Ajay Relan

Apr 13, 2022

Apr 13, 2022, Slauson & Co A couple of years ago, two old friends found themselves both in an unusual position: They were black venture capitalists in a business that is more than 95% white. In 2021, Austin Clements and Ajay Relan formed their own firm, Slauson & Co., named for the famous thoroughfare in south L.A. It’s one of the highest-profile of many recently formed firms, initiatives and funds – many started in the wake of George Floyd’s murder — that aim to diversify entrepreneurship. The premise is that Black venture capitalists will fund more Black founders, who in turn, as they succeed, will create jobs and wealth in Black communities. It’s a questionable premise in its ambition. Only a tiny fraction of startups in the United States, about 1%, receive venture capital. Even fewer succeed. And VC-backed winners tend to employ relatively few people, because part of the profitability they need to scale depends on keeping labor costs low. The history of Silicon Valley suggests that venture-backed tech companies are good at creating wealth for a small, insular (white male) community. But Slauson & Co. is interesting to watch for two reasons. First, is the hands-on presence in the company of Ron Conway, arguably Silicon Valley’s most famous early-stage investor. Conway, whose firm is SV Angel, invested in Google, Facebook, Door Dash, Airbnb and Square, among others. The network he’s using to Slauson’s advantage — and remember, venture capital is human resources by another name — is unparalleled. The second reason the firm is interesting to watch is that Clements and Relan say that their focus on new markets rather than tech innovation makes their firm different. Turning the firehose of venture capital on a different community might create a few very wealthy Black people, but it also might mean wealth is distributed more widely. MORE FOR YOU Though, returns, they say, are their aim. The fund opened in 2021, with a typical 10-year time frame. The founders pitched more than 300 limited partners and ended up with 70 investors in Fund 1. Some investors thought “diversity” implied an impact fund, and in turn lower returns, the duo told me by email. But “We deeply believe the exact opposite – our focus on inclusion is what leads to outperformance.” How The Trio Came Together Clements and Relan have been friends for 20 years, growing up in south LA, and they’d kept in touch after they graduated from high school. Clements, a Morehouse College graduate who had his own web development company, went back to NYU to break into venture capital. “I didn’t see the difference between what I was doing and what the companies that were getting all this money were doing,” he said in an interview. He got a job at a seed fund called Ten One Ten Ventures, and went on to work for an entrepreneurial support organization in L.A. Meanwhile, Relan started a media company and become a talent agent– and eventually, went to work for the rapper, Nas, as he was starting Queensbridge Ventures. Based on what they saw, they believed that the Black community was turning out entrepreneurs that, with training and access to capital, could establish fast-growing, category-leading companies. “We are deep believers in Entrepreneurship transforming families, communities and the way society operates to create a better, more inclusive future,” they told me by email. Conway was thinking along the same lines. He’d been deeply shaken, like so many people were, by George Floyd’s murder. He reasoned a diverse VC firm investing in diverse founders could funnel more wealth to the Black community. “The only way to fix this structural problem is start VC funds to invest in founders of color.” With a successful venture firm led by people of color, looking to invest in founders of color, “we would start a flywheel,” he said. Pulling In An Amazon Investor Conway is a more likely social change agent that he first appears. He’s a signer of the Giving Pledge, for instance, and a long-time supporter of gun control, one of the most thankless, least trendy causes in American philanthropy. For years, he helped back a $1 million prize to make guns safer, an initiative that quietly folded , though Conway is still deeply involved in gun control advocacy. A Black-led venture firm, he believed, could not only do good in the world, but also succeed as a business because of its unique advantages. “I think they will produce above average VC returns,” he said. “If there are two big ponds of founders, the pond of white founders is where everybody has been fishing.” (Over the past 20 years, the average return in the venture capital has been an annualized 7.2%, according to Cambridge Associates ). Conway put $2 million into Slauson & Co. “I mentor them on a daily basis,” he said. “I’m constantly introducing them to people who could help them.” He also solicits investments for the fund, including one from Jeff Wilke, former CEO of Amazon’s worldwide consumer business, who’d also had an epiphany during the pandemic. “One of the things I started to do is think about my investing choices and which firms that I backed with my own money and my own time,” Wilke told dot.la. “And the truth is until recently all the firms that I would have listed had the advantage of privilege. So my friend Ron Conway called months ago to ask if I would invest my money and time helping two guys named Austin Clements and Ajay Relan to build an L.A.-based funded called Slauson & Co. Normally I wouldn't have looked at something that was really new where they had no track record. But, if everybody is making that decision and that's how we're allocating capital, we're never going to overcome the inequality that has compounded over all these years.” Other investors include Ashton Kutcher, will.i.am, and Alpaca VC. What The Mentoring And The Model Look Like In response to Clements’ and Relan’s questions, Conway said he’ll often jump on a call to discuss questions like how to prioritize, how to raise this fund to make it likely to raise a second one, and how to help their portfolio companies recruit and hire people. His son, Topher, who works on SV Angels, often joins. The investee companies in Slauson differ from those of a typical venture fund in one way, the two founders said in response to an emailed followup. Instead of leaning on tech (or software), they’re leaning on market insights from the founders’ diverse backgrounds. “In venture the model requires that we get behind companies we believe have the opportunity to rapidly scale into category-defining companies. Where it’s different is we don’t believe that these these scalable concepts have to be based on groundbreaking tech advances. In many cases, the innovation is in the customer insight and building tools in a way that addresses some segment that’s historically been ignored.” Three examples of companies: Dallas-based Pressed Roots, a blow out bar for women with textured hair; LA-based EngineEars, a platform for audio engineers, artists and producers; and LA-based ComplYant, a tax company for small businesses. A Nonprofit Accelerator With Help From Howard Schultz Slauson also has followed the VC model in establishing its own accelerator, a nonprofit that offers mentoring and $20,000 grants to help businesses get ready for investment. Clements and Relan said they believe the biggest constraint to having diverse founders is access to capital and connections before founders go to raise from VCs. Some of the companies that have participated include Washington, D.C.-based El Camino, a digital community for women travelers; Costa Mesa-based Unoma Haus, which designs and builds off-grid van conversions, and LA-based Wordsmyth, a platform to help companies hire Black and diverse freelance writers. The accelerator is backed by, among others, the founder of Starbucks, Howard Schultz. The Schultz Family Foundation contributed $275,000 in the form of a philanthropic grant to support the operational costs of the Winter 2022 cohort, said a spokesman by email. “The Foundation decided to invest in the program to learn more about the unique needs of early-stage, high-growth diverse businesses and how accelerators can help them thrive,” the spokesman said. Where The Rubber Hits The Road In theory, building a successful Black-led venture capital fund with two talented, authentic founders and the help of Ron Conway should work. But the practice may be harder than the theory, when good intentions meet the real world. At the end of my interviews, my two key interests had turned into two key questions: Is Silicon Valley really enough of a meritocracy that the diverse-owned businesses coming out of Slauson & Co will find other investors down the funding chain? If we know anything after the last two years, it is how much blatant and systemic racism exists in America. The bigger question: Can venture capital work for broad-based economic development at all? And the end of the day, it may not be so much about turning VC into a tool to help Black communities, as it is about what happens to venture capital when it’s in the hands of more diverse people. Follow me on  Twitter  or  LinkedIn . Check out my  website  or some of my other work  here .