03 Feb Reinventure Capital Fund I
Reinventure Capital Fund I
Interview with Juliane Zimmerman, Managing Director, GP of Reinventure Capital Fund I, LP
Jen: Why was the Reinventure Fund I created?
Julianne Zimmerman: Edward Dugger III was motivated to found Reinventure Capital to reintroduce the high-return + high-impact strategy he previously executed with UNC Partners which generated 32% IRR by investing exclusively in US-based companies led and controlled by Black founders and poised to grow profitably. Both the firm UNC Partners and Ed personally had received high profile recognition at the time, but against this and numerous other proof points, prevailing wisdom still steeply discounts or dismisses BIPOC and female founders and fund managers. Everyone on the (majority BIPOC, majority female) Reinventure team is determined to discard that false narrative. Reinventure invests exclusively in US-based companies led and controlled by BIPOC and/or female founders, at breakeven and poised to grow profitably.
Jen: How are your investment funds catalytic in a way that is different from other funds?
Julianne: First and foremost, Reinventure is an investment practice using financial capital to create wealth and opportunity. We include binding commitments in our investment documents that portfolio companies will continue to hire, promote, and compensate equitably as they grow, and will source equitably as they are able. We further work with portfolio companies to structure equity investments and other capital instruments (e.g., lines of credit, etc.) to retain and perfuse equity ownership among founders and employees. We utilize relational and social capital to identify and reach out to promising founder teams well upstream of our investment criteria, to establish relationships and to offer assistance wherever we can (e.g., clarifying strategic planning and financial models; making introductions to customers, advisors, or other capital sources; etc.). We recognize that we will invest in only a tiny fraction of the teams we encounter, but/and we want to see as many successes as possible. Therefore we try to make sure that each interaction provides value to them and contributes to their likelihood of success. We also believe strongly in playing an active role in knitting together a more inclusive, robust, and resilient ecosystem. Therefore we serve as mentors, reviewers, and judges for various organizations focused on BIPOC and female founders (e.g., Majira Project, Project W, Headstream Accelerator, etc.), participate in peer organizations (e.g., Racial Justice Investing, Browning the Green Space, IDiF, NAIC, etc.), and promote BIPOC and female founders and managers through our website, blog posts, and LinkedIn and Twitter accounts.
Jen: Can you describe how you use integrated capital to address racial justice, income inequality, and/or gender justice through your products and services?
Julianne: All Reinventure activities are structured to break the steep and persistent asymmetry in access to capital that is a primary driver of economic injustice.
Specifically in our investment practices, we seek to create outward-expanding ripple effects:
- Capital deployed with overlooked founders, breaking capital access barrier: 100% of investments made in companies led and substantially owned / controlled by people of color and/or women. No sub-quotas for geographic location or race v. gender.
- Returns to investors, changing the narrative: the fund benchmark is ≥20%IRR / ≥2.5x return on capital (which we expect to significantly outperform).
- Wealth creation, providing economic lift: all portfolio companies extend equity ownership, profit-sharing, or other provisions as appropriate, as deeply as possible within their companies (this will vary across sectors — 100% employee participation is ideal).
- Inclusive jobs, creating professional opportunity and mobility: all portfolio companies hire, promote, and compensate equitably, with ≥30% diverse representation at all levels (board, executive, management, technical, labor, etc.), and preferentially source from diverse-owned / operated vendors and suppliers.
- Portfolio companies’ own strategic impact objectives, delivering environmental, social, and other benefits: board-level commitment to each company’s core impact, resulting in a “fruit basket” of intentional, measurable outcomes.
- Daughter entities and spinoffs, catalyzing self-propagating economic, professional, and technological advances: during the life of Fund I, at least one new startup launched by members of portfolio companies; at least one startup launched by R/M team members or interns.
- “Priceless but unquantifiable” effects: anecdotal testimonial evidence of R/M effecting transformative influence in the lives of people inside the R/M portfolio and outside it.
Jen: What is transformational about the businesses that you invest in?
Julianne: We actively seek investment candidates outside conventional VC parameters: we do not preferentially focus on the top 12 colleges and universities where VCs scout, or even in the top 6 metropolitan areas where VCs invest; we also do not require a warm introduction. We proactively reach out to promising founder teams we scout across the country through founder peer groups and early stage networks (conferences, competitions, incubators and accelerators, angel and seed stage investors, etc.) focused on BIPOC and female founders. We also offer frank explanations and insights to demystify venture capital practices and other capital sources, and offer founders advice on protecting their interests as they grow their companies. Each of the companies we invest in is first and foremost a future economic engine creating wealth and opportunity for its founders, employees, and wider stakeholder network. That in itself is transformational. Moreover, the companies we invest in have their own strategic impact objectives core to their business model: they are setting out to commercialize solutions to unsolved challenges or for underserved customer groups that they uniquely recognize from their own lived personal and professional experience. Finally, these founders are very often committed to convert their own successes into multipliers: they have clearly articulated aspirations to sponsor, invest in, or otherwise lend their active support to other BIPOC and female founders alongside and behind them.
Jen: How do you describe non- financial returns?
Julianne: We track wealth and opportunity creation through all of our portfolio companies, as well as strategic impact objectives explicitly defined and tracked in cooperation with each portfolio company. Our first four portfolio companies are in digital media (Canela Media: authentic cultural representation and economic value for Latinx / Hispanic and dual-language audiences), next-generation internet (Adventr: leveling capacity for creatives and brands of all sizes to publish highly immersive and data-rich video), clean tech (OpConnect: charging, maintenance, servicing, and scheduling services for fleet operators and multiunit commercial and residential property owners and managers, making electric vehicles accessible to renters, public transit users, schools, and municipalities), and fintech (Zirtue: simplifying the friends and family shadow lending economy, preserving credit scores and relationships and decreasing vulnerability to predatory lenders). [Editor’s note: since this interview was conducted, Reinventure has added three more companies to their portfolio.] We have vigorous cross–sectoral deal flow comprising hundreds of companies that meet our investment criteria by — not in spite of — pursuing their own non-financial and financial impact objectives.
Jen: What do you tell people who think your fund is risky?
Julianne: We measure success by the number of successful enterprises in our portfolio. Of course we have financial return objectives, and we are carrying forward a strategy that previously returned 32%IRR with 2/3 of the companies in the portfolio contributing to the return. But financial return is only the permission to continue operating. We would consider our fund a disastrous failure if our portfolio companies reverted to the appallingly narrow venture industry norms of representation (overwhelmingly white and male), if only a small fraction of our portfolio companies contributed to the fund return, or if they abandoned their strategic impact objectives as they grew. Morgan Stanley has stated that the venture industry has missed $4T in potential returns and the US economy has foregone $16T in economic value thanks to extreme homogeneity in the venture sector. Further, the US Dept of Commerce and Brookings Institution have reported that “minority” businesses are growing at 38%, and “youthful minorities are the engine of future growth.” BCG and others have found that diverse teams routinely outperform their white male peers on both innovation and financial performance (risk and return). By contrast, the highly extractive and extreme hyper concentration of capital and power in the venture community (and finance writ large) serves to exacerbate inequality, injustice, pollution, environmental degradation, and other avoidable ills. It’s very simple: the risk of not investing in our fund and funds like ours — focused on BIPOC and female teams, solving real problems, growing profitable enterprises at scale — is continued and worsening economic, societal, environmental, climate, health, and other strains tearing our social fabric apart, and suboptimal financial performance besides. How can anyone still consider the status quo “safe”?
Jen: What does a foundation or investor need to understand in order to invest in transformational businesses?
Julianne: It’s not actually all that hard. But if you want to invest in transformational businesses, you have to also transform your investment strategy, criteria, and process. If you have an IPS, you probably have to update or redraft it. If you rely on advisors or consultants, you have to give them a new brief, and if they can’t or won’t meet it, you need to replace them with someone who will. These aren’t actually difficult things to do, but they do require a willingness to act, and to continue to learn better ways of identifying opportunity and risk. Transformation doesn’t happen on its own. But in light of the fact that sticking with the status quo is literally being complicit in funding disaster and accepting suboptimal returns in the bargain, making long overdue upgrades to your investment practices is well worth the effort.
Investment Thesis/What is your rationale for your approach to investing?
Reinventure invests exclusively in US-based companies led and controlled by BIPOC and/or female founders, at breakeven and poised to grow profitably.
Geography: United States Domestic
Year Founded: 2020
# of Investments: 4+
# of Investors: 50+ (donors, funders, supporters, investors)
Funds Raised: $35,000,000 since inception
What’s on Julianne’s Mind?
Book: The Cruelty Is the Point
Song: Lovely Day