In 2011, Mitch Kapor and Freada Kapor Klein launched a venture capital firm with a contrarian mission: produce elite investment returns by investing in impact-focused startups that are helping level the playing field in financial services, healthcare and more. Now, a decade-plus later, the firm they launched, Kapor Capital, is making its biggest step yet — and becoming one of the largest Black-led firms in a VC landscape that has seen funding to Black entrepreneurs regress so far this year. Oakland, Calif.
-based Kapor Capital has announced that it raised $126 million to invest in pre-seed, seed-stage and Series A startups along the same mission of positive and measurable impact. The fund, which began investing last year while still in progress, has made 15 investments so far. All of them have a cofounder who identifies as an underrepresented person of color.
Officially Kapor Capital’s third fund, this is the firm’s first under managing partners Uriridiakoghene “Ulili” Onovakpuri and Brian Dixon, two early hires who will now lead the fund without the direct involvement of the Kapors. The two were the first check into the fund, for an undisclosed amount, alongside more than 70 other limited partner backers including Bank of America, the Ford Foundation and PayPal. Kapor Capital had previously invested from a $25 million fund allocated by the Kapors in 2015 and a subsequent $60 million fund from 2018.
By doubling the firm’s fund size, Onovakpuri and Dixon say they want to invest more into emerging winners in the portfolio. The firm also plans to lead more rounds than previously. In interviews, Kapor Capital’s partners and its founders say they hope the ability to write such checks will help the firm’s investments stay true to its mission put in place in 2011.
“The lead investor gets to make sure that impact stays at the forefront of the conversation,” says Onovakpuri. They also hope to prove that such a mission doesn’t come at the cost of financial results. In 2019, the firm published its financial results publicly, reporting that it carried an internal rate of return, or IRR, of 29%; its “total value to paid in,” the multiple at which the value of its investments stands relative to its capital invested, was reported then at 3x.
Both measures put Kapor Capital in the top quartile of funds of comparable size, the firm has claimed. Kapor Capital says it remains a top quartile fund today. “Sometimes when people hear impact, they hear subpar returns.
They hear tradeoffs of impact versus returns,” says Dixon. “Our fund, and our thesis, is fundamentally build on ‘you can do both. ’” Under Onovakpuri and Dixon, Kapor Capital is now one of the venture industry’s largest Black-led firms, joining notable peers including Base10 Partners, the first to reach $1 billion in assets, Harlem Capital, MaC Venture Capital, 645 Ventures and others.
An early team member, Onovakpuri launched the firm’s fellows program for summer interns to learn venture capital in 2011 before leaving to launch a healthcare startup. Dixon, formerly a project manager at Education First, was one of the program’s inaugural members. He stayed at Kapor Capital after and became a partner in 2015.
Onovakpuri rejoined the firm the following year and was promoted to partner in 2018. Onovakpuri and Dixon taking the reins at Kapor Capital was long planned , the Kapors say. That time came after the murder of George Floyd in May 2020, and the subsequent reckoning in tech and other sectors about inequality and lack of opportunities for Black participation and success.
As institutions pledged to invest in underrepresented funders and founders, Dixon and Onovakpuri set out to raise Kapor Capital’s first outside fund, where its founders weren’t writing the entire check. Raising the funding, however, was more difficult than anticipated. Onovakpuri credits PayPal, Bank of America and others with backing up their public affirmations with dollars.
But with other institutions, the firm’s target fund size was considered too large to back from the smaller pools of capital they allocated for emerging investors (a term that can be applied to newly-minted venture capitalists but often connotes those coming from underrepresented backgrounds). The evaluation criteria for such investments also sometimes minimized Kapor Capital’s decade-long track record, Dixon says. In one meeting with a prospective backer she declined to name, Onovakpuri recounts that the investor told Onovakpuri that their institution couldn’t write Kapor Capital a check because it was “out of Black dollars.
” Onovakpuri says she responded that she welcomed “green dollars,” too. Kapor Klein, who was listening in on the virtual pitch meeting, says she was “appalled. ” “I’ve ruled out a whole bunch of variables that could explain it, and I’m left with racism,” she adds.
Onovakpuri and Dixon say they hope to be evaluated in the long term by their portfolio, not their backgrounds. “Huge shout-out to the LPs who took our call and said, ‘We don’t have a Black mandate, or invest in impact companies and firms, but we saw your numbers and were excited,’” Onovakpuri says. In addition to proving its financial returns, Kapor Capital’s leaders will also need to continue to prove the impact that its dollars have.
Some of the firm’s most notable investments in its history remain early checks written by the Kapors following the sale of Lotus Software, which Kapor cofounded, to IBM for $3. 5 billion in 1995 . They include work collaboration company Asana, camera business Dropcam, communications API maker Twilio and ride-hailing company Uber.
Those investments, while notable, pre-date the firm’s impact focus, and are excluded from its financial results. More recent bets, such as education software maker ClassDojo, valued at more than $1 billion , investing platform AngelList and Cloud 100 list regular Gusto, a payroll software maker last valued at $9. 5 billion, have also had no shortage of venture capital backers without an explicit social mandate.
And that mission has posed a challenge to Kapor Capital in the past. In 2017, after the Kapors spoke out publicly against what they called a toxic culture at Uber, where they had been among the earliest investors, they drew criticism from other Uber backers and some in the investment community. The pushback was even stronger behind the scenes, they say now.
While speaking at tech conference SXSW, Kapor says he was told by one of his founders that other investors were reaching out to Kapor Capital’s portfolio entrepreneurs, warning them not to trust Kapor and Kapor Klein, and encouraging them to ask Kapor Capital to sell its stakes to fellow investors. (Asked whether any such sales occurred, Kapor Capital declined to comment. ) “It was seen as breaking ranks,” Kapor says.
“That tells you a lot about where venture capital could use a little bit of ethics training. ” Tensions with Uber and its other backers were resolved after the Kapors praised changes the company pledged to make, and the two spoke to senior Uber managers at CEO Dara Khosrowshahi’s invitation. But it was a warning of how messy calls for change can get.
“One of the great myths of venture capital is that there’s some value neutrality investing,” says Kapor Klein. “Investors try to let themselves off the hook by saying, ‘Oh, we don’t have anything to do with that, we’re just here to make money,’” she says. “Making money is a value.
It doesn’t hide all sins. But it funds all sins. ” Moving forward, Onovakpuri and Dixon say they hope to back companies like new fund investment Philadelphia-based Cayaba Care, which raised $12 million in May and has helped more than 1,000 mothers in communities of color receive safer reproductive care.
“Our founders who are building companies from their own lived experiences, or lived experiences that are close to them, tend to be the most successful,” says Onovakpuri. What they went through to raise Kapor Capital’s new fund, Dixon says, is similar to what the types of founders Kapor Capital likes to support are dealing with themselves. “We’ve definitely had our challenges.
But that’s the beauty of fundraising,” he says. “As entrepreneurs, you learn by doing. ”.
From: forbes
URL: https://www.forbes.com/sites/alexkonrad/2022/09/07/kapor-capital-impact-vc-firm-raises-126-million/
