The Latino population is expanding fast, but not so in the venture community, where the numbers are gradually changing.
One in four kids born in the U.S. is Latino; the ratio is more than one in two in states like California, New Mexico, and soon Texas. Yet, according to VC Human Capital Survey, only 5% of investment partner positions are Latinos. The percentage of U.S. venture dollars invested in Latino founders is 1.5% through Q3 2023, down from 2.5% in 2021, according to Crunchbase.
Two Latino business school classmates are changing that. They started angel investing together and then launched an emerging manager venture capital fund, Red Bike Capital, based on their success. Bank of America is a limited partner (LP). The fund invests in technology to improve financial inclusion, power commerce, drive sustainability, and provide better health outcomes.
Rachel ten Brink is a general partner at Red Bike Capital. Her Cuban parents migrated to Costa Rica, where she was born. Later, she emigrated to the U.S. to attend Babson College and then worked at Gillette. Ten Brink earned her MBA from Columbia and, over the next 15 years, helped billion-dollar brands grow. In 2014, she co-founded and became the CMO of Scentbird.
Ten Brink started thinking about what made her tick a few years ago. “I love helping early-stage founders,” she exclaimed. “Just when they’re starting to see product market fit, and it’s when you start to see companies take off.”
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Her passion for helping startups happened organically. At first, ten Brink advised founders, then joined their advisory boards. Together with her former classmate, Herman Goihman, she realized she had excellent deal flow. The pair started angel investing together.
The duo has complementary skills. Ten Brink focused on marketing and building revenues. She is also a Y-Combinator alumnus who raised $29 million in venture capital. Goihman is an experienced investor and fintech expert who started his career as an investment banker and has held senior investment roles at Bank of America and Taconic Capital. His expertise in credit is particularly relevant as interest rates rise and approval rates decline.
“We made 18 angel investments, which have done quite well,” she said. “Eighty percent of the investments were in women and people of color. Investors asked ‘how did you get access to these companies? They don’t pick up the phone for me.'”
That interest spurred the launch of Red Bike Capital, an early-stage venture capital fund that invests in:
- fintech with a focus on credit and financial education
- powering commerce through SaaS, which allows users to connect to and use cloud-based apps over the internet
- digital health and wellness
“We invest in the best founders, period,” said ten Brink. “Our objective is to provide best-in-class returns, and we want to be a permanent fixture in the tech ecosystem.” Four in five of ten of Brink and Goihman’s angel investments were women and POC. With a deep network in the startup ecosystem, Red Bike receives 75% of its deal flow directly from founders referring other founders.
Most of Red Bike’s limited partners (LPs) are accredited investors. “Sixty percent of our LPs are women and diverse,” said ten Brink. “We’re passionate about providing opportunities for generational wealth for diverse individuals, particularly Latinos. We are a community that is so underrepresented in venture capital!” Nearly 20% of the U.S. population is Latino.
Limited partners invested in the fund for a variety of reasons:
- It is an operator-led fund. They bring successful track records, relationships in the industry, and experience in navigating challenges.
- Ten Brink’s network includes Y Combinator, Techstars, and 500 startups, and being on the board of Latinas in Tech—the largest organization of Latina tech professionals.
- The fund is focused on delivering high returns.
- Some also want to close funding and wealth gaps for women and POC. They believe that when you support diverse founders, like ten Brink, they return, invest in other diverse founders, and keep building the flywheel.
Interestingly, ten Brink has become known for her network. As an immigrant, she didn’t have friends and family with money to risk investing in a venture. Ten Brink had to proactively build those relationships, which is why she is an active mentor and advisor to several accelerator programs. The relationships she made at the colleges she attended are an essential source of relationships, as are the other support and networking organizations she belongs to.
Accredited and qualified investors are an important source of capital for diverse emerging managers. There are regulatory issues regarding the number of investors you can have in the fund. If your fund is $10 million or less, you can have 249, and if your fund is over $10 million, you can only have 99. These caps limit the number of small-check investors in your fund.
Nearly three-quarters of male or female accredited investors would invest in a venture fund if they could write a check for $25,000, according to How Women (and Men) Invest in Startups*. The research recommends changing the policy to increase the number of accredited investors to 499 and the fund value to $50 million. “It would be catalytic for emerging fund managers if the exemptions were expanded,” said ten Brink. “Policies like this can structurally change the ecosystem.”
Ten Brink’s and Goihman’s track record as angel investors established their credibility among accredited investors. The need for an institutional track record makes the current fundraising environment particularly challenging for emerging managers. However, institutional investors like Bank of America (BoA) have developed other due-diligence processes to guide investment decision-making. Having BoA as an LP elevates emerging funds like Red Bike and provides a seal of approval, commented ten Brink.
This uncertain fundraising environment poses additional challenges. Despite Cambridge Associates finding that developing firms are consistently among the top 10 performers in the asset class, accounting for 72% of the top returning firms between 2004–2016, 86% of committed capital is to experienced fund managers, according to Q1 2023 PitchBook NVCA Venture Monitor. Ten Brink responded by writing an article in Forbes, which included the following advice:
- Invest in those who can do more with less.
- Lower valuations are an opportunity.
- Many great companies, including Microsoft, Uber, Slack, and Airbnb, started in challenging times.
- A slower round means more investment rigor.
- Constraints breed creativity.
” My diversity as a woman and Latina is part of my superpower,” said Ten Brink. “I see opportunities that others miss and connect with founders in a way others don’t.” Her otherness gives her a competitive edge.
What’s your competitive advantage?