It is no secret that VC investing has a diversity and inclusion problem. Fortunately, there are funders out there who are committed to ushering in positive changes. This includes Ada Ventures, a UK-based VC firm with a portfolio that is 14x more diverse in terms of gender and ethnicity than the country’s average venture fund. Today, it just announced the close of its oversubscribed £63mn second fund.
Ada Ventures is also top of the chart amongst other impact-driven funds, with 1.4x higher diversity than the average. As many as 74% of portfolio founders are from an underrepresented background, 48% of portfolio companies have a woman founder (compared to 18% across the wider VC market), and 44% are led by ethnic minority founders (compared to 9% overall).
This is down to its “Inclusive Alpha” methodology. Essentially, this rests on the core belief that championing diversity across a portfolio does not, contrary to common misconception, mean compromising on returns.
”What we really wanted to do was build a system that would find us a really diverse set of founders, so we could pick the very best and end up with a diverse portfolio,” Check Warner, co-founder of Ada Ventures, tells TNW. The VC settled on the name “Inclusive Alpha” for the approach to reclaim the idea of generating better than market returns on a systematic basis from the toxic “finance bro” culture often associated with the term “alpha,” or “alpha male.”
Diverse founder Scouts and Angels
In services of its agenda, Ada Ventures uses scouts to identify and recruit startups. Its nearly 100 scouts across the UK includes 20 “Ada Angels,” who each have access to an investment pot of up to £50,000. The firm intends to roll out similar initiatives across other countries in Europe in the coming months.
“We don’t just want this to be about Ada,” Warner emphasises. “We want this to be something that much of the industry adopts. Also, we want LPs in 10 years’ time to say, ‘Hey, we’re allocating X proportion of our endowment or X proportion of our commitments into inclusive Alpha funds’ — funds that are using an inclusive approach to generate best-in-class returns.
“The excuse that diverse talent isn’t ‘out there’ is a cop out,” she adds. “You can build a thriving, inspiring portfolio of diverse founders building breakthrough products and hugely valuable businesses.”
Indeed, Ada Ventures Fund I is a top quartile performing fund and the current portfolio is on track to generate in excess of £100mn net revenue over the coming year.
Inclusive investment strategy
Ada Ventures has already made 12 investments from the second fund, which is backed by a number of investors including the British Business Bank, the University of Edinburgh, Big Society Capital, Legal & General Capital, Atomico, the Export and Investment Fund of Denmark (EIFO) and Molten. Additionally, several founder investors have also come on board, including Taavet Hinrikus, founder of Wise.
With the latest capital, the VC firm will be making investments of between £250,000 and £1.5mn in pre-seed and seed stage startups, with a significant amount allocated for follow-ons. It now plans to make between 10 and 12 investments per year in companies building breakthrough ideas across climate equity, economic empowerment, and healthy ageing.
“We think about everything across the fund with an inclusivity lens, and that also applies to our investment strategy,” Warner explains. She adds that when looking at the demographic groups most underserved or unserved, the growing ageing population and women stood out as clear examples, along with the people who will suffer disproportionately from the effects of climate change.
Ada Ventures’ portfolio companies include Bubble, an app that allows busy parents to book nanny services; Juno.bio, a startup dedicated to decoding the vaginal microbiome and improving the standard of care available to people with vaginas; and GreenWorkx, a pre-seed stage company building a marketplace for training and jobs for the green economy transition.
Child-care support for portfolio founders
The VC also provides founder resources such as access to mental health support and supporting parents in their portfolio with 40 hours of back-up emergency childcare support per year. “There’s a really practical side to it. Say a nursery calls and says ‘Hey, your child is sick, you need to pick them up’, and that founder might have a board meeting that day, or they might have a crucial meeting with their sales prospects,” Warner says.
Since launching in October last year, the initiative has been embraced by nearly 15% of the firm’s portfolio companies. “We believe that it’s the environment that needs to change, not you that needs to change as the entrepreneur,” Warner adds.
“We set up entrepreneurs that come from diverse backgrounds for success by creating better infrastructure for founders around them so that they can really focus on their businesses and thrive.”