London-based VC firm Ada Ventures which claims to invest only in diverse startups has just announced the closure of its oversubscribed £63m ($80m) second fund, bringing in backing from notable organisations like the British Business Bank, the Export and Investment Fund of Denmark, Legal and General Capital, Atomico, the University Of Edinburgh, Molten Ventures, Taavet Hinrikus (founder of Wise and Illusian), and Ilkka Paananen, (co-founder of Supercell).
With this capital, the team will be making investments of between £250K and £1.5m in pre-seed and seed stage startups, with a significant amount allocated for follow-ons.
With 12 investments already made from the second fund, the Ada Ventures team plans to make between 10 and 12 investments per year in companies building breakthrough ideas across climate equity, economic empowerment and healthy ageing.
That’s big news in itself, but the latest fund has two things that set it apart from – if not ahead of – the rest of the market.
Firstly, its first fund is performing in the top quartile, with a portfolio on track to generate £100m+ net revenue over the coming year.
And secondly, the Ada portfolio claims to be 14 times more diverse in terms of gender and ethnicity than the UK VC market as a whole.
But before anyone jumps to conclusions or assumptions, the Ada tells TFN, that their portfolio is not social activism dressed in a VC suit. It’s a genuine combination of profit and principle, with a healthy dose of investment in companies that are trying to solve the world’s real problems to boot.
Ada Ventures co-founder Check Warner describes the ethos of the VC as looking for “Inclusive Alpha” founders to make genuine differences in areas from climate equity to economic empowerment and healthy ageing.
With the latest fund announcement, TFN caught up with her to learn more.
Inclusive Alphas – what does that actually mean?
“It was a response to some frustration with conversations we were having with limited partners and people in the industry about investing with a diversity lens,” says Warner.
“The assumption immediately was that there was some kind of compromise around returns inherent in that idea, which we’ve never have accepted. We wanted to position performance front and centre alongside an inclusive investment strategy. That’s what Inclusive Alpha does – it drives better than market returns with an inclusive investing approach.
“There’s some evidence that this works, but we’re still really early in the process of people taking an inclusive approach within venture capital. What we’re trying to do is take the blueprint of what we’re doing at Ada, peer review it wherever we can, then open source that to the rest of the venture capital community, because we believe really strongly that this is not about one fund. It’s about the entire category of inclusive investing succeeding, and we hope that in the future, limited partners will allocate X proportion of their fund to Inclusive Alphas.”
The diverse VC
A fund fourteen times as diverse as the UK market as a whole is going to put you out in front, isn’t it?
“Yes, our portfolio at the moment is more diverse than these other funds. But it’s not about us versus other funds,” Warner explains. “We’re showing it’s possible to do this right now. There are other funds with other approaches to the same goal, building high performing funds and inclusion simultaneously.
“At the moment, we’re special. There aren’t funds of our size that are using our playbook explicitly – but that doesn’t mean there won’t be in the future. We hope there will be.
“But what’s really important is that people can see that this works. It doesn’t just create a diverse portfolio, it creates a portfolio that’s performing really well as well.
“What we’re doing has roots in evidence-based, peer-reviewed studies that are out there. So breaking down Inclusive Alpha structures, we know having a diverse team is better for decision-making. That’s been conclusively proven. Sourcing is about finding companies from different places – if you have a broader opportunity set, you’re statistically more likely to make better decisions. If you reduce biases, you get better, more balanced decisions, and so on.
“The theory of why this works makes complete sense in terms of delivering better than best in class returns.
That begs the question of why it hasn’t been done at this scale in this way before.
“Venture capital’s grown up organically as a relatively small industry relative to the size of the impact it’s had. It’s just grown used to its own ‘best way to do things.’ But as markets evolve, innovators come through and they question things, and they do things differently,” says Warner.
And when asked what the most interesting or inspiring thing about this fund is, she’s crystal clear.
“I’m really inspired by the founders we’ve been able to invest in so far and the type of problems that they’re solving. For example, Materials Nexus is one of the companies we’ve backed, which is synthesizing new materials for the green energy transition.
“Juno Bio is tackling the vaginal microbiome, which has almost never been studied before. Greenworkx is looking at upskilling, retraining and reskilling people who are on low paid jobs and getting them into higher paid green jobs. Things like that can really shift people’s whole lives.”
For the uninitiated, Ada Ventures has backed a range of success stories, including Huboo, Boundless, Bubble, SideQuest, Spill, Materials Nexus, Greenworkx, Micrographia, Gizmo, and Tooth Fairy. Ada Ventures portfolio companies have attracted co-investment and follow-on funding from leading firms including GV, NFX, DCVC and Index Ventures.
