Diversity Initiatives In Venture Capital Aren’t a Fad
SoftBank Capital is a venture capital fund that houses its legacy SoftBank Vision Fund (a 100 billion dollar fund) and the more recently created SoftBank Opportunity Fund (SB Opportunity Fund) which solely funds minority founders who are Black, Latinx, and Native American. I’ll be examining this organization with the Black Lives Matter (BLM) movement in mind since it’s through this movement specifically that sparked the creation of the SB Opportunity fund.
Venture capital has long been an industry dominated by a small group of pedigreed straight white men. These venture capitalists hold all the power in deciding who they want to invest billions of dollars into (Shen). Most venture-backed startups are led by white men who are Ivy League-educated (Umoh). We can see the impacts of this industry and its practices by the fact that black founders only received 2.4% of the $164 million dollars in funding in 2020 (Teare). However, Venture Capital firms were heavily pressured during 2020 to change. This spurred a variety of responses ranging from statements, donations, and the creation of new funds dedicated to supporting minority founders. Softbank is one of the few VC funds that actually dedicated funding to minority founders through their launch of the SB Opportunity fund. It started off as a 100 million dollar fund, but they recently announced that this DEI commitment would become an evergreen uncapped fund and not just a one-time initiative (Mascarenhas). This initiative and further commitment from Softbank stand out within the industry since most VC funds have been quiet about their current commitments after the summer of 2020. It shows the power and longstanding impact of DEI and I argue that this concept best fits Softbank. To validate my argument, I’ll be examining Softbank Capital with the BLM movement in mind through the application of social movements/collective action, inequality, and DEI.
Softbank Capital changed because of the BLM movement. The BLM movement is a decentralized political and social movement that seeks to create social change and address the racism, racial inequity, and discrimination experienced by Black people. Society’s consciousness towards this movement reached a peak during the summer of 2020 after the tragic death of George Floyd. The BLM movement’s collective action framing held companies across various industries accountable for racial inequalities (Repko). Activists and employees alike urged organizations to take tangible actions toward addressing racial inequity to support the movement and address the inequities being brought up. Softbank Capital’s response to this was the creation of the SB Opportunity fund with the then COO of Softbank, Marcelo Claure, in charge of leading this fund and assembling a diverse team of investors.
The idea of social movements and collective actions isn’t fully applicable to Softbank Capital because it’s not a social movement. They are also not directly with the BLM movement or fully addressing all of what the BLM movement is trying to do. They’re addressing only racial inequities in their specific industry (venture capital and tech). Venture capital is a two-sided industry. On one side, Black-founded tech companies get barely any of the billion dollars of funding given out each year. On the other side, Black venture capital investors make up only 3% of all investors (Braswell). Softbank’s approach to addressing these problems within their organization and industry is by giving more diverse investors and founders a seat at the table. The BLM movement on the other hand seeks to change the racial inequities for all black people, not just ones in a specific industry like Softbank.
Softbank at the end of the day is trying to address the inequality present within their industry through what they can do within and through their company. Marcello acknowledged the inequities present within Softbank Capital by stating that they “need to increase underrepresented hires at both SoftBank and its portfolio companies, particularly in leadership positions and board seats. In a renewed effort to diversify its ranks, SoftBank announced the creation of a diversity and inclusion program” (Umoh). Starting with the team, racialized organization theory brings up that inequality regimes shape organization structures. Prior to the creation of the opportunity fund, there weren’t many people of color working at Softbank, especially in executive-level positions besides Marcello. We do have to keep in mind that the giant conglomerate of Softbank Group is based in Japan which could impact this, but Softbank Capital invests all around the world and has smaller offices in the states.
On the other hand, racialized organization theory highlights how organizational structures themselves are racialized. Because Softbank is mainly based in Japan, this can explain why most of the Softbank Group and Softbank Capital team are Asian or White. Even today, the executive team of the legacy Softbank Vision Fund has no people of color. Softbank Group’s own diversity website page highlights how they’re addressing inequity for women, LGBTQ+, and special needs folks but doesn’t talk about racial inequity at all. The organizational structures themselves limit the agency, resource distribution, and unequal treatment of a certain race (Asianness and Whiteness) as a credential. The opportunity fund itself being originally separately run by Marcello and being 10x smaller than their main 100 billion dollars “Vision Fund” fund shows the decoupling of a racialized organization. Relational Inequality Theory brings up how inequality regimes shape organizational practices because these regimes arise through interactions in the organization. As these interactions become engrained, they perpetuate and create unequal access to resources which furthers inequality. For example, claim-making from one group against another is the key mechanism creating inequality of resources. However, we have to keep in mind the different cultural contexts of Japan and Softbank Group’s locality as we trace these two concepts of inequality through the organization. It’s difficult to argue if or if not both of these concepts are fully present at Softbank without any insider information. We also can’t apply an American point of view when we hold Softbank accountable because racialized history is different in the East versus the West. However, we can make an informed guess by looking at external things like the type of people within the executive team to get an idea of the inequality present.
Finally, The SB Opportunity fund itself is a DEI initiative. Softbank themselves stated that this was created in response to the racial inequities highlighted by the BLM movement as stated earlier by Marcello. We can trace the origins of this DEI initiative through concept of institutional myth. During the Summer of 2020, every notable VC fund released statements and new initiatives addressing racial inequity. Softbank, as a leading venture capital fund, needed to create and announce something in order to match what the rest of the industry was doing and continue validating its legitimacy and stability. The concept of shareholder value could also provide another possible explanation for the creation of the Opportunity fund. If we look at how venture capital funds are structured, the money they get is all from limited partners (LPs). LPs are usually high-networth individuals, institutional management funds (like the Harvard Management Company), or pension funds. LPs have a huge influence over venture capital firms because without LPs these firms would have no money to manage. The venture capital funds that LPs invested in also serve as a representation of who they are. Many LPs who cared about the movement urged their funds to address racial inequities (David). This could’ve been the case for Softbank Capital as well which could help explain the creation of the Opportunity Fund.
While the SB Opportunity Fund started off as a DEI initiative, the turning point came this year when they deployed all 100 million dollars of their inaugural fund. They also further institutionalized the fund by making it an evergreen uncapped fund (Mascarenhas). This change of making the SB Opportunity Fund evergreen and uncapped is significant. The Evergreen Fund shows Softbank’s commitment to keeping this fund around because this means that there’s no deadline or end to this fund. Softbank is the first fund of its size to institutionalize a minority-focused fund as a core part of the organization and not just a side project. Another significant development is that Masayoshi Son, who is the founder, chairman, and CEO of Softbank Group, now sits on the leadership committee of the Opportunity fund. It’s no longer an independent fund run by Marcello. Coupled with this new leadership structure, they also transparently show all the founders and companies they back with the opportunity fund on their website. Softbank’s recent changes address many of the reasons why DEI initiatives don’t work when they are decoupled. We see the power of DEI here in creating initiatives and changing Softbank for good. I argue that DEI best fits Softbank because it improved upon the SB Opportunity fund without the pressures of the BLM movement. While most well-known VC funds have been quiet about their commitments, Softbank improved their DEI initiative despite there no longer being the same pressure and accountability created by the BLM movement.
In conclusion, these changes happening now in 2022 show that Softbank’s DEI commitment to the Opportunity Fund is not only because of the BLM movement highlighting these inequities. It’s a commitment that is here to stay and has the full support of the Softbank Group. Through Softbank, we see a rare example of a DEI initiative that starts off as a reactive response to the larger climate but then becomes a statement of dedication to creating real change in the industry.