Originally published on Aug 1, 2024 by Impact Entrepreneur here. By Elizabeth Gilbert Kaetzel

In 2019, the Knight Foundation reported that only 1.4% of U.S.-based assets are managed by diverse-owned firms. In 2022, just 1% of VC funding went to Black founders, 1.5% to Latino founders, and 1.9% went to women-founded teams. The gap between asset owners and managers, and the gap between managers and entrepreneurs, restricts flow of capital to the communities that need it the most. In May 2024, the Mission Investors Exchange hosted an Impact in Action session that focused on how investors can help to bridge those gaps and act as catalytic community partners.

The session took place at the Slauson & Co office in South Los Angeles. Slauson & Co is a venture capital firm that invests with an economic inclusion approach. During the session, attendees heard 2 panel discussions, one focusing on the role of funders and the other focusing on Slauson’s strategy as an allocator. This session structure illustrated how capital can flow from asset owners to community entrepreneurs, and how the choice of manager can directly impact the diversity of their investments.

Investing in diverse asset managers is an effective way for many funders to amplify their impact within underinvested communities. Foundations often depend on consultants like Cambridge Associates and First Close Partners, who also participated in the session, to direct their assets according to their impact goals. But for institutional investors who want to extend their capital even further into communities, investing in the right Venture Capital firm can be an effective strategy. VC firms like Vamos Ventures and Slauson & Co, both featured panelists, can work with other managers and directly with investors to provide diverse entrepreneurs with capital. The entrepreneurs can then go on to reinvest in their local neighborhoods, creating a pipeline for community wealth building.

“There is a difference between having access and inclusion. It’s not enough to just provide access to opportunity for diverse managers and entrepreneurs because we also need to provide them the tools to create wealth,” shared Carolina Huaranca Mendoza, Founding General Partner at First Close Partners.

Attendees also heard from a panel of entrepreneurs to illustrate how investments can reach communities. The companies — Gigs, Stemuli, and El Camino Travel — are part of Slauson’s portfolio, a diverse group of early-stage small business and consumer tech companies from across the US.

“Economic inclusion is our strategy, not just our impact,” shared Austin Clements, Managing Partner of Slauson & Co. Slauson’s portfolio is shaped by their investing philosophy that intentionally seeking out companies from a wide variety of backgrounds and philosophies will result in better performance.

They’re not the only ones who think so.

Research from The Knight Foundation, McKinley, Harvard, and others has shown that asset management teams with greater gender and ethnic diversity tend to get as good if not better returns. This research has also shown that homogenous investment teams also invest in much the same types of deals. When investments are managed by a diverse team, they also tend to invest diversely, leading to both competitive returns and wide-reaching impact.

To achieve sustainable impact, however, requires coordination and intentionality of investors and managers. Panelists pointed out that closing the capital access gap for both diverse managers and entrepreneurs means reconsidering assumptions around returns and investment processes. For many investors, this means seeking managers outside of their existing networks and looking for opportunities to be a community partner.

As Nicholas Almeida from Mission Investors Exchange articulated during the session, “When impact investors support diverse managers, their capital can be catalytic. The event underscored the vital role of diverse managers when they leverage their own experiences, understanding, and networks to provide more than just capital, but also a community of support for their entrepreneurs.” This highlights the broader conference’s emphasis on inclusion and diversity as not just beneficial, but essential to fostering robust, sustainable entrepreneurial ecosystems.