Suranga Chandratillake (Balderton Capital)
Ian Connatty (British Patient Capital)
Interviewed November 2020
Social Mobility in the UK and in Venture Capital
Johannes Lenhard (JL): Let’s start with the basics: what is social mobility and socioeconomic class? Let’s think about it particularly in the context of DEI, which has been defined mostly by gender and now increasingly by ethnicity. What does class have to do with it all?
Ian Connatty (IC): In terms of economic literature, social mobility and socioeconomic class start with income distribution. Imagine stack ranking everyone’s income in five equal groups; the question is how likely are you to move from one group to another, both up and down? In the UK, it is actually quite unlikely that people move from the very bottom to the very top.* Particularly, people in the North East of the country felt in a recent survey that they had few chances to do better in life. The UK also has higher levels of inequality compared to some other high-income countries, as measured by the Gini coefficient.* In the 1950s, just after the war, there was a much higher amount of mobility, which slowed down in the 1970s.*
In the private equity industry, 69% of people went to an independent school [which you don’t have to pay for].* The problem of “social immobility” is particularly pressing when it comes to elite professionals, including venture capital.
When you look at the literature that describes the mechanisms at work, one theory assumes there are several types of capital that all individuals have. One is economic capital. For example, if I want to learn more about quantum computing, I can take a course that I pay for. Money and wealth are the enablers. The second kind of capital is social; if I want to know about quantum computing, I ask Suranga, who’s very learned on the topic. In this case I am using my network, built throughout my life, my upbringing, my education, and the work experience that I’ve had. But there’s a third capital that’s slightly more subtle. Cultural capital includes the way we behave, the words we use, the clothes we wear, norms of behavior, cultural references, books we’ve read, or the arts that we enjoy. All of these act as signals to indicate effectively what group we belong to in society. As practitioners, this framework is helpful for thinking about what we can actually do when it comes to social mobility and class.
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Erika Brodnock (EB): We know that you are both very passionate about increasing social mobility within tech and also venture capital. Is that all based on your personal stories or is there something else behind that?
Suranga Chandratillake (SC): Before VC, I was in the technology industry, building tech companies. Tech has plenty of issues, but it doesn’t have as starkly a socioeconomic issue as does venture. Since entering the venture industry, I’ve been anecdotally staggered by what Ian’s describing, in a statistical way. From a social economic perspective, venture capital is a narrow group.
As someone who’s managed to traverse systems, industries, and places, I’m constantly struck by how similar people are in each field, and yet how enclosed they are in each group. There are friends of mine, growing up in inner city Manchester, who I would never expect to stumble across in venture capital in London or tech in Silicon Valley. Equally, I wouldn’t expect the people I knew in the Bay Area to stumble across the other two fields. There’s absolutely no reason why these individuals couldn’t be successful in these different areas, considering raw skill, ability, or ambition. Like what Ian’s described, people typically start and stay in the place where they began. Amongst developed nations, the UK and US are very mediocre when it comes to this challenge, far worse than the Nordic countries, Germany, Canada, or Japan.* This annoys me personally and is a big motivator in the things that I do.
Tech is now incredibly influential in the world that we see created around us. The lack of different perspectives and diversity in the tech industry is a real problem, because technology is increasingly the thing that defines how we access many services outside what we would normally think of as tech. It is no longer a hidden-away industry that only does very specific things—it’s all reaching, all encompassing, and it finds its way into every aspect of our lives. If the people designing it, funding it, thinking about it, and shaping it don’t have a broad range of experiences in life, then they will likely craft something which is incredibly narrow in its perspective. And that worries me as well.
IC: My parents are from the 1950s, and benefited from post-war social mobility. Our family is very rooted in working class culture, albeit that my parents managed to get some upward movement and trajectory. But when I was around 10, our economic circumstances changed very quickly in the recession of the 90s. That is a trauma I’ve never really recovered from; it has effects to this day. For instance, when I’m in the office in London, people see me filling up my thermos flask, because I resent paying for a cup of tea in a café outside. Things like that never really leave you.
Overall, I was very lucky; we managed to keep our house and I went to a good school. But allowing for all of that, when I went to university and work, the gulf between me and lots of other people I encountered was enormous in terms of all three measures of that capital. At age 18 I thought we were a normal family, but I hadn’t really met anybody outside of my bubble. I had no idea that such wealth existed; I had no idea that you could be anywhere near as well-connected as the people I met. That sense of imposter syndrome, I suppose, has never left me even now.
EB: The word “bubble” is an interesting choice you used. I think about our bubbles from the perspective of COVID-19. The pandemic was often referred to as “the great leveler” in the early days. But from what you’ve just described, it has the potential of making people stay in exactly the same spaces, be around the same people, and create less opportunities for social mobility.
IC: If you take some of the recommendations that folks in the social mobility commission have made, they talk about helping people physically move areas. To access an elite professional in venture capital, chances are you must move. But now with remote working, people can stay in the place they grew up and not have to travel. We could all think about how to encourage remote working in a way that gives us access to a much broader pool of talent, beyond the people who can afford to live in a certain zone.
But you’re absolutely right. The pandemic could also go the other way, where we stay in our echo chambers and our bubble. There’s still time to influence the outcome of the discussion, but there is a real danger that it could accentuate current trends.
Filling in the Gaps of Social and Cultural Capital
JL: Let’s have some more concrete conversations about what it means to be more inclusive to people from different socioeconomic class backgrounds, and particularly thinking about the venture world.
SC: Originally, the big focus at Diversity VC was around gender. The reality is that gender diversity, or lack of gender diversity in venture, is disastrous. We always approached our strategy with a view that over time, it would extend into ethnicity, then socioeconomic differences—which interestingly, people find hardest to agree on. We’re now at the point where we’re beginning to really crack through.
Future VC is a large internship program for premier venture capital firms. The whole point is to drive into groups that would never have considered venture capital. More importantly, for each one of those 20 interns, 20 more get exposure to the fact the industry exists. Even if they don’t join the industry, we now have new people who know about it, will ask questions, kick it around, and debate it.
Cultural capital is really about inclusion. Once interns join the firm, inclusion means helping them understand how to navigate the venture world. Internships at Future VC have structured education and constant informational feedback to help interns build cultural capital. It works—interns from that program are now in venture so building inclusion can be done.
IC: At the heart of inclusivity lies recruitment and retention, in terms of seeing beyond what people are like as a result of their background. Instead, we must focus on what people have the potential to become, when given the right setup. For example, at British Patient Capital we open days to give people the opportunity to learn more about our organization, without having the formality of an interview or structure process. We think very carefully about the wording of our adverts, where we put those adverts, all these little things that make a difference.
I encourage Suranga, and all GPs, to really work with your portfolio companies. It’s one thing to think about our own investment industry, but there’s a huge impact when thinking about the number of people that your portfolio company interacts with. This is a slow journey because these are not easy things.
EB: You’ve outlined an approach that says people start at the bottom and work their way up to the top. I’d like to see how your thoughts juxtapose the fact that we are worried about that ability to climb nowadays. Let’s delve into the impact of internships and associate positions over decision-making positions.
SC: From my point of view, social mobility is a valid challenge. I look at the day-to-day reality of what I see around me—my firm, the industry, and even outside the industry, there are sometimes few choices, given the pressure put on us by LPs. For example, when deciding when to support a GP, they look at track record extensively. All of those things point to a structure with some aspects that clearly feel out of date. I’ve never had the luxury to genuinely think, how could I rebuild this system entirely? What would that look like? Instead, my attitude has been, how do we start to change the structure?
Internships are actually very interesting to me. I have seen a much more targeted focus on recruiting a diverse junior team across internships, and also into associates, principals, and so on. The senior members of the industry realize there’s no great difference between these new people and the people they would have perhaps traditionally hired. But it will take a while. Of course you worry that you’re reinforcing the same structure. But I personally struggled to imagine how I would change that in the short term.
Scaling the VC Cottage Industry into Inclusive Firms
JL: Thinking about your respective roles as a GP and LP, what is the number one measure that you would change fundamentally about the venture capital that would create a more inclusive industry for people with different socioeconomic backgrounds?
IC: The single biggest impact is in the activities of the portfolio companies. When it comes to the LPs, now there’s real focus on the broader societal impacts of investments. Focus on ESG [environmental, social and governance] isn’t just [ticking boxes], but it embeds into the way they think about the world. This includes how much we pay people—are we paying living wages? Having people around the table that are very conscious of these topics, that have a completely different worldview, is helpful.
For LPs, fundamental change means creating structure around topics. How do you think about interest in your own firm? Who gets the carried interest and where does it go? How do you think about share options and remuneration in your company, all the way through the organization and not just the management team? As a result, how do your investments actually contribute towards the goals of society?
SC: One frequent topic of my European boards is share options. For portfolio companies, share options are often thought of as the reserve of more senior people in the team. The excuse is that junior team members in European companies don’t understand or want options; they’d rather have $2K more in salary this year. While that’s probably true, share options could change their lives. Giving more options, to say a 26-year-old in Berlin, is better for the company because it will engender better loyalty in the business.
Another change is quotas. Quotas are very hard, because it is not easy to define them. What are the metrics on which you find them? But let’s say you could do that somehow, at the very, very base layer to give people access to venture capital. While Ian’s right that the ultimate impact is in the work the portfolio companies do, my anecdotal observation is portfolio companies are actually a lot more thoughtful about inclusion than most VC firms. I actually think they have less of a problem, frankly. That’s why, internally, the whole firm is behind this idea that we should get our own house in order first, before we go off and preach to a bunch of people who actually are slightly ahead of the curve compared to us, in many cases. And then secondly, money is power. If you can change these organizations that control the choices of who gets money and who doesn’t, that trickles down dramatically.
Not enough people from diverse groups know about venture or have any understanding of its impact. Everyone, regardless of who they are or where they started, should have access to an insight into venture, through an internship, work, or experience early on in life. Many of those people would then self-select out because of disinterest, which is absolutely fine. But at least they understand what this opaque industry is about. Knowing the industry would lead to a much more diverse feeder base of talent. Inclusion has to start with enabling maximum exposure at the early stage for awareness. Down the line, this leads to a more diverse industry and decision-making, which then impacts the flow.
IC: One of the challenges we see is that venture capital is a series of relatively small partnerships—a stark contrast to something like the accountancy industry, which has four very large firms. You can think very hard about how these big firms do and put pressure on them more easily and publicly. Looking at social mobility in league tables, accountancy firms do quite well.* I do think some of this is to do with scale. For small VC partnerships, how could GPs work together?
SC: We shouldn’t forget that the VC industry was, until very recently, a tiny cottage industry. Silicon Valley did exactly that: it created silicon chips and picked between four or five different companies each year. Its outsized impact started in the last 10 to 20 years. Because it was this cottage industry, it didn’t have any of the things you’re describing; it is surely one of the reasons why people hire people who have done it before. In Silicon Valley, many successful VCs exist because their dad was a VC—to find the best talent available across the United States of America, the family business model doesn’t make logical sense.
Venture capital doesn’t work well as a large corporate structure. Firms lose something when they grow big; they lose the essence that comes from the manual, unstructured nature of building a company. So how does VC scale, in an industry where the participants are probably always going to be subscale? The recent Diversity VC Standard addresses this question. The Standard is an assessment of venture capital firms to promote best DEI practices and helps both funds to understand their own issues (and possible solutions) and aggregates data on the industry level. That is a tool that will push the industry forward over time, the kind we need more of.