Collective Fund DAO
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The aspiring racial and gender-diverse first-time fund managers (FTFMs) lack access to capital providers that they can use to help their companies grow and build the track record to launch their funds. Very few of these aspiring racial and gender-diverse FTFMs in the global south have been able to their funds, hence becoming less attractive to promising startups.
Problem
Currently, women- and minority-led funds account for just 1.3% of the US $69 trillion investment industry in the United States — even though investment teams led by women and minorities perform better than funds that white men manage.
Most of these aspiring racial and gender-diverse FTFMs are not good at fundraising commercial or institutional capital because of a lack of access, networks, competency/skillsets in the team.
Diversity at the fund management level will also define capital allocation in the broader investing ecosystem. Diversity can help us achieve inclusion, equality, and equity at all levels. As Ndeye Thiaw, managing partner at Brightmore Capital, puts it,
“Diverse approaches lead to better investment decisions as they avoid ‘groupthink’ and allow the analysis of a single issue (or investment opportunities) from many different angles.”
Potential Solution
Supporting the local entrepreneurs is to strengthen the aspiring racial and gender-diverse FTFMs by providing them direct access to capital; one idea is a collective fund co-managed by 5-10 aspiring racial and gender-diverse FTFMs.
I have not personally come across a fund co-managed by multiple aspiring racial and gender-diverse FTFMs, so I find the model intriguing and, to be honest, very exciting.
How does a collective fund work?
What’s the benefit of the collective fund?
Access to diverse and local entrepreneurs: With investment teams sitting in centralized locations like Singapore, Bangalore, Silicon Valley, New York, etc., leads to pipeline issues and a lack of understanding of the local ecosystem and networks, which can be quickly filled if the aspiring racial and gender-diverse FTFMs act as scouts and portfolio managers for the fund.
Aspiring racial and gender-diverse FTFMs don’t have the knowledge, know-how, or networks to build funds from scratch on their own, so collective fund strategy might give the LPs/investors more confidence.
Improves fund economics: Aspiring racial and gender-diverse FTFMs acting as scouts and portfolio managers can significantly reduce the cost of deployment and managing the investments. It provides better diversification, hence improving the risk-reward ratio.
Decentralization of capital and decision-making models like these will help significantly to allow local actors to start getting involved in investment decision-making, and capital will be more spread out apart from major city hubs.
Let these aspiring racial and gender-diverse FTFMs build a track record.
Many impact and venture capital firm sources ventures via these aspiring racial and gender-diverse local talent, but I have not personally come across a fund structure built by a collation of aspiring racial and gender-diverse FTFMs. It’s like a self-help group.
The question is, why not? What do you think? If you have come across a collective fund model like this, I would be very interested in learning about it.
I am currently exploring the DAO model to redirect capital from retail investors, capital-rich protocols, DAOs, and institutional investors to a collective fund DAO of aspiring racial and gender-diverse FTFMs.
PS: Special thanks to Shaun Robinson, Ian Jones, and Shravan Shankar
I am launching a cohort-based educational fellowship for next-gen gender diverse first-time fund managers. For more, read here.
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Sagar has eight years of experience as an entrepreneur, operator, venture capitalist, and gender-lens investor. He has built and launched multiple impact venture capital funds in Asia and globally. He has led investments in 18 early-stage startups in India and SE Asia.
"first followers" is founded by Sagar Tandon. You can reach out to me at sagar@firstfollowers.co.
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