How Harlem Capital Finds Diamond Startups in the Rough (Cornell Tech @ Bloomberg)

Harlem Capital's Jarrid Tingle

“I like to take things one step at a time,” says Jarrid Tingle, Managing Partner at Harlem Capital, a VC firm on a mission to change the face of entrepreneurship. With such a lofty goal, a slow, thoughtful approach may be essential.

Tingle founded Harlem Capital as an angel investor syndicate in 2015, while working by day at ICV Partners, a private equity firm. After he graduated from Harvard Business School, Harlem Capital evolved into a full-fledged VC fund with an initial $40 million in commitments from organizations like TPG, State of Michigan Retirement Systems, the Consumer Technology Association, and the Weinberg Foundation. Apple recently announced plans to infuse Harlem Capital with $10 million as part of the company’s $100 million Racial Equity and Justice Initiative. Harlem Capital now has more than 25 active investments in its portfolio, where women lead 43 percent and 47 percent are led by Black or Latino CEOs. Its goal is to fund 1,000 diverse founders and their companies over the next 20 years.

Tingle shared his insights on diversity as an asset class, the dual cultural and financial returns on his investments, and more, with Bloomberg Television’s Scarlet Fu during an online talk on Thursday, February 18, 2021, as part of the Cornell Tech @ Bloomberg Speaker Series.

Tingle’s first step into the world of finance was at Barclays, where he learned how to perform financial analysis and acclimate to the corporate environment. From there, he moved from investment banking into private equity on the advice of a colleague. However, Tingle was looking for an opportunity where he could take an even more active role in the management of his investments. He wanted ownership as opposed to simply facilitating transactions.

While interviewing at the Black-owned private equity firm ICV Partners, Tingle ran into an old college roommate, Henri Pierre-Jacques, who was also interviewing for a job there. Fortunately, both men were hired. Around this time, they both realized that they were surrounded by a huge untapped pool of minority talent, and began to formulate their concept for an angel investment syndicate that would focus on investments in minority-owned startups.

“You can’t be what you can’t see” is one of Tingle’s, and by extension, Harlem Capital’s core operating principles. At ICV, he and Pierre-Jacques were able to learn the ropes of private equity in an environment that encouraged the young men to recognize their potential and that of their peers.

“We realized that we had plenty of diverse people in our networks,” Tingle says, referring to the bright young minds they had encountered in school, many of whom were now starting their own companies, but were having difficulty raising money.

Their first investment was in a commodities exchange focused on non-traditional commodities like hemp, which aimed to capitalize on the impending legalization of cannabis in states across the U.S. This promising investment ended up being a low-stakes learning experience for the team, especially after the 2016 presidential administration turnover led to a confusing regulatory environment and an uncertain future for the exchange.

Over the next two-and-a-half years, Harlem Capital invested in six startups and began raising money as it shifted toward a VC model. At first, it was slow going. Tingle shares horror stories from the early days with a laugh, such as the time they spent an entire day taking the train to a different state, only to meet with a potential investor who told them that “Diversity is not a strategy.”

“That was demoralizing,” Tingle says. On another occasion, they had a meeting with a potential investor in the library at the Harvard Club, which resulted in the prospective investor actually yelling at them. “I wanted to crawl under the table, but you can’t do that. You have to finish the meeting because it’s a small world.”

The tide turned after a positive meeting with a private equity firm. That vote of confidence gave them the boost they needed to keep pounding the pavement. “This world-class investor believes in us,” thought Tingle at the time. “We’ll be fine. Before that we got beat up a lot.”

They pressed on, working to expand their network. They successfully closed on $2 million in November 2018, which ultimately led them to get additional access to institutional capital.

VC firms don’t turn over that much. They’re focused on the power law, they’re focused on trying to pattern match for the next Zuckerberg… At the early stage, there’s still so much uncertainty. You’re really taking a bet on people — their vision, they’re hunger, they’re analytical ability — all these things that need to be proven out over time. And, if you don’t have people in your corner that are going to listen to you in a fair way, there’s no reason they’re going to work for you. You need that representation in the early stages to help get capital to build your company.

Tingle cites a sobering statistic: women and people of color receive just four percent of venture funding, despite making up 70 percent of the total U.S. population. Even this paltry percentage is way up from where it was a few years ago.

The biggest challenge was that people of color weren’t really getting VC funding until 2013. Before that, it didn’t happen, and if there isn’t capital available to early stages, if there isn’t follow-on capital, it’s going to take [startups] a long time, because it takes seven to ten years to get to that unicorn or exit scenario. So it’s a really big lag, even though things are moving in the right direction.

This is another scenario where “You can’t be what you can’t see” comes into play. For Tingle, it’s more than just funding startups with diverse leadership. It’s also about injecting diversity into the VC space. Toward that end, Harlem Capital builds out its own team through a robust internship program, in addition to helping Black people get jobs at other VC firms and simply maintaining visibility in the space by hosting events and producing educational content.

Harlem Capital’s rise has coincided with, and perhaps has even helped spur on, a wider industry push to fund startups with diverse leadership. Andreessen Horowitz, SoftBank, and other big VC firms now have devoted funds to invest in minority-owned businesses. But, as a relatively new player in the VC space, Harlem Capital has more opportunity to pursue unconventional strategies right out of the gate. Tingle hopes that Harlem Capital’s successes will supercharge this trend among bigger, more conservative firms that may be resistant to experimental modes of funding.

At a base level, Tingle argues that investors need to be thinking about how they collect data on the startups that are out there. Some firms don’t think about how people are converted through their funnel.

We look at different segments. Who would we take a first call with? Who do we perform further due diligence with? Who do we do an investment memo with? Who do we take to our partner meeting? Not all firms collect that data, but we think it’s essential, because if you don’t track that, you don’t know where your biases are.

Investors who are looking to increase their exposure to a more diverse range of founders need to be proactive, and this effort needs to go beyond collecting data about what diverse founders are out there. They need to make themselves more accessible.

“A lot of firms are ‘referral-only’ in practice,” explains Tingle.

A lot of firms don’t have their emails listed on their website. They’re only getting introductions from their network. And if you’re only investing in Silicon Valley firms — folks that graduated from Harvard or Stanford or folks coming out of big tech companies — your network’s not going to ever be diverse.

Harlem Capital’s efforts to be visible are paying off. They are now fielding thousands of pitches every year, and have built a reputation as a firm that will give startups that have had difficulty getting meetings a shot. Tingle admits that fielding so many pitches results in a lower conversion rate, and that a large share of their deals result from networking rather than cold pitches, but he believes that maintaining accessibility — even though it takes more effort to manage that flow of meetings — is an important and worthwhile component of Harlem Capital’s strategy.

Tingle sees diversity as an asset class. “There’s no reason why 70 percent of the population can’t have much more VC capital than four percent. It just doesn’t even intuitively make sense.”

Harlem Capital is an attempt to bridge that gap, and the firm is betting that they won’t have to make financial sacrifices to do so. As Tingle sees it, there are countless bright, entrepreneurial people out there who have historically had limited access to capital, and therefore aren’t even thinking that entrepreneurship is a viable option. He wants to tell these would-be entrepreneurs that what has happened for Silicon Valley’s well-funded darlings can happen for them too. They just need support from someone who is willing to listen.

You can watch the entire discussion below: