With Silicon Valley under criticism for its lack of diversity, several giants have introduced programs designed to increase the number of women and minority employees and level pay gaps. But on Tuesday, Intel Capital—an investment arm of Intel(INTC)—unveiled a “Diversity Fund” that may be among the most ambitious yet.
According to Intel Capital, the new $125 million Diversity Fund will invest in companies run by women or underrepresented minorities over the next five years. To qualify for funding, companies must have a female or minority CEO or founder. Or, if the CEO or founder does not meet those requirements, at least three people who report directly to the CEO or founder must be female, African American, Hispanic American or Native American. The fund is part of Intel’s larger initiative to create a more diverse workforce, both at its own company and the companies it invests in.
The world’s largest chipmaker, Intel, like many other tech giants, is predominantly staffed by men (77%) and Caucasians (70%).
Intel Capital is looking to invest in medium-sized startups specializing in software and hardware development and technology services. “Our goal is to help scale them and make them more viable,” Lisa Lambert, the Diversity Fund’s managing director, said in an interview. She emphasizes that this program is not philanthropy. The businesses will be judged the same as any other Intel Capital investment. “They have to generate revenue for our strategic interests,” says Lambert.
The Diversity Fund has already invested in four companies: the maker website Brit + Co, the healthcare cloud-based platform CareCloud, the health technology company Mark One and cybersecurity software developer Venafi. Intel Capital director Vibhor Rastogi sits on the board of CareCloud while Lambert has joined the board of Brit + Co.
As Lambert talked to founders and execs of startups, she says she kept hearing that they were getting meetings with venture capital firms, but they were not getting funding. Like many others, she concluded this was due to a larger “pattern recognition” problem. People tend to invest in companies run by people like them. A Fortune analysis showed that only about 4% of decision makers at venture capital firms are female. Another analysis by Fortune examined the makeup of America’s largest startups and found that they are more male-dominated than the Fortune 500.
“There should be more female venture capitalists who have a better fundamental understanding of businesses geared toward women,” says Brit + Co founder Brit Morin. “The Diversity Fund is a different take on that.”
The goal of the Diversity Fund goes beyond financial returns. Intel Capital, according to Lambert, hopes to flip the “pattern recognition” problem on its head. Instead of white guys hiring white guys, diverse executives will hire diverse teams. And then, as staff members from those teams leave to start their own companies, the diversity effect will snowball through Silicon Valley. “We want to prove by these investments that, when you have diversity in your employee base, you will get better business results,” says Lambert, adding, “The research says this is true. Now we’re doing a live lab experiment.”
The highest-ranking women and people of color at Intel will sit on the advisory committee that makes the funding decisions. “These are the most senior women and minorities at Intel and they represent every product group,” says Lambert.
In recent years, tech companies have announced similar efforts – though Intel’s is, by far, the most ambitious. In 2013, Comcast created a $20 million Catalyst Fund to invest in minority entrepreneurs in the tech space. Last September, AOL launched The BBG Fund and allocated $10 million for women-led consumer start-ups.
The Diversity Fund is Intel Capital’s fourth-largest fund (out of 10). It sits behind the geography-based outliers—a $500 million China technology fund and a $250 million India technology fund—but ranks ahead of the $100 million China smart device fund and the $100 million connected car fund aimed at linking mobile applications with vehicles.