Venture Capital: Collab Capital Makes Profit-Sharing Investments, and Only in Black Founders

June 10, 2020 | News, Venture Capital

The founders at Collab Capital want to change the diminutive amounts that flow to black entrepreneurs as venture capital – with a $50M fund.

Collab Capital calls it the “growing US racial wealth gap.” Founded by Jewel Solomon Burks, Justin Dawkins, and Barry Givens, the firm wants to address the problem by helping black founders build sustainable, technology-enabled businesses. It guides early-stage start-ups to higher revenue and profitability instead of building up valuations. (Crunchbase)

Racial disparity in the start-up world

According to Crunchbase, just 1% of the amount of funding flows to black founders in the U.S.

The tragic murder of George Floyd has turned the spotlight on how underrepresented black people are in the VC world.

“This [Floyd] situation has opened a lot of eyes, and we are here to help others diversify their investments by investing in us as a fund,” Givens said to Crunchbase.

Collab Capital is planning to raise a $ 50 million fund. It will invest in black-founded start-ups through a profit-sharing route rather than as an equity stake. The fund is scheduled for a first close of $ 10 million by late August. The LPs already on board include Kauffmann Foundation and hip-hop gospel artist Lecrae.

The VC world should be more inclusive

Collab Capital is looking for partnerships with investors that want to fund black start-ups. Very often, such investors do not have the right access.

“Innovation doesn’t have a color,” Dawkins told Crunchbase. “And with our profit-sharing model, we’re here to help companies who don’t want VCs to take large sums of equity and wait for exits.”

How the model works

According to TechCrunch,  Collab Capital strikes a SPACE deal with founders. That stands for “Shared Profit Agreement with a Collaborative Endorsement.”

It’s a deal in the middle space between equity and a typical endorsement contract.

“As part of our solution, we implement profit sharing once the company reaches predetermined revenue targets,” Collab says on its website.

“This allows us to offer our investors earlier access to venture-level returns without forcing a sale, IPO, or crippling the business.”

“While we offer creative ways to generate and return our investors’ capital, we also retain an equity stake to protect our upside in the event of an acquisition, merger, or IPO.

Related Story:   M33 Raises $260M to Fund “Scrappy, Bootstrapping” Founders                                                

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