Fellowship Spotlight: The BFM Fund
VC Include Fellow Himalaya Rao-Potlapally is adamant that venture capital is missing out on a massive market opportunity. She’s created a fund, based in Portland, Oregon, that doubles down on Black founders nation-wide to prove that outsized returns will be possible with a focus on this overlooked demographic.
Innovation Requires Inclusivity
“Innovation inherently means pulling together different perspectives,” Rao-Potlapally highlights. “But a lot of times what happens in venture capital, is the same people with the same backgrounds are the only ones that get included in being able to come up with new solutions that then shape what we focus on for the next decade.”
Rao-Potlapally’s work is dedicated to reshaping this reality. In January of 2021, she founded The Black Founders Matter (BFM) Fund to focus on increasing inclusivity as a way to inspire true and more widespread innovation. In her exposure to the world of venture capital, she saw that, while many investors make philanthropic donations to Black and Brown organizations or individuals, “When they think about, ‘Who can I invest in to get a return on my money?’ Or, ‘Whose expertise can I trust to advance us all?’, they don’t look to Black and Brown people.” And it’s this dynamic that Rao-Potlapally seeks to transform through the work of the BFM Fund.
“Black and Brown people don’t just need assistance on the philanthropic side,” she says. “They are capable of facilitating change and advancement for everyone.” The BFM Fund is committed to elevating this fact through example so that it’s at the forefront of people’s minds. “When investors think about putting capital in the hands of entrepreneurs that are de-risked, that have the ability to scale, that have the ability to exit and return their money,” Rao-Potlapally offers with a sense of urgency, “we want them to think of Black founders first.”
A Theme Emerges
Before getting into VC, in her career in social work and consulting, Rao-Potlapally experienced a pattern that spanned across the different fields she was working in. “Both being a social worker and being a consultant,” she shares, “what you see is this idea that you will create solutions for people in need without ever involving the people who are being affected by those solutions.”
She observed what felt like a painfully obvious disconnect and design flaw in going about any work in this manner. “I started in change management and then I moved into process improvement to try to get the end user’s buy-in to the creation of the solution, because I just felt like, why are these two separate processes?”
Seeing the separation of people who are implementing changes from the people who are ultimately most directly affected by the changes, she knew there was a better way. “In my mind I was like, if you just worked with the people who are going to be affected by the change to create the change, you wouldn’t need to get them on board, because they would already be on board.”
Becoming the Bridge
By the time she stepped into her VC career, Rao-Potlapally was clear about a central priority: “Make sure that, when you create solutions for a community, you are incorporating the ideas and pain points and solutions generated by that community.” She would focus her fund on bridging the persistent gap that she was seeing across industries, and particularly relative to Black entrepreneurs’ ability to access sustainable capital to fund thier innovative ideas.
The BFM Fund is a $10M fund investing at the seed stage in Black and other innovative entrepreneurs across industries in the U.S. The fund doesn’t simply give capital that creates access to entrepreneurship, but also creates a pathway so that entrepreneurs in their portfolio can scale and exit businesses at their discretion.
In creating and launching her fund, Rao-Potlapally honored the importance of having the people who are meant to benefit from the work informing the shape the work takes. “If we’re wanting to create access but also an intentional pathway for folks to be able to scale up and exit, we have to recognize — and we did a lot of research to arrive at this before we launched the fund – what pain points Black founders are feeling and where they’re feeling it.”
A Strategy That Addresses Multiple Pain Points
Rao-Potlapally was unsurprised to learn that lack of access to entrepreneurship and seed stage funding was a clear barrier, but her research also clarified the urgency of less apparent challenges. “One of the biggest things,” she shares, “was that in order to get Series A funding, Series B funding, and to scale and grow, you need subsequent capital and you need industry-specific resources and mentors.”
She molded the focus of the BFM Fund to respond to these clear needs among Black founders, articulating an intentional strategy that targets high-performing, industry-specific firms as resources for the companies in BFM’s portfolio. “We go to those industry-specific firms and say, ‘You are the best in your specific vertical, and that is amazing. We recognize the work you do, and we’re not trying to replicate that. What we do notice, though, is that you don’t have any Black founders, or you have very limited Black founders in your portfolio.”
BFM makes itself available to these firms as a resource for addressing the particular challenge that they experience in engaging Black-led partners. She then pitches to the firms, “‘What if we were to gather your metrics and really understand exactly what you’re looking for and what helps you cross the finish line to actually make an investment? What if we then work with companies that are specifically in your vertical that you’re investing in, with the metrics you’ve given, over the course of 12 to 18 months, and then what if we also capitalize them? We can create a funnel for you, like a deal flow pipeline. Let’s work together to make sure that you can continue doing the amazing work you’re doing, but with Black founders, to be able to advance those Black founders and give them the resources and access to capital at later stages.’”
Sustaining Investment to Ensure Success
While BFM invests early at the seed stage, they see that initial investment as the beginning of the real work to support companies’ enduring success. “Once we invest,” Rao-Potlapally says, “our step one is, now let’s work with them really closely over the next 12 to 18 months on the metrics we’ve already established in their particular vertical, to be able to then move them from where they are to where they need to be.” They help companies establish their technical roadmap and first key hires, and move them from one-off revenue to recurring revenue, increased average order value, and a more sustainable business overall.
“Our hope then is that we’ll see a lot of exponential movement,” Rao-Potlapally shares of the intention of her fund strategy. “With year one, we invested in 10 companies in January 2021; several of those companies within last year have been able to raise their Series A at 5x multiples because they’ve been able to get those metrics. They’re already brilliant; they already know how to execute on their business. What they need is access to resources, services, metrics they’re going to be judged on later. And that’s what we provide for them.”
The VCI Fellowship: An Oasis
Rao-Potlapally possesses a motivating passion for the work that she does, but that doesn’t mean she doesn’t need support to keep pushing. Having launched her fund in Oregon, she shares that she is the first woman of color in venture capital in the state to both work in a traditional venture fund and subsequently raise and launch a venture fund.
“This is the ecosystem that I launched my VC career in,” she shares. “It’s great that I’m able to utilize this fund to create catalytic change for others, but I myself don’t really have any colleagues or peers who are also working in the equity building space. I have mentors and prior supervisors and supporters; I have people that I’m helping. But I don’t really have other emerging managers I can bounce ideas off of.”
The VCI Fellowship became an oasis that offered a remedy for this isolation. With it, Rao-Potlapally gained her own supportive and relatable community of practitioners. “We’re able to bounce off ideas; we’re able to share resources; we’re able to do introductions to LPs; and we’re able to invest together, so I’m really excited about that.”
We at VC Include are truly excited to be a part of The BFM journey, and look forward to seeing all the ways in which Himalaya and her team continue to bridge gaps, increase inclusivity, and invest in innovation.
