With much of the investing world still the domain of white males, a New Zealand VC fund has adopted a contractual pledge to bring more Māori and Pasifika into the sector.

A New Zealand venture capital fund has become the first of its kind to adopt a BLM-inspired diversity pledge. Hamilton and Auckland-based Hillfarrance has joined a growing number of global VCs that have embraced the Diversity Rider – a contractual goal to increase the number and prominence of underrepresented investors in the sector.

Written into the VC’s terms sheet – the terms and conditions contract of an investment – the Diversity Rider is in effect a promise that the VC, or lead investor, will make every attempt to include a member of an underrepresented group as a co-investor when funding a startup. In Hillfarrance’s case, the underrepresented groups include but are not limited to someone from the Māori, Pasifika, LatinX, Black, and LGBTQ+ communities.

According to Hillfarrance founder and managing partner Rob Vickery, the Diversity Rider will help fill a gap in the startup investing space, which still tends to skew towards white males, and attract a diverse range of investors to fund emerging companies.

“As a fund, we’re really focused on diversity within our team, and also within our portfolio companies. But the missing piece has always been within the people that we can invest with.”

Vickery says that making the promise to companies looking for investment will mean multiple stakeholders are involved with the push to attract diverse investors. With $400,000, or 20% of a $2 million funding round, put aside for the task, the ultimate aim is to have at least 20% underrepresented investors at the time of funding.

“We often lead investments here in New Zealand. So wherever we make an investment we have to provide a term sheet, and in that term sheet we insert the rider.

“So when the [company] founders sign up to us, they also sign up to the fact that we will try our very, very best to make sure that the round we’re going to be a part of is going to be at least 20% filled with diverse investors.”

While not binding, the idea behind the Diversity Rider is that it will create opportunity for underrepresented investors to participate in deals and attract founders who also prioritise a commitment to equity – thus creating a thriving and diverse ecosystem.

Now with about 50 VCs on board, the rider was originally started by US-based Act One Ventures in the wake of the George Floyd murder last year. Act One Ventures general partner Alejandro Guerrero said although it’s not enforceable, it represents a commitment from VCs to founders who are looking for ethical and equitable investors.

“Ultimately it is to create access to what has been the greatest asset class of the past half-century and to create more equity in venture capital and tech,” Guerrero said. “This access and these connections have historically been denied to people from certain socio-economic standing, because of their race or gender or any number of other ways that people are discriminated against.

While Guerrero said executing the rider won’t be easy, especially as VCs may not have access to a diverse network of potential co-investors, he told media it provided a reason to expand networks beyond the typical community. “It’s a reason to go out and build more networks, meet individuals that you can invite in, that you’ll get to know more. And then hopefully, when you build that trust, you’ll start seeing incredible new deal flow.”

“There is no reason that people who have the money and the desire to invest in startups, who have the skills to do this work, the networks to help startup founders – there is no reason they should be left out simply because they are not part of the traditional mould of a VC.”

Rob Vickery, who worked in the US before moving to New Zealand, is no stranger to the diversity issue within startups and VCs, especially among Black and LatinX communities. In New Zealand, however, it’s more about a lack of Māori and Pasifika representation, he said He’s worked as a partner for Māori business acceleration programme Kōkiri, and has intentionally directed Hillfarrance to prioritise work with Māori and Pasifika founders.

“I quickly realised when I came here that, for me to be a fund in New Zealand, we have to serve its Indigenous population. So I actively sought out to try to learn as much as I could about the Māori and Pasifika investor space.”

According to Vickery, 50% of Hillfarrance’s New Zealand portfolio companies are women-founded, and 44% are Māori-run companies. While he said the representation in Māori startups has increased in recent years, the goal of the rider and Hillfarrance is to connect them with Māori investors.

“There are actually quite a number of Māori and Pasifika investors. But they do it somewhat quietly. And they’re not necessarily active angels who go out there and do all these pitch nights and stuff like that. They’re kind of more reserved, and they do things on their own terms, which I actually quite admire.”

“We hope this [Diversity Rider] will be a way for them to see more deals. We’re about to fund two more Māori-founded companies in the next three months. So we hope that they will be able to come in on these investments as well.”