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A $250 Million Fund Steers HBCU Endowments Into Venture Capital

The Advancement Initiative aims to help less prosperous schools bridge the wealth gap through investments in late-stage startups.

College endowments illustrate just how deep-rooted inequality is in higher education.

U.S. college endowments held about $630 billion in fiscal 2019. But just a few schools account for much of that: More than one-third comes from the top 10, led by Harvard, the University of Texas, and Yale. By comparison, the assets of the approximately 100 historically Black colleges and universities (HBCUs) total just under $4 billion, with Howard University holding the most—$712 million as of June 2020.

The disparity reflects the structural inequalities in U.S. society. For years, the wealthy schools have churned out graduates who amassed large fortunes and made big donations to their alma maters. For much of the past decade, either Harvard or Stanford has taken in the largest haul. In fiscal 2020, Stanford raised $1.36 billion in donations and Harvard $1.2 billion, more than the entire endowments of most colleges. Also, larger endowments can take bigger risks in search of higher returns and are offered the chance to invest in fast-growing companies before they go public—opportunities not available to poorer schools.

Yale, with $31 billion, tripled its endowment over the past two decades thanks to a portfolio that includes hedge funds, private equity, and venture capital, which allowed it to get in on the ground floor of successful startups. At the other end of the spectrum, Florida A&M University, a 134-year-old historically Black college with an endowment of about $100 million, has barely enough to fund scholarships for some of the neediest students, let alone invest in risky venture capital.

The difference in endowments leads to an ever-widening gap in everything from the ability to give student aid and attract top professors to improving campuses and building cutting-edge science, technology, engineering, and mathematics (STEM) complexes. According to a 2018 U.S. Government Accountability Office report to Congress, the average endowment amount per student was $15,000 for HBCUs, compared with $410,000 for non-HBCUs of the same size.

Howard and other HBCUs say they lack the clout to be included in profitable early-stage investments. “If you’re not able to write the size of large checks they’re looking for, you won’t be invited into the room,” says Frank Bello, who became Howard’s first chief investment officer in 2016. He estimates the school would have seen at least 10 times its returns if it had invested in the most recent cohort of tech startups.

This may be starting to change. A new venture fund seeks to entice HBCUs to pool endowments that will invest in startups. Promising young companies are also becoming more eager to diversify their funding pool, as well as gain access to a more diverse group of college graduates.

Adeyemi Ajao, co-founder of San Francisco-based venture firm Base10 Partners, has been working with friends and founders for the past year to persuade HBCU endowments—including those of Florida A&M and Howard—and late-stage startups to commit to one another. He hopes his $250 million fund will also open a path for HBCU students interested in technology and venture capital by connecting them with mentors, internships, and jobs. “Systemic inequality is really about wealth inequality,” he says.

Born in Spain to a Nigerian father and a Spanish mother, Ajao had an early interest in tech. He co-founded what for a time was Spain’s version of Facebook, called Tuenti, which he and his partners sold for almost $100 million in 2010. At the age of 26 he moved to California to attend Stanford Business School. He got to know powerful people in Silicon Valley, co-founding two startups and launching Base10, now among the largest Black-led funds in the U.S. Just 3% of VC firms have any Black partners, and only a handful of Black-founded firms have funds of $100 million or more, according to the National Venture Capital Association.

Ajao’s Advancement Initiative stands out for targeting HBCUs as its primary investors. HBCUs have tried venture capital before: Spelman College invested in two funds with 645 Ventures, a Black-led firm based in New York. But the Advancement Initiative offers special terms: It allows the schools to invest as little as they like, pay no fees, and receive their own share of the fund’s profits along with half of Base10’s share. Its goal is to create 100,000 scholarships of various amounts at HBCUs within 10 years.

Base10 has hired three fund managers, all Black, and has already signed up eight late-stage startups. Ajao is in talks with 15 others. Having Florida A&M, Howard, and other HBCUs as investors is seen as a competitive advantage for startups seeking diversity.

But many HBCUs have stayed away. Ajao says some decision-makers viewed him with suspicion because they either weren’t as familiar with the asset class or considered it too risky. Some of that skepticism is warranted: There are almost 2,000 venture firms in the U.S., with varied records in quality and performance. Only the top venture firms—such as Sequoia Capital, which built a reputation through its early bets on Apple Inc. and Google—get access to the best deals.

HBCUs, with their tiny endowments, don’t have the risk tolerance and long-term investment horizon of richer investors. “We knew we were missing out,” says Marcelia Freeman, a member of the board of directors of the Florida A&M University Foundation. “We can’t afford to fly high, but we want to be in the game.”

Not everyone agrees that venture investments are appropriate for small endowments. Bill Abt managed the endowment of Carthage College in Wisconsin for 15 years, using plain-vanilla index funds. When he retired in 2018, the $120 million fund’s 10‑year average return was in the top 10% of all endowment returns. “I would try to stay clear of all alternatives, including venture capital,” he says. “Certainly no more than a small portion.”

Howard’s Bello says that access to venture firms has improved in recent years and that he’s eager to continue on that path. “You’re going to see more of this opportunity and value creation come about over the next 5 to 10 years,” he says of digital transformation. “We want to be a part of that.”

Startups Attentive Mobile, Aurora Solar, Brex, Circle Internet Services, KeepTruckin, Nubank, Plaid, and Wealthsimple have all sold shares to the Base10 fund, Ajao says. Some founders say ensuring that HBCUs share in their success is a good move for employee morale and helps recruit from a diverse pool of students.

Brian Long, chief executive officer and co-founder of short-message service Attentive, says these reasons—as well as Base10’s hiring of former Bain Capital Ventures partner Jamison Hill, whom he’d worked with before—persuaded him to make room for the fledgling fund while finalizing a funding round at $7 billion.

David Vélez, founder and CEO of Nubank, an 8-year-old Brazil-based digital bank, says Base10’s Advancement Initiative allows him to use his investors strategically. “If I have 50 funds wanting to invest and they all look the same, this is really a no-brainer,” says Vélez, who met Ajao when they were both students at Stanford. Nubank was worth $10 billion when Vélez invited the fund to buy shares last year. It’s now worth $25 billion.

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