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SoftBank launches $100M+ Opportunity Growth Fund to invest in founders of color

Ingrid Lunden
TOKYO, JAPAN - SEPTEMBER 30: A man walks past a SoftBank mobile phone store on September 30, 2019 in Tokyo, Japan. SoftBank, the technology and investment conglomerate owned by Masayoshi Son, is one of the largest investors in troubled American real estate company WeWork. (Photo by Carl Court/Getty Images)

As we continue to see protests across the U.S. (and elsewhere) sparked by the killing of George Floyd by police in Minnesota, SoftBank is announcing a new investment vehicle to back entrepreneurs of color, part of its contribution to trying to redress the imbalance of power as it has played out in the tech world.

Today it launched the Opportunity Growth Fund, which "will only invest in companies led by founders and entrepreneurs of color," according to an internal memo from SoftBank's COO Marcelo Claure on the new fund.

Claure said the fund will initially start with $100 million, meaning that there is scope for SoftBank (the primary limited partner) or other limited partners to add more over time.

This latest fund is timely given events of the last week and how they have highlighted what is arguably centuries of power imbalance -- a significant point that shouldn't be ignored. But it also comes at a time when SoftBank -- one of the biggest names of VC in the world these days -- has been hit very hard on its investment practices, with its own share of racial controversy within that.

Just a couple of weeks ago, the CEO and founder of one of its portfolio companies, Banjo, resigned after it was revealed that he once had ties to the KKK. Before that news hit, the big story was about SoftBank's very large bets on companies like WeWork and Uber (and others) that have not paid off, leading to a number of problems at individual portfolio companies. And before that, there were questions over who invests in its funds, and what kind of wider message that sends over the company's ethics.

Developments like these have left lingering question marks over SoftBank's wider investment choices. All of these remain issues, even as it makes some important and symbolic strides to do the right thing.

The steps today are in the correct direction, it seems. Notably, SoftBank said that it will not take a traditional management fee for transactions out of the fund "but instead will seek to put as much capital as possible into the hands of founders and entrepreneurs of color."

Claure will co-lead the fund alongside Shu Nyatta, with Paul Judge (the founder of TechSquare and chairman of Pindrop) and Stacy Brown-Philpot (of TaskRabbit and many other roles) the first to named to the investment committee.

The Opportunity Fund is the third investment vehicle announced by SoftBank in the last several years. The biggest of them all is the $100 billion Vision Fund; then last year it announced the $2 billion Innovation Fund focused on Latin America.

SoftBank has also been building other efforts to foster more diverse and inclusive investment activity. Its Emerge accelerator for underrepresented founders, created in partnership with WeWork Labs, unveiled its first cohort of companies last month.

Compared to the outsized nature of the Vision Fund, or even the more diminutive but still multi-billion-dollar size of the Innovation Fund, the Opportunity Growth Fund's $100 million size seems relatively modest for now, and it begs some questions over how SoftBank more generally plans to direct its bigger coffers when it comes to investing in a deeper and more meaningful and inclusive way.

It's a large issue. As SoftBank itself points out, currently just 1% of VC-backed founders are black, with the vast majority of investment going into startups founded by while males.

There are signs that this is part of a bigger strategic effort. SoftBank's Claure noted in his memo that the plan will be to reinvest 50% of the gains from the first Opportunity Fund into subsequent Growth Opportunity Funds, with a portion of the gains it makes outside of that donated to organizations that support opportunities for people of color.

Additionally, Claure said that it's trying to do more than just invest: it's reassessing how it handles hiring both for portfolio companies and for SoftBank itself, and establishing a diversity program to improve that, with a focus on leadership and board seats.

"I promise to do what I can to be an effective ally to Black Americans who have been fighting this injustice for centuries. Only by acknowledging and acting on racism – even the most subtle forms of it – can we hope to eradicate it. Otherwise, it thrives in silence," Claure writes. He also encourages staff to donate to organizations that are working on initiatives to eradicate racism and discrimination, and says that SoftBank will be matching donations of up to $1,000. "The only wrong plan is to plan to do nothing."