How we can build multi-generational wealth for black and brown families using venture capital

Giving this talk at Amplify LatinX in Boston last year during Boston Hubweek

I am a believer that the only way we can build multi-generational family wealth in black and brown communities is through investing in venture capital.

Let me give you a bit of my background before I start.

I am a son of Mexican immigrants who came to the U.S. in the 1970s. My dad was a cabinet-maker and my mom was a bookkeeper. My dad worked in wood shops in Los Angeles, building everything from kitchens to popcorn carts, while also having a shop at home where he and our family worked nights and weekends.

I remember our whole family working late on Christmas Eve on a house he was remodeling — It wasn’t the first or last time that we did this. This was the family business and this is where I learned to become an entrepreneur.

All of this hard work was worth the price, as they owned their own home and set our family toward the American dream. Yet, even through all of this, the most advanced financial product they owned was a CD. Even while I went to Harvard and built two venture backed startups, my parents were conservative with their money — a trait common in Latino families.

This gave me the unique view of seeing my family, as well as other children of immigrants, build their own career success, yet at the same some struggle with building their financial futures. When I look back on my own experience, I have a clear view of what financial access looks like for many black and brown communities.

When your end game is the stability of a paycheck, how do you then advance to create the generational stability that lets families grow with economies? As the first and second generations become professionals, how do you then build a bridge to wealth? If you want to break the glass ceiling, you have to think outside the box. You have to take the risk to have exponential returns. What products do we have in our toolbox?

1. Retail investing through a brokerage account (like Robinhood or Etrade) is easy to access, but cannot provide the exponential returns that can build multi generational family wealth for an investor and their family. Studies show the average return from brokerage is 10% a year, that does not give the opportunity to grow the initial investment to build generational wealth.
2. Private equity can provide this exponential wealth, but is limited to those investors who can invest $5M dollars and can park that cash for the next 20 years. Even returns from PE funds stay within the PE ecosystem recycling that capital for decades.This asset is limited to high net worth individuals and institutional investors and not available to most black and brown communities.
3. Venture capital on the other hand is open to those investors who can become accredited investors quickly. (For example a financial professional or someone with a salary of $200K a year, not just needing one million dollars in net worth) Those returns for both the investor and the entrepreneur go back into our communities as angel investments, other LP commitments in VC funds, and investment back into our community business.

As a venture capitalist I can now see that the majority of wealth being created in the United States is being created by mergers and acquisitions. This type of wealth is of tremendous scale that can only be accessed by using financial products like Venture Capital or by being an entrepreneur and building a type of business that can be acquired. This is the only way that we can build this type of exponential growth of capital for both founders and funders of color.

Extending this further I see that wealth creation in our communities is a three part problem.

1. Culturally black and brown communities don’t view entrepreneurship as a career option or choice. Culturally it is viewed as being too risky and not safe. This is something I see allot in the latino community.
2. Black and brown investors need access to investment products like VC that can give them the potential of generating large returns once they become accredited investors. This gives them the ability to invest in riskier opportunities, but can pay off in larger returns.
3. On the other side of the spectrum traditional capital allocators (endowments, foundation and pension funds) need to start investing in managers of color. Only then can investments be made in entrepreneurs of color.

This is how we can start to lessen the wealth divide between black and brown investors and have capital come full circle. Both founders and funders have to be in alignment. For example, Mendoza Ventures is both minority and woman owned and 67% of our portfolio is minority and woman led. This is not an anecdote, but rather the fact that diverse investors are investing in diverse founders. Our first acquisition at Mendoza Ventures was in a cybersecurity startup founded by two latinos. For us this showed that our highest and fastest return came from diverse funders investing in diverse founders.

Aldo and Dino, Latino founders of GoodDogLabs Acquired in 2018

“As a latino VC you have to hold yourself up by one hand and with your second pull up the person of color under you.”

What can you do?

1. Educate your community on the risks and benefits of being an entrepreneur as well as the career choice of starting a venture fund or a startup.
2. Invest in VC funds managed by women and diverse managers. Only by having diversity in funding sources can we make sure that capital makes it out to diverse founders.
3. Promote black and brown VC fund managers and founders. Only by spreading the works can we show that diversity can successfully manage money. The more we promote each other the more we show the success of diversity.

About Mendoza Ventures

Mendoza Ventures​ is the first VC firm founded by a latino on the east coast. Our fund focuses on F​intech, AI, and Cybersecurity​ early stage and growth stage companies that are location agnostic and are targets for early acquisition.

We provide an actively managed approach to venture capital by investing in areas where we have deep industry expertise, companies with early revenue, a clear value proposition to a market and using a proven due diligence model.

• Mendoza Ventures is both Minority and Woman owned.
• Mendoza Ventures is a certified Minority Business Enterprise (MBE) in the state of Massachusetts.

Follow Adrian Mendoza at https://www.linkedin.com/in/adrianmendozavc/