Changing the game: how Cornerstone Partners are levelling the playing field for black and diverse founders
As well as the ongoing COVID-19 pandemic, there is a global call-to-action to dismantle systemic racism and inequality for black and ethnic minority communities. Within our own ecosystem, we know that black and diverse founders are not getting the same access to capital or support as their white counterparts. Ahead of our Investing in Black Founders Matters round table on 1st July, we spoke with one of the participants Rodney Appiah, co-founder of Cornerstone Partners, to find out what work they are doing to make positive changes and remove barriers to funding.
Cornerstone Partners was founded by six individuals who had been independently successful in their respective careers in London. Establishing the first angel syndicate which focused on investing in businesses led by black and diverse founders, Cornerstone deployed more than £750,000 across the UK over the last five years. Rodney explains:
“We had this desire to do something positive and meaningful in our community and believed that financial empowerment was one way to achieve this goal, although in the beginning it wasn’t always clear to us what route we would take. We explored investing in the stock market, property and even launching a start-up ourselves before we realised that angel investing offered an exciting opportunity to understand a new asset class and potentially deliver some upside too! We started with £5,000 each or £30,000 between the six of us and over the next nine months spent all of our time and energy laying the foundation for what would eventually become Cornerstone Partners.”
Unlike other angel networks that focused on particular sectors or regions, the team quickly came to the realisation that their unique networks lent themselves to a segment of the market that was currently underserved but nevertheless excited them; backing black and diverse founders.
“We wanted to support black and diverse founders that were driving exceptional and innovative businesses in the UK, but for some reason weren’t attracting the level of capital that other founders were enjoying. We saw that as a missed opportunity, and one that we were determined to capitalise on.”
As part of their mission to better understand the market, Cornerstone Partners has been conducting extensive research into the reasons why black and ethnic minority founders are disproportionately affected by the funding and equity gap. Rodney shares:
“The first thing we realised is that there is a perception problem. There’s been some great work carried out by the Economic Research Council, Diversity VC, and The Rose Review, the latter particularly with respect to female founders. The Economic Research Council for example revealed that there was a tendency for ethnic minority and female founders to seek funding later in their growth journey and be discouraged from applying for equity and other sources of funding due to a perception of discrimination. Why did that perception exist? That was one of the things we were particularly interested in trying to address.”
It is estimated that the level of angel and VC funding being attracted by businesses led by black and diverse founders is less than 2% and Rodney has some thoughts on why that might be the case.
“We believe unconscious bias is one of the main drivers. We [Investors] all have a tendency to back things that we understand and have seen before.”
“We believe unconscious bias is one of the main drivers. We [Investors] all have a tendency to back things that we understand and have seen before. The relatively limited examples of notable success stories originating from black or diverse founders has unfortunately perpetuated this myth that they are less likely to succeed whilst the reality is, when compared to the relative scale up capital that these businesses receive, they typical outperform and would in all likelihood create innovate and category leading businesses if afforded the scale up capital to do so.”
Digging deeper, Cornerstone Partners has commissioned new research with Engage Inclusivity and Beauhurst, sponsored by Diversity VC, on black and diverse founders in the UK, and their experiences of accessing angel and VC funding. The research has been underway since May 2020 and is scheduled for publication later this year with data on how many black and minority ethnic founders have achieved VC backing, highlight the overall market opportunity with pipeline data and on offer insights into diverse founders’ experiences of securing funding. Ahead of the research being released, Rodney explains some of the benefits they’ve already seen:
“We want to give people more visibility of the fantastic businesses that are being created by black and diverse founders, and more importantly, demonstrate some of their key selling points. One of the biggest strengths we’ve noticed is that black and diverse founders are on average far more efficient with their capital. Part of that is due to necessity because they haven’t been able to access institutional capital historically but it’s also partly driven by innovation and their ability to be smarter about how they bootstrap their business. This implies an inherent competitive advantage within black and diverse founders, which when coupled with the fuel of scale-up capital, could really unlock the growth in these businesses.”
As a sector agnostic fund, Cornerstone Partners believe the key for an early stage business to thrive is having a diverse team, both in terms of inherent diversity and acquired diversity, as defined by the Centre for Talent and Innovation. Despite their sector agnostic approach, they acknowledge that black and diverse founder led businesses tend to over-index in sectors such as food, fashion, beauty, entertainment and TMT.
With many of their initial investments in London, Cornerstone Partners has started to expand its activity to all regions across the UK.
“From the outset, we wanted Cornerstone Partners to be viewed as a UK rather than London centric angel network. Last month we closed a £170,000 investment into a Hull-based business called Coordinate Sport, which has created an integrated operations and booking management SaaS platform specifically designed for the sports coaching industry. We remain committed to a regional approach going forward and think there is a particular opportunity to support businesses in cities such as Edinburgh, Bristol, Manchester and Birmingham, where there is a concentration of minorities and diversity. That should hopefully lead to more scalable businesses coming out of those regions.”
Like everyone in the ecosystem, Cornerstone Partners has been impacted by the ongoing COVID-19 pandemic. Cornerstone has been busy providing additional support to our portfolio companies in the near term and doubling down on some of the market trends we had identified pre COVID when considering new investment opportunities.
“From an investing perspective, we have found that COVID-19 has accelerated key trends that we were already aware of. B2B SaaS, e-Commerce, on demand media and e-learning are notable markets where we have seen a significant up take in adoption. More importantly, COVID-19 has reminded us of the importance of being able to prioritise businesses that demonstrate a ‘remote first’ approach.”
Find out more about Cornerstone Partners at https://cornerstonepartners.co.uk/
Investing in Black Founders Matters round table, takes place at 11am on Wednesday 1st July. Register now.