Smaller funds, those that have $50 million or less in assets under management, are helping to usher in a new wave of diversity within venture capital. And the reasons for this are simple.

The latest crop of investors stems from historically overlooked or marginalized communities that are setting up funds and then investing back in those funds. “Small funds operate with a sense of purpose, leveraging their limited resources to drive positive change and foster diversity in the entrepreneurial landscape,” B. Pagels-Minor, the founder of DVRGNT Ventures, told TechCrunch+.

Emerging managers often target early-stage companies with diversity in mind, which is important because many of these companies do not last long enough to make it to, say, a Series B. The dearth of later-stage Black companies is in part tied to a lack of early support at the pre-seed and seed-stage levels.

Though many small funds do not explicitly have a diversity mandate, a considerable number of these funds are led by those from underrepresented backgrounds; larger funds, on the other hand, are lacking talent from diverse communities. This in itself creates an opportunity for smaller fund managers to step in and back the founders being overlooked and ignored on a higher level.

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