Born out of a Black-led angel group, Cornerstone VC has just raised a £20m fund to back the “1% of the 1%” of diverse UK founders. And, with backers like Series A+ VC firm Atomico, it hopes to help these founders raise more money further down the line too.
Where will Cornerstone’s money be spent?
- The London-based fund will invest between £250k-1m in pre-seed and seed-stage tech startups.
- It plans to back up to 40 companies and allocate 40% of its money to follow-on investments.
- The team has committed to making sure 30% of its dealflow comes from outside of London and is already “averaging 29.2% from a standing start”, says founder and managing partner Rodney Appiah.
What kinds of teams does Cornerstone want to back and how will it find them?
- Cornerstone VC wants to back diverse founders and looks at diversity in two ways — inherent (age, ethnicity, gender — with a focus on ethnicity for now) and acquired (education, languages spoken).
- Startups can apply via its website — no need for a “warm intro”.
- Cornerstone will also source opportunities through its angel network and strategic partnerships with universities, corporates and accelerators. The angel network has a share of the carry and a share of the GP stake of the firm, ie. direct ownership in the VC firm itself — and will share any upside from investments.
- The team asks founders who apply to provide diversity data, which it says will help Cornerstone evaluate the diversity of its pipeline and build a better picture of the diversity of the ecosystem.
- The fund’s due diligence process includes an assessment of both inherent and acquired diversity, interviews, psychometric testing and reviewing 10+ founder attributes like coachability and ability to pivot. Each of those attributes is given a score between one and three — which is updated annually if Cornerstone invests. “We hope that over time, this process of scorecard capturing pre and post-investment will help us to identify the team characteristics that are most likely to be associated with outperformance and encourage us to move away from an instinctive, gut-feel approach associated with the industry to something more data-driven,” says Appiah.
Who is backing Cornerstone?
- Cornerstone’s investors are a mix of individuals and institutions. The lead investors are BGF, a growth-stage investor backed by major UK banks, and the Hg Foundation, a charity funded by private equity firm Hg.
- Other investors include VC firm Atomico, Hg senior partner and executive chairman Nic Humphries, Neil MacDougall (former BVCA chair), Scott Mackin (Denham Capital managing partner and angel investor), Jamie Broderick (Impact Investing Institute board member), Stefan Ericsson (formerly Citadel and RBS) and Sidumiso Sibanda (former managing director of non-profit SEO Africa).
- Appiah says diverse founders find it harder to raise later rounds, hence the focus on having other funds as LPs which could potentially follow on in high-performing portfolio companies. “We've got this fantastic list of LPs that we can introduce you to, that can give you that funding all the way through to an exit.”
- Appiah also says that the team turned down money from some impact LPs because they wanted to make it very clear they weren’t an impact fund, but a commercially driven one. “If we want to see a much more inclusive VC ecosystem that reflects the range of innovation that we're seeing in the UK, then we've got to deliver returns because that's what investors understand.”
What is Cornerstone’s track record?
- Cornerstone was born out of an angel syndicate of 20 individuals (six women, 14 men) all of Afro-Caribbean descent. “We had some budget Marks & Spencer sandwiches in the back, and we had this really flashy presentation at the front,” laughs Appiah, remembering its first meeting. “We wanted to sell this idea that if you want to create something great, you've got to come together. You've got to work in unison.”
- Over three years, the group has deployed more than £1.3m into 20+ companies. The group’s investments include P2P fashion rental company ByRotation, which raised seed funding from Redrice Ventures among others, and Gen Z freelancer platform Passionfruit, which raised a seed co-led by firstminute capital and Playfair last month.
- Their activity piqued the interest of investors and Appiah quit his job in December 2020 to work on Cornerstone full-time and raise a fund. His other partners are his younger brother Edwin Appiah and Wilfred Fianko.
Sifted's take
Given that VC-backed businesses are VERY FAR from a reflection of society (only 3% of VC-backed founders in the UK identify as Black), it’s encouraging to see emerging managers like Cornerstone raise funds. Not only will it hopefully mean that VC-backed companies are run by a group that is more representative of society, but will also help create wealth for communities that haven’t actually had access to it. Cornerstone definitely gets this — which is why the fact that its angel network has a share of the carry and a GP stake is so key.
The UK already is starting to see more Black emerging managers in recent years like Black Seed and Impact X. And with angel investing becoming more mainstream now, we’ll hopefully see more people use their angel track records to build an institutional fund.
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