Illumen Capital, an impact fund of funds, has announced the launch of its $32.75 million "Catalyst Fund" to support emerging fund managers and founders from underrepresented communities. This move comes at a critical time, as diverse funding managers and founders are facing significant declines in financial support.

The Catalyst Fund is designed to address the persistent racial bias in investing, which has resulted in Black founders raising less than 1% of venture capital funding last year, according to Crunchbase. This trend is expected to continue, with funding declines already observed in the first half of the year. Illumen Capital's founder, Daryn Dodson, attributes this bias to the current economic uncertainty, political polarization, and concerns of ongoing inflation, which are exacerbating existing biases in the venture space.

Dodson expressed gratitude for the firm's established relationships with limited partners, who are committed to backing the next generation of VC and PE managers. This support has enabled Illumen Capital to raise the Catalyst Fund, which will prioritize first-time managers and early-stage founders. The fund will invest at least 65% of its capital into first-time venture managers and up to 35% as direct co-investments into companies sourced through any of its active funds.

The Catalyst Fund will focus on managers working in education, health and wellness, financial inclusion, climate, and sustainability. At least 90% of the fund will be deployed domestically, with up to 20% allocated to emerging markets. Dodson aims to deploy the fund within the next year and a half, with the goal of demonstrating the intrinsic value of backing diverse-led funds and identifying the best of the next generation of venture managers.

This new fund complements Illumen Capital's previous efforts to address racial and gender bias in investing. The firm has approximately $285 million in assets under management, having raised a $168 million Fund II in 2023 to tackle these issues. The Catalyst Fund's smaller size is intentional, allowing for more targeted support of underrepresented founders and fund managers.

The launch of the Catalyst Fund is a significant step towards promoting diversity and inclusion in the venture capital space. By providing critical support to emerging fund managers and founders from underrepresented backgrounds, Illumen Capital is helping to address the systemic biases that have long plagued the industry. As Dodson noted, the fund hopes to take advantage of a market inefficiency and demonstrate the value of backing diverse-led funds, ultimately contributing to a more equitable and sustainable investment ecosystem.

The Catalyst Fund's impact will be closely watched, as it has the potential to pave the way for more inclusive and diverse investment opportunities. With its focus on underrepresented founders and fund managers, Illumen Capital is poised to make a meaningful difference in the industry, driving positive change and promoting a more equitable distribution of capital.