Suzanne Gauron (Goldman Sachs)
Anna Skoglund (Goldman Sachs)
Change in the venture capital industry is happening at a glacial pace. We sat down with Suzanne Gauron and Anna Skoglund of financial industry veteran Goldman Sachs to explore what they are doing to support the wider industry in acknowledging the well-researched divides, but more importantly, what they are doing to funnel money into the gaps in access to capital for diverse entrepreneurs. We discussed Black Womenomics, One Million Black Women, Launch with GS, and much more.
Interviewed April 2021
Programs That Mandate Diversity and Close Gaps for Black Women
Erika Brodnock (EB): In 2019, Goldman Sachs announced that it would no longer support IPOs for businesses without diversity on their boards. What led to that decision? What has been the reaction of your clients?
Anna Skoglund (AS): The fundamental role of boards is to ensure the right corporate governance of enterprise. We believe that a more diverse and inclusive approach to corporate governance is going to lead to better decision-making. That is the thesis behind that. The reaction was broadly positive, but I am puzzled by the fact that we did not see our peers follow. Our peers did not say, “We will also do this and not take companies public unless they have one or more diverse board members.” Diversity can be gender, ethnicity, sexual orientation. You can define it in various ways.
EB: The “One Million Black Women” initiative filled me with hope because “when Black women win, everybody wins” is so powerful. Was that an internal phrase? If so, what are the reasons behind that belief and what are the program’s aspirations?
Suzanne Gauron (SG): We try to ground everything we do, whether it is Launch With GS, or One Million Black Women, in data. The data says that Black women as a group are one of the most disadvantaged communities in the United States. The wage gap is the broadest between Black women and white men. We are looking at the wage gap between white men as the 100% bar. We show the gap there, as opposed to between Black men and Black women. We summarize this in our Black Womenomics paper, where we show that at every life point, Black women are disadvantaged, whether it is in medical care, maternal mortality, access to education, and access to credit. If we are able to close gaps for Black women at any of these points, everyone else will be lifted up by that. Those are fundamental problems in all of our communities that we are addressing by measuring how much progress we can make for this most disadvantaged group that have not been given the recognition they deserve as our caregivers, employees, and stakeholders. One Million Black Women was a way of expressing the problem that was very specific. It also builds on a lot of work that we have done in the past, because we have been doing research on topics around women and inclusion for over a decade. Black Womenomics builds on the back of Kathy Matsui’s work in Japan, which was groundbreaking at the time. You can hear echoes of her work on women’s labor participation in Japan in that idea that if Black women win, everybody wins. Our 10,000 Women program is where we saw and could measure the impact of increased financial security for female entrepreneurs and the effects that that had on their immediate families, extended families, and entire communities.
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Johannes Lenhard (JL): Is there any specific data that you have when it comes to the tech ecosystem?
SG: What One Million Black Women will do is be more broad-based on problems that cut across sectors. In Launch With GS, we focus very deeply on entrepreneurship, and venture capital, which is all deeply ingrained in the tech community. We can not claim ownership of any of the research. The research in the US is very similar to that in the UK, where people of color are less than 1% of all venture capital funding in the US. For gender, it is well below 3%, which is what you are seeing in the UK. Most of all venture capital teams in the United States do not include a person of color. The number of Black female venture capitalists is incredibly limited, and that is the least represented group that there is. There are steps being taken, especially in the seed stage, to address this. There are a number of innovative firms—a few of which we work with personally—who are taking a point of view on reaching out and making their investment thesis around investing in companies with underrepresented networks at the pre-seed and seed stage. We are seeing progress there, but there are still some places where the bridging of the capital is not there yet. The number of Black women who have raised a Series A or Series B in the United States is extraordinarily low. It is something that everybody should be concerned with. We have not seen a consistent approach yet from what I would call broad-based venture capital as to how we are going to address bias in assessing companies entrepreneurs as they progress into Series A and Series B.
EB: There is a point at which the companies will fall off because they go back into a toxic market, and there is no chance that they can reach escape velocity, unless we can fund them all the way through the lifecycle. Do you see any way of addressing that?
SG: I used to run our private equity and venture capital business and we were limited partners in funds. The ultimate answer is that the institutional investors who allocate capital to venture capital have to require a change, and they have to hold their managers accountable. People have tried to address this from both ends. One is to fund new managers that are disproportionately diverse from the beginning. The other is to pressure your longtime, very rich, all-white teams to change. There needs to be a continuum that meets in the middle, where you are asking the same questions of everyone. You allocate to a variety of strategies, some of which have no gender or diversity lens in them, but they are required to be thoughtful about D&I in what they do. We are just starting to see that but still not consistently from investors. Unfortunately, the problem with venture is there is a supply and demand mismatch, where the VC itself has been in the preferred seat because there is more demand than supply for top-tier ventures. The additional stakeholders are going to make a difference there around companies who require more awareness from people on their cap table, and social media and scrutiny.
Is VC Still Waiting for Someone to Take a Stand on Diversity?
JL: Do you see a point when Goldman Sachs is not going to invest in a VC fund because they are not equipped with the processes that you just described? At the moment, we have not met anyone who would say, “We do not write checks to people if they do not fulfill certain criteria.”
SG: People are waiting for someone to take a stand on that. You have to be able to measure it. We see many people collect data and collect insights, because we could not say, today, what is best in class and what is a passing grade. We need to arrive at a place where we can say this is the minimum standard. It is hard because there are many levels. There are the investment partners who allocate capital and there is the overall organization and who they are employing. It is the companies that they are seeking to invest in and what they require from those companies. You could come up with a lot of different answers depending on how you trade-off between those levels. We have some very thoughtful, very aware white male VCs and we want to figure out how to measure that in a way that would make sense.
JL: We do know that adding 10% more women to decision-making roles in venture capital creates up to 2% of revenue or profit per year, and 10% more profitable exits over time. There is no more data that we need here.
SG: I agree, but I think the structural challenges of having capital that can not leave means that the levers to create change are relatively limited. From the limited partner side, venture capital is a high returning asset class and so it introduces different incentives for different limited partners on how much they want to push when they look at their other asset classes, where they may have more ability to make change more quickly in public companies, for example. It is not a reason not to continue to push, but it is one reason why people have largely focused on newly established managers, which is some of our work as well. It is easier to partner with people from the beginning who have this belief and have a demonstrated commitment, than to turn the Queen Mary.
AS: There is no doubt in my mind that more diverse company leadership and corporate governance and input is going to lead to better outcomes. I also think that if we are saying that it is easy to do it, we are underestimating the actual effort, consistency, and frameworks that are required to drive sustainable change. This does not mean that we should not set ambitious targets and that we should not hold ourselves accountable, but we are not going to do ourselves a service if we gloss over the daily effort and tracking to make this work. Throwing money at things is not necessarily going to drive some of the changes that need to happen at the fundamental level of building sustainable companies. If the company fails, for whatever reason, and they are just in very small numbers, then the failures as a percentage becomes a bigger number than it actually is. Statistics is famous for being able to show everything you want. In a small sample set, it becomes more vulnerable. There is no doubt that this is the right thing for business, but achieving sustainable change and healthy growth in some of these companies needs to be done in a measured and thoughtful way. We could take two steps forward and one step back, but even worse is one step forward, and two steps back.
SG: I have been in finance for 20 years and have seen the efforts to try to change bottom-up, top-down, from the middle. In my experience, the two things that are different over the last couple of years with our initiatives is one, the CEO has made this a cornerstone of how he is operating our company. It is not an adjunct or championed by someone else. He is seeing this as part of the scorecard of how he is assessed and what his impact will be on the firm. The more managers and leaders who do that, the more it expresses that core thesis that it is accretive to business performance. People used to say, “What is the business case for diversity?” The business case for diversity is performance and stakeholders. With initiatives such as One Million Black Women, we are engaging with our community and society in a deeper way. This is about facing our responsibilities as a leading financial institution, but it is also about the world that our employees live in and experience every day. This has been very profound for me with One Million Black Women in better understanding the people I work with, and what life is like for them or others in their community.
The Movement Is (Slowly) Happening
JL: I am a bit wary of when a finance professional steps forward and says “I care about this. Here is an initiative.” I do not see billions of pounds on the table and this is not really going to do anything. Unless the LPs come in who do change something, the VCs do not have any incentive to do something differently. Their model has worked very well. White men investing in white men; there is nothing wrong with that and it works perfectly. They are making billions of pounds; why would they change anything? There needs to be some kind of a radical implosion, or explosion.
AS: Some of them really are trying to change. They may not go as far as you would like them to, but it is part of their investment decision. It goes all the way up to the CEO. It is important for the CEO in these various funds to champion it, because it sets the tone. I also have some sympathy for why it is going slowly, because careers in this industry are made over decades. It takes a long time to grow as a professional. Whether change is moving as quickly as you or I would like to see, I am sure it is not, but I feel a movement. It is gathering pace and that gives me hope that we are going to continue to drive change.
JL: The bottom line is going to take a moment.
AS: I do think it is going to take some time. It might accelerate, but I doubt it is going to be a straight-line progress. This is hard to do and it is made harder by the incumbency of the certain business models which have been working perfectly fine, to your point. It is a reality that we have to deal with. We have to be pragmatic and realistic as well as ambitious. I do not want to be discouraged just because I am not seeing linear progress.
SG: People embedding this in their core businesses is really important. We interrogate ourselves about this at Goldman Sachs. We do not want to create new businesses, in order to say we did this; we want this to be part of how we run our growth equity business and manager selection business. In the limited partner market, some of the largest investors in the world have a very real commitment to making this change. Yet all of the governance structures and incentives that have been put in place to make them do their job correctly and manage their portfolios well, prevent them from affecting this change. You are in this armed standoff where governance is saying, “You can only invest in certain things in certain ways,” while they are being asked every day, “Why are you not helping the world advance?” People are coming to a point where they are going to have to choose a third way. You are going to have to change your governance in certain areas in responsible ways, so that you can drive capital to things that you want to succeed. Until you do that, we will all be sitting here repeatedly asking the same question. This is one of the reasons we chose to focus on venture capital and private equity, because you can be very successful at a relatively limited scale of assets, which is not true in most other asset classes. We felt that with a small group of committed and like-minded investors, we could start to make change in this asset class. The problem, however, has a lot more zeros than just in venture.
What’s Missing for the Industry to Take the Next Step
JL: If both of you have to name one thing that we need in the next 12 months, in order to take us to the next step, what would that be?
SG: There has been enough change in the last ten years that the face of entrepreneurship and the face of successful venture is no longer a white guy in a hoodie who went to Stanford. Yet, the stories of successful women and people of color who have created companies are still treated as one-off anecdotes. We need a much more consistent drumbeat of telling the stories of a variety of people who have created companies. There are twenty other options besides talking about Elon Musk every day. These people have not only built companies, but sold them, and are very wealthy. Yet, people write about Bumble as if it is the only company where a woman has ever IPO’ed.
AS: The underlying fiduciary duty of these LPs is to make sure that they have been awarded. This is an experience-based business. People know what has worked in the past, and therefore, there is a safe rail around that. To drive the change in corporate governance and fiduciary duty framework and allow for “new things,” we need to be highlighting, recording, and measuring success stories. This shows that this is not just a once in a blue moon outcome, but instead is systematic. This will give comfort to the system that this is the right thing to do, even if we intuitively know it is.
EB: If we say that we need more data when there is data that is being ignored, are we buying into the problem? We will give them more data and people will still say, “We need more data.” There is no incentive to ever have enough data to change this. The incumbents are saying, “If we change this, we are the people that are going to lose out.” They are not seeing the pie as being made bigger. They are seeing someone coming to steal their pie. Unless we say that there has to be a new way and people see that the new way makes the pie bigger, I am afraid we will never get to a place where there is enough data. There is a constant reliance on new data when there is enough data available to make the right decisions already. Are we just kicking the can down the road?
SG: When I talk to CIOs, I most commonly get asked, “What is everybody else like me doing?” We quote the statistics every day, but people like to be in the pack. As a CIO, you are looking to your peer group of CIOs. Somebody needs to stick their neck out as a CIO and implement it themselves. What people will believe most is that Yale made 8.1% last year in part because of this change, and the CIO is also being celebrated. Therefore, CIOs are getting questions from their boards about why they have not done that as well. Sadly, somebody has to be the first one to take the career risk, and then that single data point will change a thousand hearts and minds.
JL: The idea of fiduciary duty in Europe is not as prevalent because the legal structures around it are different. It is an American excuse. There is an interesting argument in what Anna just said because the statistics are pointing to the fact that if you are not thinking about a diverse investment partnership, then you are violating your fiduciary duty.
AS: Exactly. As soon as you have someone who is generating better returns because they are doing this, then there will be a FOMO shift.
SG: This goes back to the measurement. If you could measure the three things, then you can say you have over or underachieved your fiduciary duty. Coming to a collective measurement is equally hard on this topic as it is on ESG [environmental, social, and governance], and that is one of the reasons you do not have collective will on these things. The conversation is also slightly different by jurisdiction as well, which creates further challenges when you have capital from all over the world and you are investing all over the world. How do you come to an agreement on that? It is not an excuse by any means. That is one of the reasons we started in the US: start here and chip away, come to agreement on certain things, have outstanding questions, and then grow from there.
Goldman Sachs’s Plans in Europe
EB: My final question is around the activity flow that we see in the US. What are your plans for Europe, and what can be done to ensure that the UK does not end up being left behind in this?
SG: We expanded the Launch program and it was always part of our plan from the beginning. We want our program to have the same footprint as our firm over time. There is no worry that the UK would be left behind. Our program is an investment program and the investment opportunity in the UK is very strong. That is part of why we are here and are focused on both companies and funds in the UK. Your statistics express the mirroring of the US. In the UK, the gap to be closed and access to capital is almost exactly equal. With adjustments for the local tech ecosystem and engaging in the right ways to know the important entrepreneurs and investors, we think the playbook applies in both places. We have some really exciting returns and ideas to pursue.
AS: Our first launch was very successful in the US, but we all collectively felt we did not get the momentum we wanted in Europe. We have a real opportunity now because the climate and the focus on this has increased. The key thing for us is going to be to find businesses that we want to invest in and come behind, because there is nothing like making a couple of investments. They have been very successful in the US and in Asia. Seun Toye-Kayode, vice-president and Launch With GS EMEA lead, has come on board and she is going to drive that here on the ground. She is going to give this momentum and we will start seeing some real action.