The world of venture capital is an incredibly dynamic space, where investors are attempting to find the best future opportunity. Zach Ellis, a visionary in the VC space, is placing a significant bet on Houston, Texas, recognizing its potential as a rising tech hub. Today, as managing partner of Comcast’s $200 million fund, Ellis is still investing in diverse founders. He’s convinced that this strategy will yield big financial returns too, all while building a far more equitable and innovative tech ecosystem. To learn more about Ellis’s vision and find out how investors can diversify their portfolios and gain exposure to growing markets, DreamingCrypto.org spoke with Ellis.

Houston's Untapped Potential

Ellis's inspiration to create a fund focused on diverse founders in Houston stems from the city's rich diversity. “We thought it was important to have a fund focused on diverse founders here in Houston, given Houston’s diversity," Ellis noted, highlighting the untapped potential within the city's entrepreneurial landscape. He hopes to tap into Texas’s unique advantages, like its talent, institutions, and entrepreneurial economy. His motivation is to make the big returns in a market he perceives to be underserved at this moment in time.

Of course, many would look to the coasts and traditional tech hubs, but to Ellis, Houston is the true diamond in the rough. "It’s not just Chicago, there are all these regions around the country where diverse communities are," he explains. But maybe those human capital concerns are overblown, considering that Houston is the city with the third-most Fortune 500 companies in the country. That lofty ranking increases its ability to attract and cultivate dynamic startups and disruptive innovation. This potent combination of diversity and economic power has made Houston a hotbed for investors looking for the next high-growth opportunity.

Last year, South Loop Ventures debuted with a $21 million fund. The venture firm, which was founded by Ellis, is intentionally designed to fund seed and pre-seed companies headed by founders of color. This focus is indicative of Ellis’s desire to close the capital access gap that often limits diverse entrepreneurs. South Loop Ventures offers early-stage capital, mentorship and community. This independent structure empowers founders to fully pursue success in business and social impact.

Why Invest in Diverse Founders?

The returns on investing in diverse founders go well beyond the financial bottom line. Ellis and others in the VC world are keenly aware that expanding support for successful, underrepresented entrepreneurs is not just the socially-enlightened thing to do.

  • Unlocking Economic Gains: Closing the funding gap for diverse founders can drive innovation and unlock economic gains, ultimately contributing to the growth of the tech industry.
  • Tapping into Underserved Markets: Underrepresented founders often create companies that have the potential to outperform their peers and tap into underserved markets, leading to increased revenue and growth.
  • Increasing Diversity and Inclusion: Supporting diverse founders can lead to a more inclusive workplace, which is one of the top priorities for employees, and can help to attract and retain top talent.
  • Driving Innovation: Diverse founders bring unique perspectives and experiences, which can lead to the creation of innovative products and services that can drive growth in the tech industry.

Research found that ethnic diversity is a top indicator of business success. Culturally diverse businesses are 36% more likely than their peers to be above-average profitable. Every investor who invests in Black, Brown, and women founders is actually making our ecosystem more equitable. In the process, they increase their likelihood of realizing better returns.

Actionable Advice for Diversifying Your Portfolio

Here's some actionable advice for diversifying your investment portfolio:

  • Invest in fixed income investments (bonds): Look for bonds with different maturities and from different issuers, including the U.S. government and corporations.
  • Combine stocks and bonds: A portfolio featuring a combination of 60% stocks (based on the S&P 500) and 40% bonds (represented by the Bloomberg U.S. Aggregate Bond Index) can result in less volatile returns over time.
  • Consider international investing: Invest in global markets, as they may perform better when U.S. stocks face headwinds.
  • Diversify across asset classes: Include investments across asset classes, and maintain a diversified portfolio with representation from at least two asset classes.

Risk Tolerance and Asset Allocation

Your risk tolerance of course needs to be a big factor in how you divvy up your assets. Consider these guidelines:

  • Aggressive investors (time horizons of 30 or more years) may allocate 90 percent of their money to stocks and just 10 percent to bonds.
  • Moderate investors (20 years before they need their money) generally allocate a lower percentage to stocks.
  • Conservative investors (little risk tolerance or will need their money in 10 or fewer years) may consider a 50/50 balance between stocks and bonds.

By taking these approaches, investors will be able to construct a stronger and more diversified portfolio. This focus ultimately equips them to take advantage of profitable opportunities across new and mature markets. Zach Ellis's bet on Houston and diverse founders serves as a compelling example of the potential that lies in looking beyond the traditional investment landscape.