How Fearless Fund is bridging the gap in venture capital funding

Arian Simone, Fearless Fund Co-Founder, joined Yahoo Finance Live to discuss how her VC firm is bridging the gap in venture capital funding by focusing on female founders of color.

Video Transcript

[MUSIC PLAYING]

ADAM SHAPIRO: I want to talk to you about the Fearless Fund because they are taking apart Wall Street's old boy network to help venture capital reach people who traditionally haven't had access to it. Arian Simone, the Fearless fund co-founder, is joining us now to talk about how the fund is raising money-- and doing quite the job of it from the stats you've sent us-- for women and women of color. Thank you for joining us.

ARIAN SIMONE: Thank you for having me. Thank you for having me.

ADAM SHAPIRO: So I know you're targeting women and women of color. But when we talk about what is it historically, about 1% of VC funds have actually gone to the community and yet, these are people who create a lot of businesses.

ARIAN SIMONE: Yes, women of color are the most founded entrepreneurial demographic but yet the least funded. Right now, African-American women receive 0.0006% of venture funds. Women of color are under 1% as a whole, as a collective. That is true.

SEANA SMITH: Arian, when it comes to I guess the best ways to address this, and we've been talking about it a lot, I first want to ask you how companies come into this, how the private sector comes into this. Because I know Costco just committed $1 million to your fund. When we talk about the corporations' role in this, how do you see that helping to bridge this gap?

ARIAN SIMONE: We definitely need the support of the corporations to bridge this gap because the 0.0006%, it's going to take billions of dollars in order to even out the whole equity playing field. So we need as many corporations, as many venture capital funds, as many people who are in this space that are looking to invest in minority equity in order to help move the needle on this.

ADAM SHAPIRO: So the raise so far, I think you've got what is it about $20 million? Tell us about some of the portfolio and where that money has gone.

ARIAN SIMONE: That is wonderful. This raise, I just want to highlight just a little bit, when we first started off we thought we were going to have a $5 million concept fund. And we started off with institutional investors from Lisk to Fifth Third Bank to Invest Atlanta. And then PayPal came on board as the lead investor, which then pushed us to a $20 million target. And now we have the option to, of course, oversubscribe.

Recently PayPal, Bank of America just made their announcement in the news about a week ago, and as you just mentioned as well with Costco. We have recently deployed funds across seven businesses in the industries of CPG, beauty, tech, and food and beverage. And we look to continue to do a portfolio construction of about 30 companies with under the $25 million target. If you'd like to hear-- oh, go ahead.

SEANA SMITH: No, sorry. Go ahead.

ARIAN SIMONE: Oh, I was saying if you wanted to hear in detail about any of the companies, I'd love to brag on them. They are the rock stars in this. I'm just here behind this scenes doing the work.

SEANA SMITH: That leads to my question, though, because I think the what people want to know, especially people who are watching right now, is if they want to get your attention, what do they need to do? When you're looking for some of these startups that you're investing in, what's the criteria?

ARIAN SIMONE: Well, the criteria for us, you need to be a woman of color co-founder; full-time in your business; you need to be on a runway of about $20 million in the next two to three years from a point of conversation; and you also want to make sure that you have at least 100 ARR, which is Annual Recurring Revenue. But I will be honest with you, the women that we meet with daily, they've already bootstrapped their ways to seven figures, have high net profit percentages in their businesses, and have yet to have many people on their cap table or anybody at all outside of themselves.

The profile of this entrepreneur is definitely dynamic. They've been bootstrapping for a while, they have been frugal, they have been very agile in their ability to pivot in the midst of today's current climate. But yes, those are definitely on paper criteria. But what I can say that gets any investor's attention is a great brand story and traction in the marketplace. That's what's going to get somebody attention.

ADAM SHAPIRO: Any chance for another fund that you're planning in the future and who you might target with that money?

ARIAN SIMONE: Yes, we would love to continue on with this franchise. We look to have a fund two, fund three, fund four, et cetera. The reason why, for the statistics that we stated early on in this conversation-- it's going to take billions of to move that needle. We need 100 Fearless Funds out here. So we don't plan on stopping this any time soon. We look to keep doing all of the amazing work that we're doing right now. And yeah, we have to have funds later on in order to move this needle.