that the accelerator will send 500 deals over the next five years to Harlem Capital.
A Look Ahead
As for what’s ahead, the team plans to invest in 30 startups with this new fund. The co-founders view other diversity-focused funds as friends, not competition. Pierre-Jacques explained that “people think you can’t have two to three diversity funds,” but the same wouldn’t go for “software-focused funds.”
“The reality is, there are only 10 to 15 funds over $10 million focused on diversity,” he said.
So for now, according to Pierre-Jacques, an $11 million Series A funding round could not just be from funds focused on diversity. But, he said, over time that could shift.
And sure enough a few weeks ago, Harlem Capital tweeted out a congratulations to another firm in the space: one that had raised its eighth fund to focus on African American, Latino, and LGBTQ markets and entrepreneurs.
Illustration: Dom Guzman