SoftBank created a minority-focused fund, but diversity has not been part of its larger vision

Key Points
  • SoftBank announced a $100 million Opportunity Fund for minority-owned businesses in the wake of protests over the killing of George Floyd.
  • However, SoftBank's much larger Vision Fund has invested in only a handful of companies created by black or female founders. 
Robert Reffkin, CEO of Compass
Anjali Sundaram | CNBC

SoftBank's $100 million Opportunity Fund for minority-owned businesses is one of the first large funds created in response to nationwide protests sparked by the killing of George Floyd, an unarmed black man, at the hands of the Minneapolis police.

It has been praised as an important step in the right direction for venture capital, which has historically underrepresented minorities.

But the amount pledged is about 0.1% the amount of SoftBank's much larger Vision Fund, which the company started deploying in 2017. And that fund has invested in just one company with a sole founder who was black, and one other company with a black co-founder, over its three-year existence. 

The Vision Fund has $98.6 billion in committed capital, and has deployed $75 billion into 88 companies, often in massive chunks of $100 million or more at a single shot. When the fund launched, its goal of $100 billion was more than the total amount raised by all US venture capital firms over the previous two years, according to data from  the National Venture Capital Association.

The scale of the funding helped change the Silicon Valley start-up scene, encouraging new companies to pursue rapid growth before profits, raising start-up valuations and pressuring other venture investors to compete with larger investments. Subsequent markdowns in big bets like Uber,  which received $7.7 billion and WeWork which got $18.5 billion led to a stunning $18 billion loss at the Vision Fund and pushed SoftBank Group to a record loss.

Diversity has not been a notable part of this vision. 

The Vision Fund has backed only one firm with a sole founder who was black: Robert Reffkin, a former Goldman Sachs banker who founded real estate firm Compass. The fund invested $450 million in December 2017, and participated in subsequent funding rounds, including a $370 million round last year. It also invested in one other company, Zume Pizza, with a black co-founder, Julia Collins.

In addition, the Vision Fund has backed only one company -- Brandless -- where a female co-founder was also CEO. Less than a year after SoftBank's investment, Tina Sharkey stepped down as CEO amid reported tensions with SoftBank. Earlier this year, the company became the first startup backed by the Vision Fund to fail.

Overall, the Vision Fund has invested in five companies with a female founder or co-founder.

SoftBank's second Vision Fund, in which the company has committed $38 billion, has made six investments so far -- none of them into companies with a black or female founder. 

When WeWork tried to go public in August of 2019, it came under fire for a board with no female representation. SoftBank was its biggest investor at the time.

SoftBank Group, Japan's second largest company by market capitalization, also lacks female and black representation on its own ten-person board of directors.

In an email to SoftBank employees this week, COO Marcelo Claure acknowledged that founders and entrepreneurs of color "face unfair barriers that white founders don't face." He said that SoftBank has an opportunity but, "we also know we need to do better internally." 

The company did not offer further comment. 

Some are optimistic that the newly announced Opportunity Fund is a step in the right direction. Arlan Hamilton, founder of investment firm Backstage Capital, says she's pleased to see SoftBank take action. 

"I want to be clear," she says. "This is a win for SoftBank as much as it is for underrepresented founders."

Nihal Mehta, cofounder of investment firm Eniac Ventures, called SoftBank's new fund a strong gesture but said it needs to be more than just a PR stunt. 

"100 million is now the largest single pool of capital available for underrepresented founders," he said in an email. He added, "of course, we'll believe it when we see companies funded from it." 

SoftBank isn't the only firm launching a diversity focused fund. Andreessen Horowitz announced in a blog post that it is launching a fund designed to invest in underrepresented and underserved founders, starting with $2.2 million in donations from its partners. That starting amount accounts for less than 0.02% of its $12 billion in assets under management, but could grow over time.

Henri Pierre-Jacques, Managing Partner at Harlem Capital Partners, an early stage investment firm focused on investing in minority and women founders in the U.S., says these firms have been working on these funds for a while and appreciates the work Andreessen has done. "I do give them credit. They have not done enough but have done more than their peers."

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