Baltimore's RareBreed Ventures is partnering with two other venture capital firms as part of an innovative fundraising arrangement that will allow smaller investors to contribute to large funds.
RareBreed founder McKeever (Mac) Conwell said the new initiative will pool many small investments into a single, larger entity, known as a special purpose vehicle or SPV, that will exist separately from the three participating VC firms, which besides Rarebreed include Portland, Oregon's Rogue Women's Fund and VITALIZE Venture Capital in Chicago.
The idea is that, by creating a single entity that's separate from the three funds, it will allow for lower minimum investments than what is required under regulations for relatively large funds. That potentially opens up a new source of capital and makes investing more accessible to a larger audience.
The three companies hope to raise $10 million in total through the initiative, giving each VC fund an additional $3.3 million in investment. Once the SPV disperses those investments back to the three VC funds, it will only count as a single limited partner. VC funds generally have a cap on the number of limited partners that can participate in each fund.
The collaboration among the three VC funds comes amid a tough fundraising market and could provide a roadmap for other funds that are looking to attract smaller or more risk-averse investors.
“Because you're investing in all three of us, you get to spread the risk across three separate funds,” Conwell said.
Conwell's portion will go toward RareBreed’s ongoing raise for a $40 million VC fund. Conwell is pursuing the unorthodox funding method in part because he wanted to ensure smaller investors who contributed to his first fund can benefit from his continued growth. His first $10 million fund had over 200 limited partners, including many first-time minority accredited investors. This new program gives many of those investors, who may not be able to afford the six-figure minimum investment needed to contribute to a $40 million fund, the chance to contribute. The minimum investment for the partnership's fund is $10,000 a year for four years.
Conwell believes opening up venture capital to smaller investors will allow for a more diverse pool of investors to participate and can help close the wealth gap in the United States.
The fund also gives an opportunity for investors to donate to organizations with a social conscience. RareBreed focuses on companies run by women and people of color along with businesses outside of the traditional tech hubs. The Rogue Women Fund invests in women-led companies particularly in the health care and equity tech sectors, while the woman-led VITALIZE invests in B2B software.
Besides RareBreed, several other Baltimore VC firms have raised or are raising large new funds, including Jeff Cherry's Conscious Venture Partners, and Fulton-based Conversion Capital.
