This Fund Will Invest In Startups That Aren’t Run By White Men In Big Cities

“Talent may be evenly distributed, but opportunity is not.”

Between 2011 and 2013, companies with a female CEO got only 3% of the total venture capital dollars available. That’s $1.5 billion out of the total $50.8 billion invested in that two year period—a tiny slice of the pie. This year’s Crunchies, the Oscars for the tech community, had a new award category: the Diversity Include Award. Silicon Valley is as guilty as Hollywood for its lack of diversity.

Jean Case, CEO of the Case Foundation, is keen to change that dynamic. That’s why she’s backing a new $10 million fund, the Focus Fund, for women and minority entrepreneurs, led by JumpStart Inc., an Ohio-based nonprofit that helps tech entrepreneurs find capital and resources to grow their businesses.

The fund will make investments in approximately 20 tech startups that are led by either a woman or a minority of African-American or Latino descent. But this is not affirmative action for the startup world, Case says. Diversity comes in all shapes and sizes: race, gender, background, geography. Her husband, Steve Case, founder of AOL, has been running a program, Rise of the Rest, that hits at geographic inequalities by investing in startups beyond Silicon Valley and New York City.

What many are lacking, Case says, is access to financial and social capital. Simply put: they need money and networks.

“This economic engine has been defined by white males, and mostly privileged white males,” she says. “We love Mark Zuckerberg, we love what he’s done with Facebook but he happened to have rich friends across the hall at Harvard. We love Sergey and Larry, but they had Stanford.”

Talent may be evenly distributed, she explains, but opportunity is not, which is why funds such as this one are making a concerted effort to target specific demographics.

The Focus Fund made its first call for business plans in January. They’ve been inundated with hundreds of applications, says Ray Leach, CEO of JumpStart Inc.

“There’s pretty significant demand. We weren’t sure what the response would be.”

JumpStart will select about 20 companies and invest an average of $500,000 in each, ranging anywhere from $250,000 to $600,000 depending on the company’s needs. Since this is a public-private fund, with the state of Ohio pumping money into it as well, JumpStart has committed to making all the investments in 36 months, starting this spring.

The Focus Fund, however, is a drop in the bucket, given that $58.8 billion of venture capital was dispersed in 2015.

Leach agrees: “Ten million dollars in the grand scheme of things should not be all that meaningful, but the fact that it is says something. Hopefully this will get other folks focused on this market segment.”

There is one caveat: entrepreneurs who receive funding will have to relocate to Ohio to participate in the program. JumpStart is based in Cleveland but entrepreneurs can relocate to any city in the state. Could that be a deal-killer?

“We don’t want people to move to Ohio for $500k,” Leach says. “People don’t realize that there’s great resources for tech entrepreneurs in Ohio. We want them to move because there’s an entrepreneurial ecosystem here that can help their tech company.”

JumpStart itself has provided nearly $33 million in capital—from foundations, corporations, and state government money earmarked for helping entrepreneurs—to 82 startups in the state. These ventures, reportedly, have gone on to raise more than $680 million. And Jumpstart, Leach says, has been at the forefront of inclusivity: their original portfolio had nearly one-third investments in minority or female-owned companies.

CardioInsight is a perfect example. The medical device company received $600,000 from JumpStart in 2005. Ten years later, medtech giant Medtronic acquired it in a deal estimated at $90 million. CardioInsight is a woman-led company, founded by Charu Ramanathan, a biomedical engineer.

Leach himself has become an activist on diversity in tech and he chairs a task force at the National Venture Capital Association on the topic. He first met Steve Case when the two worked together on the National Advisory Council on Innovation and Entrepreneurship, early in the Obama Administration. The two kept in touch and Steve visited Cleveland and JumpStart in 2011.

“We’ve been looking at this issue for a long time,” Leach says. “Now people are beginning to pay attention to it. But it may take another three years, or even, ten years, for diversity to become a part of the game.”

Data on the demographics of the venture capital industry is still limited and difficult to navigate. A three-month study conducted by The Information and Social Capital found that the investment community is quite lopsided: “less than one percent of senior VCs involved in investment decision are Black—four of 552 people. And only 1.3% are Hispanic.”

The study goes on to note that 92% of senior investment teams at the top venture capital firms are male, and furthermore, 78% are white.

How does this impact their investments? Diversity in the makeup of a company can breed a more successful venture, Leach says. He cites a McKinsey study that found that companies with high racial and ethnic diversity “are 35 percent more likely to have financial returns above their respective national industry means.”

Yet, the general theory in the venture world, Leach notes, is that any limitation of geographic, or demographic, has a negative impact on returns.

“We don’t believe that’s the case. But in three or four years, we’ll have a better answer when we can point to an example. Hence, the fund.”

This article originally appeared in Fast CompanyFirst published April 20, 2016