Aunnie Patton Power (Impact Finance Pro, University of Oxford)
Not all startups need or should seek venture capital funding; instead, the majority of businesses shouldn’t buy into the fast-scaling and exit-focused VC rhythm. In her research and writing, Aunnie Patton Power has focused on all the alternatives out there, many of which can further enable diversity in the ecosystem. From venture debt to equity-based finance, Aunnie shares concrete ideas of what other sources of funding startups can resort to in a detailed sneak peek of her recent book,Adventure Finance.
Interviewed July 2021
What Alternative Financing Addresses
Erika Brodnock (EB):You recently published* Adventure Finance, a comprehensive guide and casebook on how companies can raise financing outside of the traditional venture capital model. Why did you write the book?
Aunnie Patton Power (APP): Realistically, venture capital does not work for 99% of businesses, and particularly businesses that are founded with any definition of diversity. One reason is this need for exponential growth, which is not sustainable. Specifically, it is the need for VCs to perceive the possibility of exponential growth.
In my experience working with startups and VCs for the last 13 years, I’ve seen that women and other people who have been underestimated in their own lives are less likely to have the hubris to be able to talk about becoming the next Facebook. They are coming into business models with much more realistic scenarios for how they are going to grow a business. That is not what VCs are looking to hear. They will not find a $50M market interesting. Nor would they support someone planning to build a company to address a need for a niche population that the VCs never interacted with. There is also the exit piece, which is about needing to grow to a point to sell. Not all founders are interested in selling their business. Even if they are willing to sell parts of it, they are not interested in being up against an artificial deadline of seven to eight years, depending on what the VC fund looks like. VC was designed for tech-enabled, asset-light, highly scalable companies, which has morphed into the only type of risk capital that is available for early-stage businesses.
Most early-stage businesses are not these types of companies, and they do not get funded. The market failure is that VC is risk capital; risk capital is not venture capital equity. There are so many more options. People think they should close a business instead of questioning whether the capital is right or not. It is a chicken and egg conundrum around the industry, where you need funders who can do different types of financing and you need founders who understand different types of financing, what they need, and what will be best for them. You also must consider the element of society and communities. How are we designing funding systems and enterprises that are creating value for communities outside of the small number of funders and founders who benefit from venture capital?
Johannes Lenhard (JL):How are alternative funding mechanisms and practices accelerating the openness of the industry? Are they changing the availability of funding towards people who are overlooked? What plays the biggest role?
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APP: It is a combination of the process and the product. You can have an inclusive product that works for a lot of founders. However, if you do not have an inclusive process, then you are not going to be able to attract the deals. In addition, if you have the most inclusive process in the world, and you are using a product that is not going to work for these diverse founders you have pulled into this process, you will also not get to the end goal. It is about designing how you find, source, and diligence deals, as well as how you structure them, to be able to really embed inclusivity and diversity. How do you bring in deals? How would you think about the merits of those deals? How do you decide to fund them? What type of structure do you offer them? It is not just about being a venture capital fund that can offer venture debt now, nor hiring a Black analyst or a Latina associate. It is about, what are founders feeling when they walk through the door? Are you providing a product that makes sense for what they want to build?
I work a lot with female founders. They want an investor who offers them the type of investment they need and the type of support they need. That is not necessarily forthcoming from traditional VCs. For example, in regard to structured exits, one thinks about, how do you continue to own this company? How do you repurchase this equity? How does the founder maintain a lion’s share or a large percentage of the ownership? There is a shift from the funder’s perspective around portfolio construction that is not betting on one to two businesses with the rest failing. By shifting that portfolio construction to having a higher hit rate from a returns perspective and having more liquidity earlier on in the process, you can invest in companies that are going into markets that do not require exponential growth. You are able to then work with companies that have normal growth expectations for companies that are risky and are looking for this type of upside. You can still provide very similar IRRs [internal rates of return], but you are able to engage with these companies. Adopting a portfolio construction is one piece of it, but it is also important to figure out how you go out and find deals from creating sourcing opportunities, use peer-based decision making, make sure that your ICs [investment committees] are diverse, or make sure that your scouts are diverse. All of those different pieces coming together is where I see the early-stage funding becoming genuinely interested in diversity and not at a superficial level.
How Founders Can Benefit from Alternative Financing
EB:What are the key benefits of that for the founders themselves, especially those who have been traditionally overlooked?
APP: This is exciting. If you can help founders hold on to more of their business longer, you can create or expand the ownership base. You can think about employee ownership, and even community ownership; we can focus on wealth creation for more than just a couple people. We can use structures such as redeemable equity, where the founders can repurchase the shares, and then they themselves will hold more of that wealth. If they create something over time, then they will have more of that wealth.
Taking it further, you can have founders purchasing shares and employees owning them. With this employee ownership scheme, employees are incentivized to continue to create value in this company. Now you have wealth creation, not just at the top. This creates opportunity. From the other side, with crowdfunding and other types of large, distributed ownership, there is also an opportunity for more retail investors and individuals who feel locked out of the traditional VC market or startup market. You can start to imagine products that allow a larger set of individuals at the company side to participate in wealth creation, as well as a larger set of individuals at the investor side. We are prying it open from both sides. There is opportunity to build companies that are sustainable and that are integrated into communities. By doing so, you have better staff, a more incentivized workforce, better ties to communities, and better ideas about what communities need.
EB:This also opens the gamut to solving the problems that most need to be solved and that are not currently being solved.
APP: This has so many layers and it takes both the process and the product. It is not just about funding a few more underrepresented founders. It is about critically thinking and asking, what does this capital allocation look like? What are these business models from the wealth creation and accumulation perspective? We have looked more at changing people from beneficiaries to producers and consumers, but have not yet made that last jump from producers and consumers to wealth creators.
JL:Crowdfunding can have a radical potential when it comes to providing a different type of funding to startups. Is this something that can benefit stakeholders who have been overlooked and unable to participate?
APP: Calling it crowdfunding undersells it. I like to say crowdsourcing or community-driven finance. Crowdfunding can sound like preordering a shoe. Community-driven financing is going to be incredibly powerful. Thinking about investing, one of the most powerful structures are platforms (e.g., AngelList) that allow traditional investors to do the due diligence pre-screen, and then put them up for a co-investment by individual investors. This is powerful because it is not just relying on viral social media. If you can have co-investment opportunities, beyond just equity, and allow individuals to invest small amounts of money into a diverse portfolio, you are investing in regenerative agriculture. There are so many ways to do civilian community ownership schemes. Local communities can borrow from financial institutions and then turn that into a source of dividend income down the line.
We have always just assumed that masses cannot do it. We need to revisit those assumptions. Companies can be owned by employees and be able to utilize their employees and larger community to be able to attract capital that is engaged with that company. There are many ways in which we can think about how the resources that communities have must help small businesses and developments, beyond just money. We underestimate that opportunity.
How to Think About Debt
EB:Everyone wants equity finance, but debt financing is usually not an option for digital businesses because they lack the required security assets. How has that changed, and what are the key factors that will make a debt journey successful for an entrepreneur? How suitable is that for historically overlooked founders?
APP: We need to understand exactly what we need to fund, then we need to be able to assign the right types of debt to it. Three different types of debt stand out as options that should be in most founders’ toolkits.
The first is trade finance: supply chain financing, invoice factoring, or purchase order factoring. These are increasingly facilitated by FinTechs. What they allow you to do is to access working capital, which is terrible to fund with equity, because you are trading ownership in your business for short-term capital needs. Instead, you can use your customers or FinTechs to facilitate payments from your customers. It is short-term expensive financing, but it can be incredibly valuable, particularly for companies that are asset light now.
Revenue-based financing is the next step. It is a complement to traditional equity and more and more VCs will start using it. It also pushes companies to create revenues. By focusing on the internal financing and then monetizing that for growth, revenue-based financing has a lot of opportunities. It is a relatively short-term option, but then we can look at mezzanine financing, particularly for SMEs [small and medium-sized enterprises], which few organizations understand how to do. We need more of them. It has small amounts of collateral, but it also has a fixed interest rate with a profit share. Those three tools are starting to be more accessible, but they are for very specific cases.
Specificity is a bonus for founders, and founders need to better understand their needs as an entrepreneur, as opposed to going on raising an equity round, and then figuring out what to do with the money. We have seen that go wrong so many times. They need a better understanding of the type of capital that fits for the specific type of spend, and then go out and search for that. This is where debt becomes interesting, because that can be customized very specifically. There are even asset-based financing options that are starting to be much more attractive for SMEs, which are often developed by FinTechs and specialist institutions, as opposed to traditional banks. All of those are very tailor-made to the type of spend or the type of assets that you are funding, which creates more discipline.
Will Alternative Funding Change the Gap in Access to Big Money?
EB:Having funding alternatives is great and it will allow many companies to raise money that would not have been possible otherwise. But, does it democratize access to big money? I mean, do you think that any of the alternatives are going to fund the next Amazons and Googles? Or are we saying that we are going to carve out a new way because the old way is not working, but the old way will continue, and white males will be over there getting VC funding while women and other diverse entrepreneurs will get smaller pots?
APP: This is a good question. Do we want more Facebooks and Amazons? I do not think we do.
We do not need a separate type of capital for underrepresented founders. We need to redesign our system. VC still has a place. More of those founders need to be women and underrepresented. I live in South Africa, where there has been a big push for Black Economic Empowerment. Yet if you create three Black billionaires, there are still 50 million people that are suffering. I do not think there should be billionaires, and I work with billionaires. Billionaires should not be part of how society works.
There is room, however, to make female founders and underrepresented founders create big companies. I do not see those as mutually exclusive. There should not be an A and B track. We do not want it to be white guys running VC funds continuing to do what they want, and we create options for everyone else. This will unfortunately continue for a while. We are still going to be polluting and destroying the environment, even though we know we need to save it. Funds need to start walking the walk around diversity. Businesses should be founded by the people who have the good ideas—and not just [the ones who] look like a specific type of founder.
Brand, Lenke: DEI at Twitter
Dalana Brand (formerly Twitter)
Peter Lenke (Twitter)
Big tech companies are not usually renowned for their DEI perspectives, and are even less known for driving radical change in this or any other space that could backfire and harm advertising revenues. Twitter has been trying to do things differently not just when it comes to their AI team but also to their DEI efforts, including by directly funding VCs led by overlooked GPs. We spoke in 2021 with two of the people responsible for pushing these efforts at the tech giant, Twitter’s Chief People and Diversity Officer Dalana Brand and Peter Lenke, director of corporate development and strategy, responsible for Twitter’s investments in VCs.
importantBack in 2021, when Twitter was on a different path, we were impressed by the action the tech corporation had taken to increase diversity in the industry. Shortly after the Elon Musk acquisition in late 2022, Dalana Brand resigned from her position. We can’t say for sure what the takeover and changes in staffing mean for Twitter’s future, including its DEI efforts. Despite that, this interview is a record of the work that was being done at the time.
Interviewed July 2021
Transparency and Accountability at Twitter
Erika Brodnock (EB):At Twitter, you openly communicate about your strong commitments to DEI. What are the core pillars of this commitment?
Dalana Brand (DB): Transparency and accountability. We are adamant about making sure that we go on our inclusion and diversity journey in the public eye. Twitter’s mission is to serve the public conversation; our work around inclusion and diversity is no different. We release quarterly blogs stating our progress. We always have these conversations internally, on a quarterly basis at a minimum. I share this information with the board of directors. We are constantly having conversations about what we are doing, what progress we need to make, what the opportunities are, and the challenges.
Transparency does not just mean when things are good. It is also when we have things that we need to work on. By having that conversation with our Tweeps [Twitter employees], and with our broader communities that support us, we can bring people along in the journey and help make progress faster.
The other is accountability. It is not just talking about it. We are also putting several mechanisms in place to make sure that we are meeting the objectives that we stated, and that we are holding managers, leaders, everyone at Twitter accountable for inclusion and diversity to those goals and objectives as much as possible.
Twitter’s DEI Best Practices
EB:Which three best practices are working well to drive DEI internally? What are practices other organizations may have avoided in the past, but should be adopting?
DB: We were one of the first, if not the first, companies to compensate our Business Resource Group leaders—employees who connect with people around the globe and are championing all the inclusion and diversity efforts that we have as a company. Business Resource Groups or employee resource groups are the foundation and the backbone of the work that we do with inclusion and diversity, and they have been doing this on a volunteer basis up until last year.* We listened and took feedback, and one of the biggest barriers we found was that those individuals who we count on and rely on so much were doing this as a side hustle. They were not able to fully commit in the way they wanted to. We decided to compensate them by recognizing that they are doing two jobs at the company. We wanted to place a value on the work that they were doing, because it makes a difference.
We have highlighted and profiled the work that they are doing, including through our quarterly Inclusion and Diversity blogs and journalistic pieces. We have raised this work in terms of awareness with their managers, so that it gets included in their performance management conversation or talent planning discussion. The work that the Inclusion and Diversity folks are doing, as well as the Business Resource Groups, are company-building activities. Those activities essentially make the company better, and it now gets recognized by the managers.
We also train managers on how to lead those individuals in a very inclusive fashion, such that people are getting the recognition and credit that they deserve. When you think about the people in the organization that you place tremendous trust and responsibility in, in terms of driving your goals and initiatives, you must make sure that you set up the infrastructure, and the support system to allow them to do their best work. The third thing we have done is try to meet people where they are—managers, in particular. This inclusive journey in the organization cannot be done just at the top of the house, or with a diversity and inclusion team off to the side. We must embed it in all the People practices and all practices across the organization.
To facilitate that process, we have inclusion and diversity business partners [dedicated members of HR/I&D assigned to specific teams to support hiring and other processes with a diversity-focused lens] that are embedded within the business, that support managers and leaders go along this journey. Training* can be the standard toolkit or a team building activity or something else. We want to meet people where they are at because we are trying to change the hearts and minds of individuals. You cannot do that with a standard program, you have to tailor and customize your offerings and solutions based on the needs of those you are trying to serve.
Leading the Way in Backing New Venture Funds
EB:Peter, you just supported the writing of three checks to Black-led VCs.*Why did you get involved in the VC funding space?
Peter Lenke (PL): I’m part of the Corporate Development and Strategy team. We do all the mergers and acquisitions, a lot of strategy work, partnering with our Product and Engineering and business teams, to drive forward roadmap strategy and pressure test how it relates to Twitter’s overall vision. We also have the ability to do investments directly into private companies and VC funds.
As Dalana has explained, our D&I efforts span the whole company, so also implicates us at Corp Dev. We have been acquisitive over the last couple years, onboarding hundreds of “acquired” employees. These acquisitions tend to onboard very senior technical people, often product and engineering team members who come in and lead core initiatives and are elevated in the organization. Corp Dev took a step back and wanted to make sure that we are accretive and not dilutive to Twitter’s stated 2025 D&I goals in terms of both the makeup of the team, but also the geographic makeup of where people are located. We looked at our processes as well as the pipeline in terms of where our deals and activity come from. We realized that if we are spending time with the same funds up on Sand Hill Road, the companies we are spending time with are going to look the same. We are proactive about our pipeline, and have worked with, especially in the first half of , funds that are funding Black, Latinx, women entrepreneurs, and diverse founders and teams. We have both an explicit mandate on funding those types of founders and an implicit mandate, given who the GPs [VC partners] themselves are. We have met a huge pool of these emerging funds to really align with Twitter’s company-wide goals of being proactive around our Corp Dev pipeline. As a result, we have taken the step of backing a select number of those funds with dollars, and we have used that as both a tool to provide visibility as well as partnership with those funds. That’s how the LP commitments came about.
Johannes Lenhard (JL):What do you envision the changes you are currently making will look like in 12 months? How can others replicate the efforts that you have started?
DB: From a cultural perspective, one of our main objectives is to write the playbooks that other companies are going to follow. We are very intentional about wanting to make sure that we are not just creating radical change for our company, but for the industry as a whole.
PL: We have seen a select few organizations on the venture investing side using dollars to back diverse founders and teams as well. The Apples, Paypals, and Bank of Americas of the world have come in alongside of us or have been active in public in backing other venture funds. People look at large brands, because they provide a real proof point and a stamp of approval. That signaling gives excitement and motivation for others to step up and make tangible commitments—writing checks, supporting through partnership, and a whole host of other ways.
M&A and investment are important mechanisms here because they both drive real dollars and opportunity. Investment provides dollars of support, to hire team members, build technology, and scale business; while M&A provides dollars in returns, to founders, teams, and investors, which provides proceeds for valuable hard work and potentially wealth creation. M&A can also open new opportunities and roles inside the buyer’s organization for people to thrive. Both can be high-leverage opportunities.
PL: We have all seen the metrics out there in terms of the types of teams that are being backed by venture investors. This goes full circle to the teams being acquired via Corp Dev mechanism at large corporations. If you are not proactive, thoughtful, and intentional around the types of teams in the Corp pipeline, then the problems will be perpetuated. This is the beginning of the process. We are excited about writing checks and will continue spending time with those funds that are just starting to chip away at the problem.
Buying and Investing in Diverse Companies
EB:People who are running funds at firms need three Cs in order to succeed: capital, connections, and contracts. Nine times out of ten, if you have contracts and connections, the other does follow. Does Twitter have any policies in place that awards procurement-based contracts to diverse companies as well?
DB: Yes. We look across the entire company and look for ways to embed inclusive and diverse practices within the organization. Procurement is no different. We have a wonderful team that partners with finance and our inclusion and diversity team to make sure that managers, leaders, and others are contracting and giving opportunities to the communities that we represent, and that use our platform and service in those contracts. We will continue to evolve and grow, but we are incredibly proud of that.*
JL:You are making a case for diversity for the VCs and the LPs, from the perspective of the exit. You are saying that you want to ultimately buy and invest in diverse startups at Twitter, but instead of waiting for the VC industry itself to move forward, you are directly going in there pushing them.
DB: We recognize our responsibility as an organization that has a strong voice, is represented in tech, and has an incredible following, to be at the forefront of driving that change.
PL: Corp Dev work is just one pillar of Dalana’s full company-wide initiatives. Every team has a part to play. Historically, you would not be talking to a Corp Dev team member on a D&I topic. We all must make sure our pipeline is robust when we are vetting opportunities, making investments, and thinking about how they are additive to Twitter as a whole, not only from a narrow technology and product standpoint, but from the full person.
JL:Can you talk a little bit about both the challenges and immediate other opportunities that you are thinking about to make the VC and tech ecosystem more diverse and inclusive, to create radical change over the coming years?
DB: Tech changes when it is required to do so, and when information becomes more widely accessible. Pay equity—making sure that employees in equivalent roles are compensated equally—has been a conversation for a long time. You are starting to see more transparency laws come out and more conversations about equity and parity happening within organizations. Increased pressure for more transparency, whether that is through laws or regulations or by public sentiment, drives a lot of the efforts around inclusion and diversity broadly. Our goal is to make sure that we are not doing it because we must, but because those are our core values and principles. We hope others will follow from that perspective.
PL: So much of what fuels the venture ecosystem is around connection, relationships, and founders that have previously exited. With some of these funds that we have backed, as well as others, you see founders that are then having successful exits, and they will be the angel check writers or repeat founders that can continue this path. Getting this flywheel going is tremendously important and takes time. These venture-backed companies take a long time to build, scale, and exit, but we are hopeful that the needle is moving in the right direction.
Ackerman: Data Activism
Maya Ackerman (WaveAI, Santa Clara University)
Maya Ackerman is at first sight an unlikely activist in the space of DEI in startups; AI professor at Santa Clara and founder of a music-generating AI startup herself, she turned to investigate how bad the lack of diversity really was some years ago based on her own experience as a founder trying to fundraise. Very quickly, she started poking well-researched holes in the bad data we keep citing, and has maintained a steady production of powerful weapons with more precise data and insights ever since.
Interviewed June 2021
Machine Learning for Investors
Johannes Lenhard (JL):You are a computer engineer and an expert in artificial intelligence and computational creativity. How did you start to think about AI and startups in VC?
Maya Ackerman (MA): I started a startup through some of my work in computational creativity, particularly in helping people to write songs. On the side, I am an opera singer. I did some research on the automatic composition of vocal melodies to help me write songs. After three years, it became clear that this was to be a company so we could share this knowledge with other people. [The company became WaveAI.]
I have had plenty of shocking experiences, as far as biases, that left me extremely perplexed. You never know if it is your gender, and I am an academic so I would never take a sample of one as a serious data set. One of my students wanted to build models to help VCs make decisions. I thought, why not? Let’s pick a little team. We ended up having a team of three students to build machine learning models to help investors make intelligent decisions. We then wanted to look at race and gender, and once we tapped it, it all started oozing out. It is crazy. It is awful. It is shocking.
Data and Bias Exposure
Erika Brodnock (EB):How important would you say the data and the right kind of data still is in this field? Do you think we know everything there is to know already? Is there more to learn?
MA: It is strange to realize how misguided the whole field is, to the point that you think it is on purpose. This level of ignorance can hardly be accidental. Given how many smart people are in venture, there is no way that I am the first one to think about it. They keep looking at totals. For example, they may say, “female-only founding teams dropped from 2.7% in 2019.” This is important information. But, it is easy to attack it with the “pipeline problem.” A critic may argue that not enough women are trying to raise money, and this is why such a small percentage goes to them. We need a better way to expose the bias.
Instead, let us not talk about totals or the percentage of total funding allocated to women, let’s talk about averages.
On average, if a man and a woman go to raise, how much is each one expected to raise? This is not complicated mathematics. You see the big gaps in the research I did, and I can show you the charts.
A woman raises at least 10 times less under most circumstances. How do we go about justifying it? It does not matter how many of them there are, and the pipeline problem becomes irrelevant. Then we can look at education, prior exits, and gender. The data still shows it. The amount of bias we are dealing with here is at a different magnitude than people like to recognize. Another issue with looking at totals is if you look at the total amount of money going to women, at early stage versus late stage, you see an even smaller percent of the total pie is going to women in late stage. Then we say, let us make sure we help there. That is super ignorant, because there are fewer people at the late stage. Instead, if you just look at averages for women, there is about a 35% discrepancy at the late stage and a 65% discrepancy at the early stage.
Current Solutions and Misunderstanding Bias
JL:You looked at the impact of COVID on funding, particularly for female founders. What did you learn from that? What are the nuances that people had not understood before?
MA: The COVID analysis seemed to suggest that things just got worse. There were the same problems that we had before, but worse. It is even harder for women to raise funding than before.
JL:Are the strategies for change drawn from your analysis focused on gender and race?
MA: Current solutions are not designed around what is happening. I have a very controversial view around the birds of a feather analysis, where we say investors like to invest in people like themselves. This narrative needs to either be significantly altered or dropped. It is causing a lot of problems. Firstly, it seems to suggest that we need to solve the VC diversity problem before we solve the entrepreneurial problem, which means that we are looking at decades in the future, and it is shoving the problem aside. Secondly, women are biased against women. There is a study by the UN showing that they are less biased against women than men, but it is still very significant.
People are not born with sexism, but it is something you learn from society. Men and women learn to discriminate against women in certain contexts. This is not criticism of female VCs. Many of them are doing a fantastic job, particularly in efforts to reduce bias, and we definitely need more of them. The issue is about how bias works. We all soak it in from culture. All of us need to work to overcome it. By saying we just need to hire more women, men think it is not their problem. They hire a woman and then she is responsible for the diversity investments, which have a tiny fraction of the money. This is a fundamental misunderstanding on how bias works and how bias needs to be resolved.
But we need to tackle both bias against female investors, and bias against female entrepreneurs. Not first one, then the other. We need both male and female investors to take responsibility for and actively work on reducing bias in venture funds allocation.
By contrast, we look at bias in academia. I am a computer science professor where there is plenty of bias against people like me in this space, but there are male professors who actively work to recruit women. That is part of the reason why we are making some progress in that space. In some spaces, female professors are twice as likely to get a job, because there was so much effort to try to correct the bias.
There are other problems with the current solutions. A lot of venture firms have an explicit mandate to invest in women, and when you look at the details of the mandate, they say to invest in companies that have at least one female founder. Companies that have at least one female founder typically outraise companies that do not have a female founder. The key aspect is who is the CEO. If a guy is a CEO, this company that had the female co-founder was already doing better and they do not need help. They do not need diversity investors. Right. This misunderstanding on the details is causing money that is supposed to help to not help anybody.
The Challenges of Examining Race
EB:Let us look at ethnicity. How is that a bigger issue? What is preventing you from looking at it now yourself? What do you expect to find there?
MA: We have done some preliminary analysis and there are so many pieces. First, this is not about white and non-white people. This is a complex issue. And we need to be careful to not overgeneralize. For example, here in the US, people from different Asian countries get treated very differently when it comes to fundraising. We started looking specifically at Black founders. The problem is that we ran it on data that was not complete enough. The data seemed to suggest that the problem is of a similar magnitude to gender discrimination. Again, it might be even worse, and it might manifest differently. We need big numbers. There is no data. There is a lot of missing data. We do not know if the percentages are correct. We are trying to build our own.
It is so tricky because we need to classify ethnicity based on pictures, for example. We are using other people’s algorithms. It is a very complicated thing. A lot more people can be working on this. They are scared, because you can share some information, and then investors can try to misuse it. The ecosystem is so biased, and we are hundreds of years behind in the venture space. Trying to do something positive is so complicated and you must be so careful. There are researchers who want to work on this who do not because they are scared.
Improving an Industry That’s Decades Behind
EB:Why do you think we are so far behind in the venture space?
MA: There is so much power in there. If we look at how progress is made, for example, in women’s rights, it’s gradual. Venture runs the world to a large extent. There are more gates because it is such an important space. From a sociology perspective, I am not sure how this has manifested. Female doctors or professors, there was resistance to it, but eventually we got there. Now it is the government and businesses, and they do not want us there.
JL:What are some of the big unanswered questions? What is next?
MA: Let us start with the assumption that we do not know anything. I spent a year doing research on this and many things that are taken for granted in venture are just flat out wrong. We need to do analysis for each race carefully. We need to do intersectional analysis very carefully on large data sets. We need to then understand, how does my bias manifest against women in female CEOs versus male CEOs? There is some research and people who are doing good work, but just not enough basic questions are getting answered. If you want to design solutions, you need to understand what is happening. The way it is going right now, we are just relying on the passage of time more than anything else. Certain things may take a very, very long time—and perhaps may never be fixed through a passive or poorly-informed approach. I do not know if there is enough will to really correct it, and if there is enough will to fund research like this.
EB:What are some of the biggest structural issues that you found through your research and the lack of funding for it that prevents real change from happening?
MA: It is an incentive issue. The people in power who are extremely powerful and wealthy, and they do not want things to change. I can easily see for decades, they are going to pay lip service to it and they are going to throw these little funds together, treating them as a charity. Things will go on as they did, most likely. Government is powerless against them; they have laws that prevent discrimination lawsuits, and they are not allowed to do anything that would hurt their bottom line. They can claim that diversity investment can hurt their bottom line, and there is nothing anybody can do about it. In venture, they can have any reason under the sun, and there is just completely no retribution. Somebody in power needs to be willing to take a stand. I do not know if anybody has power against these people. In the States, at least, it is all about money. That is where the money is at. I am sure they have more arms in the government than anybody else, so good luck changing any laws. One hope is to do the research and come up with very pragmatic, narrow ideas to start to untangle the discrimination. Even that is turning out to be trickier than I expected, which is surprising me. There are mechanisms that make this complicated, but it is more promising than hoping for something else.
Corzine: Nasdaq’s Non-profit
Nicola Corzine (Nasdaq Entrepreneurial Center)
Nicola Corzine, the executive director of the Nasdaq Entrepreneurial Center, has been leading the Center’s activities since its inception in 2015. She is leading the Center’s strong focus on equitable entrepreneurship and shares in this conversation what can be done with research, teaching programs, and community to create improvements on both sides of the Atlantic.
Interviewed February 2021
Nasdaq Entrepreneurial Center’s Priorities for Equitable Entrepreneurship
Erika Brodnock (EB):As the director of the Nasdaq Entrepreneurial Center, could you tell us when and why it was established? What exactly do you do there?
Nicola Corzine (NC): I was brought on as the founding co-executive director in 2015, to lay the strategy for an independent non-profit supported and funded by Nasdaq. It truly changed the landscape of access to education and resources in the field of entrepreneurship.
Over the years, the Nasdaq Foundation has been making intentional investments in business plan competitions and mentorship programs across the US. At every single inflection point, Nasdaq always felt there was so much more that could be done because of the network and because of who they stood for in the world, but they did not want to run it directly themselves. For all the right reasons, they felt it should really exist as a standalone mission.
I was fortunate to be able to come in, figure out that strategy, build the operation, articulate what we stood for, and look at the entire landscape. I have an amazing team that makes this all easy, day in and day out. I work beside funders and foundations to really make a change in access and equity through this field.
Johannes Lenhard (JL):How has that research that you have undertaken shaped and influenced the position that Nasdaq has, specifically when it comes to listing companies going forward?
NC: Entrepreneurship has been fairly well-studied in academic settings, but not so much at the practitioner layer. In many ways, entrepreneurship is one of the least patient industries, so the ability to slow down and look at the science to inform the art has not been the typical outcome. Case in point, if you think of the investor euphemism, “Within the first few minutes, I knew whether or not I was going to make an investment.” What was actually driving that consideration? If we are talking about “gut” being the gateway to acceptance, then what is actually happening behind the scenes? What is that gut? How do we scientifically explain what gut facilitates and what it does not, and perhaps more importantly, who is getting lost in that process?
To maximize inclusive innovation economies, sometimes the lessons to be learned come from not so obvious places. Take for example the public markets, where in recent years you’ve seen public sentiment drive greater responsibility and outcomes at an ESG [environmental, social, and governance] level of public companies. There is a recognition that all companies must drive towards greater social impact for their sustainability and the world.
Just to be clear though, we are learning from public markets, but maintain separation of church and state: we are not Nasdaq the entity, but the Nasdaq Entrepreneurial Center, a public non-profit. We’re incredibly fortunate to have Nasdaq as a foundational donor and one of our greatest sponsors and champions. We were very pleased and proud of their moment earlier in 2021 when they facilitated intentionality around tracking board diversity with a lens towards really showcasing an index of great companies that were born with diversity in mind. Nasdaq also has the first female CEO of a financial institution of its kind. Adena Friedman is someone who is passionate about DEI; she is passionate about it being the driving force of the future of work, of economic opportunity and prosperity for all, and really pulling forward all communities in that conversation.
What we need to do from a research lens moving forward for the Center is create an environment where change is more than a moment, but generational. That’s the kind of longitudinal commitment that a non-profit such as ours is not only tasked with in its mission, but ultimately uniquely capable of driving a coalition of support towards achieving.
So, let’s take the lack of funding that flows to Black and Brown founders, as an example: less than 1%. We get super clear as to what are the barriers that persist around that systemic ecological challenge, and then we take a step back and say, “What else is getting lost in that construct?” While the conversation is often critical about venture, that’s not the only environment where minority entrepreneurs are left behind in the capital allocators arena.
A great example of that in some regards could be found with the stimulus funding of the PPP [Paycheck Protection Program] program in the US, which did not flow at a diverse layer to all of the businesses that it aimed to serve. Was that bias that lived at the financial institution layer of banks? Perhaps in part. Probably more likely, in part, there was a lack of understanding or actionable research that could inform policy on how banking relationships and selection differ with different constituents and stakeholders in communities. The end result: the capital did not flow to the businesses that the government aimed to support.
In some ways it’s understandable: entrepreneurship by its nature of being wants to do, wants to build, wants to fix. But this triggers a very myopic approach that focuses on one specific issue area, and ultimately does little to fix the root cause of the problem. So, by not being patient in really understanding all the stakeholders involved in the problem, we end up contributing to the problem, because we just want to get in and either throw money at it, or make it better and get back to work. Only by slowing down to speed up can we really address a systemic, intentional, longitudinal change in an environment that continues to hit these kinds of barriers and obstacles along the way.
The Importance of Prioritizing the Individual
EB:In that vein of slowing down before you speed up, what are some of the key evidence-based programs and initiatives you have developed at the Center? Which of those are you most proud of? Have you been seeing any results that you would like to showcase?
NC: Contrary to popular belief, we are less focused on businesses and much more at the individual, human, flourishing layer of entrepreneurship. When we look at the detrimental outcomes, like the recent passing of Zappos founder Tony Hsieh, entrepreneurs are really dealing with the fact that there is perhaps no lonelier journey than the journey they’re on. If in fact, our job is to protect and value the system surrounding the entrepreneur’s journey, then we need to make sure that we are standing up a whole system of support around the individual. Businesses will go and flux, ideas will come and go, but the individual is probably going to go do this more than one time. How do we really build up strong, intentional entrepreneurs that can continue to go down this path and realize their maximum potential to inspire the next generation of entrepreneurs?
We have framed more of a responsive support system, amplified by near peers. We do not focus on any one industry, geography, or environment, we actually find that there is greater trust and greater confidence that comes by being in a room of learners from different industries. Their ability to lean in and see new opportunities in front of them from different perspectives is infinitely more likely. That is amplified because of the diversity that the Center has had at its get-go. With 51% women and 70% minorities, there is not a class or a workshop or a learning environment where diversity and diverse thoughts, perspectives, backgrounds, and ideas are not always surfacing.
Since everything that the Center does is free, we are building up a pay-it-forward mechanism where even inside of the environment, they have to commit to supporting one another. That is perhaps the ultimate “aha” we’ve learned along the way. Great mentors, advisors, and industry experts are amazing to inspire and guide, but nothing can beat near-peer amplification. We found, for better or worse, that the best way to facilitate learning can come by being inspired by front-of-the-class learning. Yet, the most intentional outcomes happen when you are learning from someone who has just gone through a problem ahead of you. That builds up trust, and it builds up confidence in really intentional and transformative ways.
We believe entrepreneurs need to define their own paths of success. It is not for industry to define it; it is for themselves. Most of the time, it is not just financially driven. With our 35,000 entrepreneurs that we have now worked beside, seven out of ten times there is deeper motivation going on, there is an intention of wanting to better a community, wanting to provide societal outcomes that are our driving factor as well. If we can find these motivations, we can get them the tactical and practical help that they need at a subject matter layer of expertise, but also make sure that they have got someone betting on them as a leader, and an individual.
It is ironic in some ways that in the industry, we celebrate only the successful having access to business coaches. Yet the ways in which it can make the biggest difference is early on in the trajectory of an entrepreneur. We have chosen to give that earlier on in the journey, and what we are seeing are much greater outcomes, again, at that self-efficacy level, and certainly at that confidence marker.
Confidence of a founder can drive the best outcomes; one of the KPIs that we care about is whether we are building more confident founders who can drive towards figuring things out, because they are the ones that have to do it. They have to believe in themselves above all else, if they are going to make it.
Lack of Transparency Holds the Industry Back
JL:What lessons have you learned over the years as an investor, what has changed, and do you feel we need to see more progress urgently?
NC: When I first started, the Angel Capital Association (the equivalent of the National Venture Capital Association) was not even imagined. Angel investing was almost a dirty word of sorts among VCs. Now accelerate to where we are: we know the volume of dollars flowing into seed stage deals at an angel versus venture level are typically three to one—some reports show even higher. The number of businesses that are supported by angels far outweigh the number of deals that will ever get funded by venture because of the nature and the way in which the deals look at exit and liquidity.
Band of Angels is the oldest angel investment group in the United States, celebrating a tremendous history and record. I was very fortunate to have the first year working beside an individual who is recognized as largely being the original angel investor in American history, Hans Severiens. Hans was always one to say to me, “We invest in people that we want to be invested in, and the friendships and relationships of what they stand for far outweigh any returns we are going to get.” What I did not appreciate was how in tune one had to be to connect with individuals, and the questions that matter versus the ones that don’t.
Hans and every other investor that was part of Band were senior operating individuals, founders of the most notable companies in Silicon Valley: Hewlett Packard, Symantec, the list goes on and on. I had them as my mentors and my guides, helping me understand what talent looked like and what innate qualities must always be present. I learned why credibility was the number one reason that founders got funded, and why if you showed for a moment that you did not have that credibility within you, we were going to turn away from that deal in a heartbeat.
But that’s not the narrative that entrepreneurs are told—if anything, quite the contrary! On the one hand they’re told, “put up a chart, claim you are a billion-dollar unicorn company,” that is all that is needed. Obviously, when you start to try to get an understanding as to what that number means, it all crumbles away like a pie, and the entrepreneurs are left shaking in their boots. The investors walk away going, “We are not going to fund you, you do not know what you are talking about.” The truth is, the industry largely has told entrepreneurs “you need to play this game,” but then we don’t share the rules. So how can they really be set for success?
Inspiring Opportunity through Capital
When I come back to the untapped talent that is not yet being funded, with our Black and Brown founders in this country and across the world, what I realized is, nobody ever said, “There is this game, here are the rules. This is how you do and do not play it if you want to succeed.” We are starting to get better within the industry. We are starting to realize the unfairness of the game, or perhaps the cheating that goes on behind the game.
There still remains some uncertainty that lives behind the magic of the industry, and this uncertainty is, “What is that gut?” If I go back to that earlier comment, of knowing if you are going to fund a founder within two minutes. Why are we making that determination? Is it purely pattern matching? If it is, shame on us.
Another thing I definitively say about the industry is we are celebrated in some regards, and yet we get it right one out of ten times: everywhere else, you would have been fired decades ago, if you ever got it right one in ten times.
To a certain degree, our job within venture is to inspire more opportunities for future entrepreneurs to lean in, because we are not always going to get it right. If you can find entrepreneurs who are going to build great legacy and build more entrepreneurs of the future, then you are investing with a healthy return. There are two axes that matter: the right time to exit, and the amount that is returned to you upon exit.
Angel investing is perhaps a more honorable field to a certain degree, because it is one’s own money rather than other people’s money. You get a better sense of truth when it comes to what drivers matter. More often, we would see entrepreneurs that we would love to fund when we know they would be making a 3X return in a five-year period. The jobs that were being created, the opportunities and innovation that were being born, and the inspiration for future innovation to come from those types of moments was highly valued. The time span of these returns was both justified and good. I would not mind getting a 3X return in that kind of time period every day of the week.
Improving Access to Capital
EB:If you were president for a day, what would you mandate? What is the one thing the whole ecosystem could do to improve access to those who are currently being overlooked?
NC: We always said the one market you can never change as an entrepreneur is how many hours there are in a day and what you can do in one day. Prioritizing your time and knowing where to lay your efforts is one of the entrepreneur’s greatest challenges. I wish there was an environment from which we could all agree on what could and should be tracked when it comes to fair performance for our entrepreneurs.
It is a declining environment for entrepreneurs because we have changed the goalposts a thousand times in the field. Once upon a time, the American Dream stood for something radically different than what it does today. As the daughter of an immigrant entrepreneur, and having started three companies in the US and abroad, I know like many what the opportunity to dream means. I believe, like many, that all ideas should be valued, that the opportunity to be a part of the entrepreneurial economy should be within reach of all, and that we all suffer when that doesn’t occur.
Eight out of ten times when I meet an entrepreneur, they say to me, first and foremost, I am not a “real” entrepreneur. When I lean in to ask them why, they say because I do not look like—and I do not mean to pick on Elon Musk or Mark Zuckerberg or any of them—but they say because I am not like that. My ideas aren’t that big. I’ve always felt the term “incremental innovation” has limited our potential to recognize the exponential growth afforded by community entrepreneurs. I’d like to re-imagine that scale and appreciation of impact made possible through all entrepreneurs.
I realized that we have let the narrative of entrepreneurship be shaped and shifted by media more than we have by policy, and we celebrate only those that produce a certain kind of result, as mandated by a market cap or some other experience, above and beyond what entrepreneurship actually stands for. If I was president for a day, I would come in and create a fair standard that prioritized the true meaning of entrepreneurship, and had us all take a step back and realize entrepreneurs are amongst all of us. They are all equal. All ideas are valuable in the world, and innovation is a currency that we all must contribute to.
Zimmerman, Kapor, Kim, Horgan Famodu, Ekeland: Allies
Ed Zimmerman (Lowenstein Sandler, First Close Partners)
Mitch Kapor (Kapor Capital and Kapor Center)
Eddie Kim (Gusto)
Maya Horgan Famodu (Ingressive Capital)
Marie Ekeland (2050)
Building on the notion that we need a collective of people with the power, resources, and potential to create systemic change in the venture capital ecosystem, we spoke to a who-is-who of key players who openly celebrate their allyship towards diversity and inclusion: Ed Zimmerman (tech lawyer and LP at First Close Partners), Mitch Kapor (Lotus founder and former GP), and Eddie Kim (co-founder of scale-up Gusto). They were joined by female fund managers Maya Horgan Famodu (Ingressive Capital) and Marie Ekeland (2050, in a demonstration of the power of allyship in creating opportunities and fruitful outcomes for all.
Interviewed April 2021
Seeing Discrimination and Racism as an Ally
Erika Brodnock (EB):To the three men in this (virtual) room: what was the lightbulb moment that put you onto the DEI movement?
Ed Zimmerman (EZ): White people ask me this question and I often bristle about answering because I believe part of why they—particularly able-bodied, straight, white people—are asking is because they would like to make sure that I can check a box that they do not check so that they are relieved of any obligation to themselves participate in diversity, equity, and inclusion. There is an extent to which they are looking for an excuse. Years ago, when my father passed away from lung cancer, everyone asked, “Was he a smoker?” I feel that there’s a similarity between those two questions; people wanted to say, “If you are underrepresented then it makes sense that you are doing DEI work,” just like you don’t really have to worry about lung cancer unless you smoke … In other words, it’s not actually their problem.
My older sister was in a wheelchair. She looked very different and interacted with the world in a way that was very different. She was six years my senior and I have very vivid memories, as well as palpable anger, at the way she was treated and disrespected. She was stared at and pointed at, and people crossed the street to avoid her. I saw some of that same behavior with friends in college who were Black. We went into an elevator together and a woman grabbed her purse, and I knew that she was not clutching her purse because I was there. I would say that, certainly through high school, I was probably about as racist as the next person in my neighborhood, and about as xenophobic as the next person in my neighborhood in Brooklyn.
I started actually acting on things in college and going to a couple of marches and engaging more. As a practicing lawyer, I did some things that were tangible steps forward in favor of diversity, equity, and inclusion in the ’90s. In ’94, I asked for permission to be pro bono outside counsel to a dance company that was led by a Black, HIV-positive, gay dancer and choreographer. I worked for free on a project about AIDS, which was a pretty controversial project. I have been pro bono counsel to that arts non-profit for the last 27 years. In ’95, I asked the firm if I could host a gathering and a dinner, when I went on campus to my alma mater, for all of the leaders of the student organizations like Lambda, Black Law Students Association, and Asian Pacific American Law Student Association. We as a law firm had never done that before. To them, drinks and dinner were great, but bringing people back to the firm, when the firm was not particularly ready for them, was less effective. It was the right idea, but there was so much more work that needed to be done, and I lacked any economic power or oversight within the firm as a young associate still making my way.
Identifying as an Outsider and Understanding Privileges
Mitch Kapor (MK): In my childhood, I skipped second grade and went directly into third. This left me almost two years younger, and that was really disastrous socially. It cemented my identity as an outsider that I had all the way through high school. I was convinced that I was the least popular child that ever went through the Freeport public school system.
Fast-forward a couple of decades and unexpectedly, in my early 30s, I found myself running a wildly successful tech startup, Lotus, that was experiencing explosive growth. In that situation, as we have seen from all of these other companies like Google and Facebook, the founders get a get out of jail free card. There’s no adult supervision. The founders can do whatever they want. Some try to send rocket ships to Mars, I was interested in making Lotus be the kind of employer that even a misfit like me would feel comfortable in.
Freada and I began working together there. She was hired to make Lotus the most progressive employer in the US. We were not a couple then. We were professional colleagues and worked on many projects around building a highly inclusive and diverse corporate culture. That was in the ’80s. In the ’90s, we got together as a couple. By osmosis and proximity, I moved into a different world than the world that I grew up in. Frieda has been doing DEI work for four decades. She is a pioneer and co-founded the first group in the US on sexual harassment, and has been on top of issues of intersectionality when it comes to gender discrimination. We have dozens of colleagues who are people of color, and our scholarship programs serve low-income communities of color. Through dozens and hundreds of encounters and relationships large and small, I began to have a better understanding of the day-to-day experiences of people who, just by virtue of the color of their skin, face barriers, discrimination, and microaggressions. There is a whole range of manifestations of systemic racism that is part of day-to-day life.
With Freada’s framework with which to understand this and do something about it, I have over time had my own evolving process. I was not racist in an overt way, but I certainly had a very large number of unexamined assumptions about who is likely to succeed and who was not in tech and startups that amounted to racist beliefs. It is a continuous and often painful process of reassessment. I was, in hindsight, overly focused on ways in which I had been excluded, which were real. I went to Yale as a lower-middle-class kid in the late ’60s, early ’70s, which still reeked of privilege. I knew that Yale was not the kind of place that was made for people like me. Yet, until the last decade, I was not paying attention to the advantages I continuously derive from being white, male, and Ivy League educated. A lot of the work that I have done has been in understanding that I have gotten boosts through means that I cannot take any credit for. There is a fundamental injustice around that. It is just wrong.
Listening to the Experiences of the “Only” on the Team
Eddie Kim (EK): A couple years after co-founding Gusto, we had raised our Series A round of financing and were hiring software engineers as fast as we could. We had an engineering team of eight, all men and one woman. I went on vacation for a couple weeks and, to my delight, by the time I came back we had hired another three engineers. In my first weeks back, I had a one-on-one meeting with Julia, the only woman engineer on the team. She told me that while it’s great that we’re growing our team so quickly, she wanted to share with me her experiences being an “only” on the team. Over the next few weeks, I asked a lot of questions about diversity and inclusion as we went on late-afternoon runs together up and down Embarcadero Street in San Francisco. I cared about Julia a lot and took our conversations to heart.
Our conversations gave me more questions than answers, and I started to do more research in this space, particularly on gender diversity in software engineering. I had a lightbulb moment when I stumbled across a chart published in an NPR article titled “When Women Stopped Coding.” The chart plots the percentage of college graduates who are women in certain majors over time. The four majors plotted were medicine, law, physical Sciences, and computer Science. From 1965 to 1985, all four plots look about the same: they start around 10% and make their way up to 35%, indicating that the fields are getting more gender diverse. Three of the lines—medicine, law, physical sciences—continue upward to nearly 50% by 2010! But the line for computer science takes a different trajectory starting in 1985. Instead of continuing upward, the percentage of women majoring in computer science takes a sharp turn downward, settling to a multi-decade low of around 17% in 2010. When you take into context other societal and cultural trends happening in 1985, it becomes very clear that systemic and societal issues played a large part in making the field of computer science difficult for women starting in 1985. It really opened my eyes to how systems, not just individuals, play an important role in creating more inclusive and equitable environments in the technology industry.
Learning to Empathize and Understand
EB:People who have been through some adversity or feel as though they did not fit in themselves are much more inclined to have empathy towards other out groups. Ed, do you think that your sister plays a fundamental part in your ability to empathize with other groups now?
EZ: I worry that my experiences with my sister made me more empathetic to people other than my sister. She is no longer with us, but I am sure that it did. I am sure that watching who was kind to my parents (and who was not) played a role. I am sure that seeing my parents struggle and get the short end of the stick also played a role. There was further intersectionality because my sister was bisexual. My mother was bisexual, and also bipolar. There was a lot going on. I lived upstairs with my aunt and my grandmother, and my sister and my parents lived downstairs. My aunt was also disabled. I grew up in a house where there were four women, two of whom were disabled and two of whom were bisexual. My wife and I got together when we were 18 years old. We met on August 28, 1986, during her first day of college and my first day of my sophomore year. She has made me a more empathetic and better person. I have spent the last decades striving to meet what she saw I could be in a lot of ways.
MK: My own experiences and all of the work that I have done to move myself forward into a better, happier, more impactful state, has all really opened the door to understanding other people’s experiences in a way that would not otherwise have happened. This is particularly true for the young people we met in a scholarship program we started for UC Berkeley undergraduate about 20 years ago. We became very close to some of those kids and were surrogate parents to them. I worked to understand that, despite enormous differences in every possible dimension, these kids wanted nothing other than what I wanted. Put simply, I wanted to be who I was and not have to become somebody else. I wanted to have a shot and an opportunity to make something of myself, without sacrificing myself. I understand these kids from low-income communities of color who had really struggled and managed to get into University of California, Berkeley, race blind, also wanted that. But there were structural barriers in their way. I believed we have to do something about this. It was not an intellectual conclusion. It was a deep-seated moral imperative.
Forging a New Path: Building Confidence, Fighting Biases, and Taking Pride
Johannes Lenhard (JL):Maya and Marie, you have grown up female in this world of technology. Have male or other allies influenced your careers?
Marie Ekeland (ME): I believe I would not have had the same career if I had not been a female. I started in the VC industry in France in 2000, which was really the beginning of the industry. We had zero playbook apart from just looking at what was being done in Silicon Valley. I was the only woman in the boardrooms for 15 years or so. My French VC colleagues were really looking at Silicon Valley role models. There were no women at all. I never had any female role models to look up to, in my practice. In addition, I was raised in Vancouver and for a while I had been working in New York. I was not impressed by the US culture, because I had partly experienced it.
I am a mathematician and computer scientist by background. My way of thinking was always focused on the question: how can I be the most useful possible? What are the problems that I can solve? This was my way of getting into the job and trying to find my own way of doing it. That has really played a role in my being able to innovate in the VC world, and to find my own way of doing things and to step up. There was freedom because nobody was expecting anything from me, because they had not seen any female French VCs before. I was the curiosity. The good thing is when you are in that position, and you are ambitious and focused on solving problems, and you are efficient in doing that, people remember you. This helped me in adapting the job to what I thought was good for me.
There were three important moments. The first one is that I seeded the biggest French success to date in 2006. I stayed on the board until three years after the IPO. That company is Criteo; the founder is called JB (Jean-Baptiste) Rudelle. He moved to Silicon Valley at some point, and I met him regularly in San Francisco. I remember a particular evening where we were having dinner, and he said, “Marie, when do you start your fund?” I had never thought about it before. I thought, “He thinks I should do it. He is an entrepreneur, and he sees that in me. He is a good entrepreneur, and he feels that I should spread my way of practicing this job.” I eventually ended up building my own fund, two years after. This was the moment when I started thinking about it and started building confidence in doing so.
Number two is in my way of management or being on the board, and in my practice, I was encountering things that were linked to people. One of my founders is Arabic. In France, racism is mostly around Black people and Arabs. He had been suffering from racism since he was a kid because he lived in “the ghetto.” He ended up being a rapper and becoming a tech entrepreneur. He is a self-made man. He was an activist as well, and he would point to me, saying, “This is not normal.” He was the one discovering what was happening to me in boardrooms or in my own company. He helped me in understanding that these relationships actually were not normal, and that they were linked to biases that people were having and that I was tolerating them because I was not seeing them. He helped me react to these behaviors, because he had been fighting all his life for them. He transferred his knowledge to me.
Number three is being able to show what you have done. Whenever Ed would put me on a conference, he would say, “Marie is not presenting herself.” He would do the marketing for me. I never realized before Ed told me that I was the first woman to have raised over $200M [for a] first time fund in Europe. He told me it could even be the case that I would be the first woman in the US. I had mixed feelings. Of course, I can be proud, but it is also so sad. The US industry has been around before the European industry for 20 years. How could I be the first one? I was learning to recognize that if I had achieved something, I should say it.
Breaking through Resistance, Then Making Changes
Maya Horgan Famodu (MHF): In 2014, I tried briefly to raise a fund, and I mainly positioned it towards African investors and a few women angel impact groups. I got no traction and no interest. The people who ended up being interested at first were actually all males from the US. In my fund one, we have 40 investors and four women. It all started in 2016, I was trying to get a job within venture capital; I wanted to be an intern or work and start exploring the industry from that way. When I did not get a job at all, I launched Ingressive Capital as my fund one. Our first 15 fifteen investors were male from Nigeria and the US. Interestingly enough, I would say male allies and those who truly took the leap of faith in our work, before I had the touch points and the credibility, were American and Nigerian investors and businessmen.
EB:What do you think was the main contributor to the difficulties that you faced?
MHF: I started it with little professional experience. I tried launching a $15M fund when I was 23, with about a year of work experience. Reasonably, I did not get very far with that background. However, when I did have investor relationships, knew how to source a good deal, knew how to launch client initiatives across the continent, what prevented me on the Africa side was the very ageist and patriarchal society. I was young, female, with an American accent; there was a lot of resistance at first. At the beginning, I had to either hire an older male, or bring my dad, who is a pastor and has no business experience, into a meeting and pretend that he was the boss, and I was the assistant, and I was speaking on his behalf. I did that for maybe the first two years of business, because I wanted to get the deal done. My thoughts were, “I know that I own the business, but I need to portray myself or the company such that we can get things done, because I am not going to fight that battle at first.” I had my commitment and conviction. If I wanted to, at the beginning, change the narrative and the perception of African and American businessmen about how a young mixed-race woman could succeed, I wonder if I would have gotten as much traction as I did with just wanting to get this done however I needed to. I did not have time to deal with the bias, because I was trying to move ahead, however possible.
EB:Thank you for being so candid about that. There is something to be said about doing whatever it takes to get where you need to go, and then changing it from the vantage point of having achieved that.
MHF: Exactly. Within our fund, we are a strictly for-profits venture capital fund, but 64% of our team is female, and almost 40% of our portfolio companies are female founded and co-founded and 100% are Indigenous Black founders. While I did not focus on it on the front end, we are now financing the next generation of billion-dollar businesses, and they are all owned by people who are women or Indigenous. We are aiming to create unquestionable change, changing asset ownership and wealth creation such that this will never even be a conversation in the future, because the people that are making the decisions are fundamentally different.
Best Practices for Allies in Venture Capital
EB:What are the most powerful best practices that you have already tried and used effectively to alleviate the pressure of overlooked founders, investors, and employees? What are the strategies that other people should adopt to ensure that they are able to broaden their hiring and leadership practices?
EK: By far, the most important thing is to believe at your very core that funding and hiring people from non-traditional backgrounds is itself a strength that will turn into an unfair advantage for your business. At Gusto, we’ve learned that small business owners are incredibly diverse and come from very non-traditional backgrounds. Oftentimes, they started their business because they were so overlooked and rejected by others that they had no other choice but to do something on their own. If Gusto only hired people whom our society was designed for, we’d have a much weaker understanding of what our customers need and how they think. It would be like trying to understand the nuances of a poem when you don’t speak the language well. But once you internalize that being non-traditional is a strength, you’ll notice a lot of great things start happening: You’ll start to see things that your competitors miss. You’ll make better decisions. You’ll have access to the long tail, which is usually where startups need to get their start.
MK: The most powerful best practice is to hold up a mirror to yourself and to take on your own assumptions and reexamine the whole basis of how you operate as an investor. For instance, in evaluating a founder, it is easy, without knowing it, to apply different criteria depending on who is pitching. You could say, “You do not have the track record,” while in other equivalent cases, you say, “I’m going to invest in potential because I think this person could do it.” The interesting thing is that any investor, including investors of color, can make that mistake unconsciously. You have to systematically go through and be willing to look at that and challenge yourself.
The second-best practice is to diversify your own network and ecosystem. In the wake of the murder of George Floyd [in 2020], so many partners in VC firms came to Kapor Capital and said, “I need to hire a Black general partner.” To which I wanted to say, “Go look over in Aisle 12.” Obviously, it does not work like that. Investors are known for having good ecosystems and they network all the time. They must start being intentional and conscious about diversifying those networks, which is a lot easier to do than hiring a partner, which is a hard decision and something you do infrequently.
The third is to not require a warm intro for founders. One of the most obnoxious things I have ever heard a VC say was from Marc Andreessen, who said, “If you are not smart enough to get a warm intro, you are not smart enough for me to invest in you.” That was really offensive. When you do not let people whom you are connected with jump to the head of the queue, you actually get better results. It is a much fairer process.
The fourth best practice is to rethink what matters when you look at founders. There is still too much attention paid to pedigree, and a corresponding lack of attention to what Freada has called distance traveled—where somebody started in life, what barriers they have already overcome, and how far they have already come. That is a much better predictor, and there is a ton of research that backs up these strategies. There are more best practices, but these are a few key ones.
Changing the Industry’s Power Dynamic
JL:What is the one thing that we need to fundamentally change and flip this power balance in tech and VC?
MK: I am reminded constantly of a quote by the great Frederick Douglass: “Power concedes nothing without a demand.” If we are going to change things in these many ways, we have to be willing to step up, be bold, take risks, and really to find ways to challenge the systems we find ourselves in. It is a constant, ongoing thing and there is no one magic formula. If we are really committed to doing the work, I think we can genuinely be hopeful that, over the longer term, systems can change, people can rise to the occasion, and we can all get to a better place.
MHF: We need to get rid of the belief that there needs to be a blueprint that came before that looks like us before we can go and enter the industry that we are pursuing. We have to understand and adopt the belief that we are the blueprint. We are defining the new spaces that we are pursuing, as opposed to looking into others for likeness, to be able to have permission to participate. In addition, we have to deeply understand the power of equity and ownership and its ability to support systems of oppression or to transform decision making on a global scale.
ME: We need to change the decision-making process. Finance is really all about machine learning. What you are doing is that you are investing on past data, and you are trying to optimize on past successes. This is one of the reasons that adding diversity at the GP level is hard, because we have to convince LPs, who only invest in people who do have a track record. People who do have a track record are usually white males. There is a bad incentive for GPs to try to hire people who are adding diversity, because there is the risk that they will lose LPs, because this is the way the investment decisions are taken. Yet we can adopt the idea from venture capital, where you do not have data for early-stage venture capital. It is all about pattern recognition. We really need to change the way we make these investment decisions.
EB:You are 100% right. Many people say that we need the data to be able to make different decisions. However, there is a plethora of data, and Mitch’s fund is producing an IRR [internal rate of return] of 29.1% by doing things differently and investing in diversity. How much data do you think we need before we start to see a shift in mindset?
ME: On a personal level, people who are making the decisions are going to say, “I’m putting my money in this fund, which is run by three experienced white males who have been working together for the past 20 years, and not in this new team.” When you start investing in diversity, you do not have that track record to reassure LPs. All you do have are studies to say, we are building the perfect team. The reason I could raise this $100M fund is because I had a track record. The reason I could build my own track record is because I came into the industry when there was no required track record to move up the ladder. Today, track records exist, and these are the people you are competing against. Massive amounts of money go to existing track records. There is an incentive, even if you are not in agreement with your partners, to stay with your partners, because that is a way of getting more money. If you break that, if you bring on new people, then you are running the risk that your current LPs will say there is too much change on the team. The risk reward is not good. You will get a reward to add diversity on performance, but if the risk you are taking on your fundraising is higher, you will not do it. The people who are making the institutional fund decisions are under a mandate, and it is very restricted and standardized. People have said to me, “Marie, I know you’re a good investor. I just know it. I want to give you money, but can you do something normal?” They do not give me the money in the end because their model is in classic finance. If you want to move out of that, they do not have the responsibility for it. I believe change will come from LPs who have their own money and can take the risk. It will not come from traditional finance.
LP-GP Responsibility and Accountability
EB:We are seeing some LPs are starting to speak out about this and encouraging others to do things differently by acting themselves. How important are LPs going to be to drive change?
ME: We are living a complete transition of the economy towards a more sustainable economy. It is a transition and disruption that is even deeper than what we went through with digital. The finance industry will need to acknowledge not only financial performance, but environmental and social performance. Most people do not have a track record in this respect, and I believe diverse GPs will stand out positively. Including these parameters in the investment criteria and this type of performance will help move money towards more diverse GPs.
EZ: We really need to understand the way in which we design systems to perpetuate the racism and bias that we have built in, even when we do not think we are doing it. For example, when we talk about the LP-GP dynamic, people have been talking for the last couple of years about the GP commit, and we have a very clear understanding of the wealth gap in America. When we say, in order for you to impress me, that you have “skin in the game,” what we are really saying is, having “white skin in the game.” We know that we have an enormous wealth gap. Yet, we ask the founders of a venture fund to commit a significant number of their own dollars into the venture fund to show that they are committed and that they are at risk. If I am worth $100M and I commit $1M, and someone else is worth $100K, and they commit $50K, they are much more at risk. If my fund fails, and I started out being worth $100 million, I am not that at risk. We (the venture/LP industry) have baked in the further entrenchment of a wealthy set of individuals who are able to start venture funds because of their wealth, not to mention that people with existing wealth typically have the friends and the contacts to further support that wealth.
For years, Beezer Clarkson and I have co-hosted a dinner to introduce underrepresented VCs to LPs of any stripe (meaning LPs who are overrepresented and underrepresented). In 2018, we conducted a survey. These survey respondents were only LPs who self-selected, in such that they would travel to New York to sit in a dinner with us and discuss DEI in venture and meet underrepresented VCs. Presumably, these are very forward-thinking LPs. We asked them what their typical capital commitment to a venture fund is: 47% said between $10M–$20M, 20% said greater than $20M, 0% said less than $5M. If you look at the stats on where diversity resided in the venture world at the time, that meant that none of these LPs who cared enough to meet underrepresented GPs could write a check into a fund of less than $30M or $50M. Few, if any, of these GPs could raise a fund of more than that, or of that size. Similarly, when we asked what sort of experience these LPs wanted from the VCs that they backed, 80% said they would invest in a first-time fund “if the GP has past institutional investment experience,” 73% said they would invest in a first time fund if that fund was a spin out of a prior firm, 47% said they would do so if the GP was a successful angel investor, and only 13% said they would do so if the GP had not invested more than $10M before either as an angel or part of an institutional fund. If you think about the fact that our diversity statistics have been horrific, what that basically means is you had to be white to have done any of those things. We should make it “potential-cratic,” because meritocracy means, “Here is what I got on my SATs or ACTs that enabled me to get into Stanford and put me in proximity with other people who had wealth and who were going to have this career trajectory.” It is very much not, “Here is what I did once I got to University of Maryland or Howard or Hampton or whatever.” The problem is that we have to look into all of these things that we have just laid out and say, these are the trappings of and the perpetuation of systemic racism and systemic bias. We cannot apply these metrics to the people that we are trying to put in positions of financial authority.
We had a dinner a couple of years ago at my firm, during Black History Month. There were a number of white partners who believed we (as a community) can do better, and we need to do better. I think our firm is pretty progressive and forward looking, but we need to do better. One of the Black women at the dinner said that she left a prior firm because the senior partner in her group said, “I really like so and so, she reminds me of my daughter.” She said, “Look at me and where I come from, I will never remind him of his daughter. I needed to go someplace else where that is not the way I get ahead.” I was glad she felt that our firm was a place she could transfer to where she would receive greater opportunity, but her comment about her prior law firm is something I have heard many times about numerous places.
As for best practices, we need to shout vociferously, publicly, and frequently about the things that we see that are wrong. Then we need to follow up, apply metrics, and impact compensation. I recently had a conversation where one of my colleagues was on the phone with me. She is Black and very experienced. The person on the other end of the phone did not know her. I suggested that she and he introduce themselves to one another. He did, she did, and he said, “Oh, so then this isn’t your first time doing x.” She has 15 years of doing x. I called someone to complain about the fact that he had said that. I talked to her about it afterwards as well. He is not part of our firm. I do not care whether he intended or did not intend to be demeaning, I do not care whether he was disrespecting our firm, as opposed to disrespecting her. That was not okay. I realized that I may have impaired a relationship as a result of complaining about that, and I had to follow up to get someone on the phone to complain about it.
We have to call people out and we have to make them feel uncomfortable. We have to seek accountability. This is a particularly important use of the privilege that I have. Watching people complain about the calling out (itself) is really interesting. I know that it is off-putting, and exhausting. People complain, “We want to do this stuff with you, but you’re so damn impatient.” Yet, with 400 years, how much patience are we supposed to have? If more of us are publicly articulating what is wrong, and the fact that most of the bias—99% of the bias—is not implicit, and is second nature, that is very fucking different than implicit. Your racism, your sexism, or homophobia or transphobia, is second nature. It is not implicit. It is built in, build it the fuck out. Dock people their pay. Make sure it is part of the compensation process. Make sure it is part of the review process, pro and con.
Since we met and started this project in 2019, it feels like the world has fundamentally changed. The impact of COVID-19 is still not fully decipherable; the markets, including venture capital funding, reached record heights in 2021 and then dipped drastically in 2022. Russia’s invasion of Ukraine continues to have far-reaching impacts on the global economy, as has the rise of central bank interest rates. A cost-of-living crisis has taken a stranglehold on those least wealthy in society, as everything from energy, to food, and fuel have risen in cost exponentially. Cryptocurrencies and the associated technologies of decentralization, or “Web3,” have moved from a fringe interest to a mainstream phenomenon, and environment, social, and governance (ESG) principles have begun to make waves in startup fundraising and VC.
What does all this mean for the aim of this volume, to increase diversity, equity, and inclusion (DEI) in venture capital and startups? The unfortunate truth is that the numbers of diverse entrepreneurs accessing capital have receded in the last two years. The overall share of female VC partners is stagnant at around 15% (in Europe and in the US), while women manage an even smaller share of money than these numbers would suggest (5% in Europe). We still don’t have a good overview of how much money is being managed by Black GPs globally, though we do know that Black-led funds in the US represent around 3% of total funds,* and that Black fund managers are raising significantly smaller funds (46% smaller) than the industry average; we know even less about any other overlooked group mentioned in this book. What is clear, however, is that we are a long way off—even further away than before COVID—from approaching equity!