Investor’s values are often communicated (either directly or indirectly) in the language of their term sheets. Specifically, a rider can serve as standard language that a venture firm inserts into a term sheet to guarantee a specific outcome.
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With inclusivity and equality becoming more top of mind in the VC and startup world, a recently-launched initiative is hoping to highlight both emerging check writers and firms wanting better representation for underserved groups.
Investors who sign up/commit to the program will pledge to embed a specific boilerplate rider language into their standard term sheets, creating an opportunity among their firms and all founding teams to identify and expand diversity.
The language reads:
Diversity Rider: In order to advance diversity efforts in the venture capital industry, the Company and the lead investor, [Fund Name], will make commercial best efforts to offer and make every attempt to include as a co-investor in the financing at least one Black [or other underrepresented group including, but not limited to LatinX, women, LGBTQ+] check writer (DCWs), and to allocate a minimum of [X]% or [X] $’s of the total round for such co-investor.
The big picture
The goal is to open up networks between underrepresented check writers and established firms in venture. For emerging check writers, building those networks with founders and other venture firms can be challenging. Guerrero hopes that these networks will improve an emerging check writer’s track record with prospective LPs when it comes to raising a fund.
For Dana Settle, a founding partner at Greycroft, “This rider opens doors to conversations around diversity and inclusion in the venture community and demonstrates to our founders and partners that this is a top priority for us.”
Crunchbase is supporting the initiative with the goal of highlighting both emerging check writers and firms who have signed up for the Diversity Rider as part of our Diversity Spotlight program.
Illustration: Li-Anne Dias