Endowments—donations of money or property—help sustain institutions of higher learning. They afford stability as well as the capacity to plan for the future, innovate, and contend with economic hardships, for example. Due to the systemic underfunding of and lack of investment in Historically Black Colleges and Universities (HBCUs) their endowments are smaller than those at Predominately White Institutions (PWIs) by wide margins. According to HBCU Money, the top ten HBCU endowments totaled $2.5B, compared to the top ten PWIs endowments, which totaled nearly $319B. The PWI-HBCU endowment gap for 2022, is $127.5 to $1. That is, for every $127.5 received by a PWI, an HBCU receives $1.
These endowment limitations restrict the ability of HBCUs to invest in venture capital (VC) firms as a means to possibly generate profits to help fund these institutions. In contrast, this form of investing is a long-held practice among PWIs.
According to Forbes, VC is “a form of private equity that funds startups and early-stage emerging companies with little to no operating history but significant potential for growth.” VC firms manage these funds. CNN suggests these firms establish funds for startup investment, which are supported by limited partners (LPs), such as university endowments, and general partners (GPs). LPs invest in the funds and receive a significant share of the profits, while GPs manage the funds.
Recently, The Historic Fund (THF), a VC fund of funds, sought to help select HBCUs overcome the hurdle of insufficient capital to invest in VC firms as LPs. Essentially, THF granted nine HBCUs access to VC investments by providing resources for the investments. THF donated just over $10M for this purpose.
Institutions participating as LPs include: Benedict College, Bennett College, Fisk University, Florida A&M, Hampton University, Morehouse College, Virginia State University, Virginia Union University and Xavier University of Louisiana. The VC firms participating in THF include: Acrew Capital, B Capital, Cowboy Ventures, First Round Capital, FirstMark Capital, Foundry, General Catalyst, Spark Capital, Union Square Ventures, and fund-of-funds First Close Partners.
In addition to establishing the relationships and monies for HBCU VC investments, THF aims to provide guidance to HBCU students about careers in VC. Also, First Close Partners is affording HBCUs the opportunity to (indirectly) invest in its portfolio which contains a significant number of fund managers of color. Both efforts are important because only about two percent of VC partners are Black, according to CNN reporting.
VC investment opportunities to support HBCU endowment growth is much needed. Over the past several years, enrollments at HBCUs have been rising. However, with the recent Supreme Court ruling against using race as a factor in admissions, some believe that there will be a heightened interest in HBCUs—namely in terms of more students seeking admission.
Many HBCUs are already struggling to meet housing demands. Student Housing of America, Inc., (SHA) partners with HBCUs to help meet the challenge of providing housing for students. Through SHA’s HBCU Healthy Housing (H3) Initiative, we renovate distressed properties near the university to provide state-of-the-art, safe, and affordable housing for college students.
Endowments offer a greater freedom to colleges and universities and HBCUs should not be excluded. Narrowing the endowment gap between HBCUs and PWIs is critical, especially as HBCU enrollments are expected to increase in the near future. VC opportunities like the one highlighted eliminate barriers to access for HBCUs and help stimulate relationships that may well extend beyond the life of THF donations. Most importantly, continued and expanded engagement with VC may yield much needed resources for HBCUs.
Student Housing of America, Inc., is a 501(c)(3) non-profit organization committed to working with schools, investors, and other organizations to ensure the success of HBCU students. Please consider donating to support our efforts to provide safe, affordable housing as well as to champion HBCU students, their academic endeavors, and overall well-being.
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