Conversations: The Power of LPs and Policy Makers

Monica Spencer (formerly Mellon Foundation)

Darya Henig Shaked (WeAct Ventures)

Savitri Tan (Isomer Capital)

Many GPs cite LPs as being the real decision-makers, and therefore the “king-makers” of the ecosystem; they are the ones who stir the wheel in one direction or the other. Does this also hold true in respect of DEI? We sat down with Monica Spencer (Andrew W. Mellon Foundation, NYC), Darya Henig Shaked (WeAct Ventures, SF), and Savitri Tan (Isomer Capital, UK) to discuss findings against the “trade-off myth.”

Johannes Lenhard (JL): Let me start with a strong provocation from the research that I have done with venture capital investors. A lot of them, when I asked them about decision making and why they are doing certain things and not others, they said “Oh, it’s the LPs”—so people like you three—that set the rules. How true is that when it comes to DEI?

Monica Spencer (MS): My immediate reaction to that is: have they asked? I do think that things may not be priorities on the agenda because people are assuming they know what other people think, but have not actually taken the time to explore it. One of the things over time that we have worked hard in our conversations and in our work to address is this idea that maybe there is a trade off, and that managers feel they have to compromise investment results in order to accomplish a DEI goal. It has been very much the bedrock of our position to say that broadening the opportunity set, both theoretically, and in our experience, leads to better returns. Having more diversity around the table mitigates risks in helping teams to make better decisions and to identify issues proactively that might not be identified if they had a more monochromatic team. That is a very fundamental difference of view to what some folks used to say. As more and more people are talking about diversity and inclusion, they are realizing that there may be assumptions about what their counterparts think that are not quite accurate.

Darya Shaked (DS): The responsibilities of GPs and LPs to lead the venture industry into action, in this case, into a more diverse and inclusive social fabric and thus to better financial outcomes, is a complicated issue. I personally see it as a high priority and a mutual responsibility and believe it will take both groups of us to create enough pressure, to lead an accelerated change. Diversity in venture has historically improved in 1% more women for every decade and we can’t afford waiting 400 years to achieve equality.

Savitri Tan (ST): I think you’re right, Johannes, many GPs do make certain decisions because of an LP’s influence, but that makes things sound very passive. I don’t think GPs only do something about D&I when an LP tells them. When it comes to D&I in Europe and pushing forward the agenda to a) invest more diversely, and b) to have more diverse investment teams, I believe that some of these decisions are motivated by the interests of some partners in VCs and junior members of their firms, who have really been motivated to band together, highlight D&I issues, and create data-driven reports to show the status quo when it comes to D&I. I’m thinking of Diversity VC, which was set up in 2017–2018 to highlight D&I gaps in VC. I believe it now has a chapter in the US.

Erika Brodnock (EB): Monica, we were really impressed with your “default to yes” approach to all of the diverse managers that contact you. What has your experience of operating in that way been, and do you know of any other LPs that are doing similar things?

MS: It is enormously time-consuming, but it is also very generative, and certainly has opened up a new network for me and has led to a number of lessons for us in our investment process. For context, our mandate on diversity extends primarily to underrepresented minorities, which as defined in the US Census data is Black, Latinx, and Native American. That is a particular focus of our diversity initiatives and of our “default to yes” approach to meetings with GPs. I do not think that anyone on our investment team intentionally imposes barriers—“Oh we only want established funds, we only want funds run by white men.” We’re understanding the implications of some of the traditional checklist items, such as: What do you expect your GP to commit to the fund? How do you think about how they are going to finance the startup expenses of the firm, and a GP commitment, if they do not come from a background where they were a successful partner at an established firm before they start the fund? Thinking through things like that, thinking through who are like-minded investors.

EB: My follow-on question on your approach, Monica, is whether there are specific things LPs need to abolish to stop emerging fund managers that are also diverse from being unable to raise?

MS: I do not know that I would say there is a particular metric I would abolish. I do think that there are reasons why these have been established over time as good markers for important qualities you are looking for in a manager, but you have to go back to first principles and say, “Okay, why do I care about the GP commitment?” I want to know that the general partner is aligned with me, and that they are more focused on delivering investment return than capturing fees, and current income, right? I want them to be focused on generating gain over income, because that is what my priorities are. That is what the GP commitment is reflective of. Rather than saying, I need a hard and fast number for that, or I need it to look a certain way, I go back to first principles and say, “Okay, how can I understand the motivations of this new group?” That they are aligned with me, and that they are mostly focused on generating gain, and they are not focused on their own current income. You just have to think of a different way to answer the question. There is another example, when you think about follow-on financing for venture-backed companies. If you are early stage, a lot of the markers of success are who came in after you. If you are early stage, and you focus on diversity of founders, it is much more difficult for those companies to get follow-on financing. This is well established in the literature. What other metrics are you going to use to understand the success of those companies, if the founders for a variety of reasons, largely related to systemic bias, have had trouble raising funds? Again, you have to go back to first principles to understand why we are looking at this metric—to see if there is a different way you can get to the same answer.

DS: I agree, if you go back and think through the metrics and missions, you will have a better understanding of the ways those actually work together or against each other. You have a chance of preventing your focus from narrowing down. There are many examples, where people—even governments—meant to invest in one way but created rules that resulted in the opposite direction or in an inefficient way. Several institutional investors have a ~$50M mandate to invest in diverse emerging managers. But their procedures direct those funds to a familiar, old, homogeneous advisors firm, which was approved by one or two state boards decades ago and is given a mission to invest in diverse VCs. These firms are expensive and with a relatively low ability to source for that mission in comparison to other newer entities, who are diverse and have that knowledge and networks, but haven’t been historically approved. And so the mission of the mandate is expensive and inefficient but it is almost impossible, or nobody has the motivation to change the procedure and go through the two boards again.

JL: Let us go into one more specific thing that I have seen LPs do: make GPs report the numbers. That is something that you do at the Mellon Foundation and that the Princeton endowment does, but not everyone is there yet. What are other measures that you could take very concretely, either, again, that you already have taken, and that you in whatever way use to put pressure on managers to invest more diversely and become more diverse themselves?

MS: I am glad that you brought that up. I do think that as we have thought about collecting the metrics, we have always couched that as a component of an ongoing conversation. We have been very clear with the managers that it is not to publish them, or berate them publicly in any way about them, as it is to measure progress over time. We want to see: How are things progressing over time? Is this a priority for you? Where are the missteps? If you lose ground, it is not like we are going to kick you out of the portfolio because you have lost ground; we want to understand what the issue is that came up and how you are addressing it, and how that is going to lead to better metrics over time. We have always couched it in the context of a conversation.

ST: I think I answered some of this before, but we see quarterly reporting and informal updates as an essential part of measuring progress across all areas of a manager’s work. We want to understand how things are going. It’s that classic case of “show your work, it’s not all about the answer.” Do you notice that a lot of your deals come from the same sources, how can you change that? How are you hiring for talent within your firm and how are you proposing to train up that person? You ran an initiative to encourage more diverse founders to seek investment, how did it go? We ask these questions, not to beat a manager over the head, but to understand the full context of their work and progress. And it is important to do this formally, through reporting, LPACs, and AGMs, but also to ask these questions informally and to catch up with managers to see how things are going. We operate an open-door policy with our managers, there are no assigned point people that a manager absolutely has to speak with first, who acts as some kind of gatekeeper to the team. Having trust and flexibility makes understanding the full context that a manager is operating in a lot easier.

JL: Did you want to talk about any other measure that you are thinking of taking or already are using in order to go on that level of change?

MS: One of the things that, as an LP, we are in a very good position to do is share best practices. Having couched this survey effort as the beginning of a conversation, we started to get inbound questions like, “Oh, gee, you asked us if we had a DEI policy, we actually do not, but what have you seen from others? How should we think about putting one together?” Or, “Our team is really eager to have someone come in and talk about unconscious bias. Do you have a recommendation for a firm, a speaker, or a curriculum that would be helpful to our team?” And because we can compare across not just VC, but a wide array of investment managers, we can say, “Look, we do not know any other VCs that have hired a great consultant in workforce diversity, but we do know of this other firm that has a much larger employee base. They have been super successful with this group; you might talk to them. Here is a list of three others.” Trying to be a resource has also come out of those conversations.

ST: I agree with that point on best practices. Of course, we can share things based on our own experience and what we see others in our portfolio doing, but we’ve also started to bring some of our portfolio together to learn from each other directly and connect to share contacts. We’ve also been running community events, for our portfolio but also for the wider VC ecosystem in Europe, where we organize around a topic that VCs tell us that they are interested in—we’ve had talent and diversity, sustainability, amongst other topics—and try to bring in domain experts to talk about these areas and take questions from the group. That’s been a great way to share and enhance collective learning efforts.

EB: LPs are often believed to have lots of choices as to where to put their money. How much do you use that choice to drive change in the markets, personally?

MS: It is hard to say—I have to be pragmatic. Looking after a $7B foundation portfolio sounds like a big number, but in investing markets that are trillions of dollars globally, there is only so much change that I can be responsible for. I am trying to be influential, trying to share best practices, and being very mindful of when we add a manager to our portfolio, how are they helping our metrics? Or are they not? It’s a super important role that we can have. If every investor had the same approach, things would move very quickly. These things happen glacially, and then all at once, because people are watching, particularly the events of the last year [2020] and some of the notable successes of venture-backed companies, like the examples that Darya had, that are led by women and underrepresented minorities. We are on the precipice of a sea change, where we are going to be at the all-at-once part of the change, but no one person can influence that particularly. Other than trying to make sure that you are investing in line with the institution’s values and trusting that history will bend toward justice.

DS: Monica and I are on the two furthest away edges of the scale, she is a part of a huge foundation, managing large sums of money; it is a lot of pressure, and a lot of metrics. I am a free spirit, I manage $10M to date of my money and funds that I raised under the social-financial thesis that my LPs are aligned with. Even though my AUM assets under management is not even a fraction of what Monica is in charge of, I feel I have significant ability to make a difference. Not only in my capacity as an activist and a speaker, writing opinion pieces, going on panels, etc., but I talk to GPs daily from Israel, Europe, and the US. I have the privilege of asking, “Who are the founding partners?” If they are all white men, I make sure they understand I am not a believer in a group of all-male, homogeneous GP teams. I tell them that once they have a diverse founding team, I’d be happy to talk to them again. It is OK if it takes 18 months or more, I see it as my responsibility to let male GPs hear it from me directly. I personally would not invest even if the funds brought in a female GP, a female partner, if they can fire her. LPs invest in funds they believe in. In the changing landscape, having an all-male founding team leaves too big of a blind spot, which will not maximize return potential and will not move the industry forward. GPs should know that when all other factors are similar, diversity outperforms homogeneity.

MS: I do not think we disagree at all. I just have a more pragmatic view—there are a zillion other LPs out there who are happy to not raise questions, and so I have to be cognizant of that. At the same time, the power of a long-term partnership, and of asking the questions of the managers in our portfolio, on an ongoing basis gives us a different kind of leverage, right? We say, “Look, we have worked with you for 15 years. We have been asking these questions. We have seen modest progress. We want to understand what is blocking you. We think it is terrific that you have hired your first female partner, and we want to know how you have changed your processes internally to make sure that she is successful in that role.” You cannot just send a survey and publish metrics; you cannot be viewed as trying to call people out who are your partners. We are trying to make everybody better. We understand that we have the same challenges ourselves on our own team, and among many of our grantees. We are fighting all of these issues on many levels. We feel like some of that experience we ought to be able to bring to bear to help the managers in our portfolio.

ST: In some form or other, a fund of funds structure lends itself towards diversity as a way to maximize coverage and optimize for returns. As LPs, I think to answer this question, it goes back to not underestimating your own power and influence. Even with smaller funds like Isomer, we are one of a very, very tiny number of fund of funds that are 100% venture capital focused and do not shy away from investing into emerging managers. The decision that we make to invest, and then the long-term partnership journey that we embark on with managers to help them build their firms, have a ripple effect. Early decisions as a result of questions and challenges will become ingrained as processes in the future funds of these managers, so asking questions, monitoring over time, and working together with managers from their earliest years makes a huge difference in how they approach raising and managing their next funds.

JL: Looking forward, what do you think is still missing to go to the next level? What are the next steps not only for you, but for the industry as a whole, for the role of an LP?

DS: I see many brilliant and accomplished women struggling to raise money. It is a lot about perception. LPs (still the majority are men) tend to invest more and bigger checks in emerging managers that look like their younger selves, just like direct investors having a “gut feeling” when it comes to startup founders. An experienced female GP told me she received a $100K check from an LP who invested a million dollars in her male colleague, who had no investing track record.

MS: That is right. It is mostly from here building momentum. One thing that we are very mindful of doing is highlighting successes. For example, among the larger managers—not so much in VCs who do not have quite so much infrastructure—but if there is a really terrific vice-president or principal who is diverse in some way, we always make an effort to establish a relationship with that person at the GP early, and to make sure that the leadership is aware of our interest in that person’s career. There are a lot of opportunities to highlight and spotlight successes that shine a light on the good work that people are doing. For some reason, people tend to have a “don’t ask, don’t tell” policy on their diversity efforts. Maybe this goes back to where we started and the GPs saying, “Oh, we are just doing what the LPs tell us to do.” It is because people are not having an open conversation, and mostly that they are not shining a light on the successes. Those kinds of stories go a long way in terms of communicating the missed opportunities, as opposed to being stuck in this liability mitigation backwater, where GPs are worried about being called out for a lack of diversity.

ST: I like your line on highlighting success, but it’s also worth highlighting examples of learning and gradual progress as well. Highlighting that everyone is on a journey can be really useful. It is so easy to look at the glossy media story and think that a firm has nailed diversity or, worse, to overinflate what is going on behind the scenes. One, it might not be true, and two, it probably took a ton of mistakes to get to a good place. We’ve become brilliant as an industry about talking about diversity, the big hurdle of asking questions about D&I is largely gone when it comes to LPs asking managers. However, there is a tendency for us to think about D&I in “obvious” terms, particularly gender and ethnicity, but the conversation has to move forward from this and we must adopt a more intersectional approach to be able to measure real progress or we risk further marginalizing many groups. It is all very well, being able to ask managers about their approach to diversity, but we must also ensure that that conversation is happening at home in our own funds too, and that we are practicing what we may outwardly preach.

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.

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.

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.

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.

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.

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.

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.

Kat Borlongan (Contentsquare, formerly La French Tech)

Gurpreet Manku (British Private Equity & Venture Capital Association)

Gesa Miczaika (Auxxo Female Catalyst Fund, German Startups Association)

Kat Borlongan, Gurpreet Manku, and Gesa Miczaika represent the who-is-who of tech policymaking and influencing in Europe. What can the world learn from European best practices in this respect? Where are we still lagging behind and where is there most potential to do better? We speak about quotas, the state as an LP investor, and maternity and paternity leave. The biggest issue: while the state has a lot of power, it is often slow to decide and use that power. But if it does, it has massive potential to—with the right policies—push DEI forward in the tech world.

Johannes Lenhard (JL): What does diversity mean from a policy perspective? Is it about systematic disadvantages for some groups, or it about active discrimination? What is the objective for policymakers?

Gesa Miczaika (GMi): The objective of DEI policy is to leverage the strengths of each group, if we are talking about diversity. Studies (e.g., in HBR or by McKinsey) have shown that diversity in all areas leads to better outcomes, and on all levels.

Gurpreet Manku (GMa): If you think about where diversity matters, our context is investment managers/firms and the portfolio companies they invest in. The question is about representation and whether the makeup of those firms actually reflects the society in which we operate and live. From our perspective, there has been a lot of focus on the lack of women in venture capital, and a lack of money going into female-founded businesses. We always point to the stats that 51% of the population in the UK is women. There is an increased focus now looking at ethnicity as well. When you look at the composition of the industry from an ethnicity perspective, there are few statistics, and what do you compare this to? The UK, or perhaps to London, where a number of firms are based? In March 2021, the BVCA [British Private Equity & Venture Capital Association, where I work] and Level 20 published the results of a survey of private equity and venture capital firms in their membership, [which showed that ethnic representation in the industry still needs work].

Kat Borlongan (KB): From a policy perspective, what is important to say is also what diversity is not. It is not social correctness. It is not charity. If we look into the very specific context of where we are [in 2021], in the middle of the economic and health crisis, it is one of the smartest strategies we have to make sure that France, that other countries, recover well. If you look at the recovery plan that is dedicated to startups in France, you will notice that a lot of it has to do with making sure that the best entrepreneurs can come from all across the country, especially as we want to invest in a new generation of startups that are coming up today. It is true that we have a lot of great entrepreneurs that have PhDs, come from the elite schools, McKinsey, and so on, but we also really believe that they can and should come from the suburbs, the inner cities, or the countryside, amongst the refugees, the urban poor. For the French tech team inside the Ministry of Economy, diversity is about making sure that we can have the best talent regardless of where it comes from.

Erika Brodnock (EB): On the minimum level, one goal for diversity, inclusion, and equity in tech would be to get more people to start thinking about entrepreneurship, VC, and technology. How would you achieve this?

KB: I can tell you what we have done and what we are working on in France. It is great to have these intentions, but the truth is that when you actively try to recruit from communities that have been estranged from tech, you come across a whole bunch of problems. I know because we ran a recruitment campaign for a program that we created called French Tech Tremplin. We created it last year, and it is essentially designed to mimic the advantages that an entrepreneur from underprivileged communities might have, had they come from a well-to-do background.

GMa: This is about how you can open up access to the industry. I am talking broadly here in terms of whether it is becoming a VC investor or an entrepreneur. I would go back to education, as I do not know how much is currently taught about financial literacy or entrepreneurship at schools. Some people may not agree with me, but I do think it would help to start early when promoting career opportunities in finance, business, and entrepreneurship. You might not necessarily follow a straight path into entrepreneurship, and may take a different route first before you decide to set up a new business, and before you decide to go and work for a venture capital or other investment firm. You should still know that that career opportunity is there for you. We are thinking quite hard about how you get the message out to people still in education, from schoolchildren to graduates.

GMi: I have been discussing the topic of education here in Germany, too. Bringing coding courses and entrepreneurship courses into schools nationwide, as part of the standard curriculum, would really help in this respect. Another way to get more people to start thinking about entrepreneurship is showing as many as possible diverse role models who are successful entrepreneurs. I have this podcast here in Germany, where I interview a very diverse group of female founders. One example is a female founder who is really successful but has an anxiety disorder. I want to show that even if you have a condition, or if you have any kind of package that you bring along, it is still possible to become a successful entrepreneur.

KB: There is one really important component that we have to keep in mind. Entrepreneurship is expensive. It means quitting your job and plunging into some form of deep uncertainty for up to 18 months, at least, to get something out into the market or start raising. While the cultural aspect of it is important, you also have to make funding accessible to people who do not look like the people that normally would be lining up to meet VCs, or have friends that they went to school with who can send them the right intros. Those things happen at such a systemic level and as governments, those are the times that we really need to step in. Those are the times when behavior change policies aren’t enough.

JL: How can policy help to specifically support women to take a step into entrepreneurship? What is a better way of doing parental leave policy, for instance?

KB: Parliament recently voted to increase paternity leave in France. We went from 11 to 28 days; 25 of those 28 days are entirely paid for by social security, i.e., by the state directly. That is a win for us. We are excited for what that means. It comes into effect this July, which, while it could be sooner, is a big move. Eighty-five percent of single households in France are run by women, so while paternity leave is important for families that are affected by it, there is also the other issue that has to go beyond simple policy and also has to do with facilities such as daycare. We spend a lot of time talking about funding VCs and discrimination, and at the end of the day, when you speak to a lot of people who are struggling to become entrepreneurs, it is something as simple as their daycare was booked out. They need to take public transport for an hour and a half to a different area to drop off their kids and lose three hours of the day during which they can possibly think about launching their company.

GMi: There are studies (for instance, one study in German) that show that childcare is one of the main drivers for female entrepreneurship. Just granting better quality and quantity of childcare would really help, and then also the parental leave policies. In Germany, you can take one year, and the government pays a specific percentage of the wage that you used to have. Mostly it is women who would take the parental leave. I do not have a perfect solution for this, but I would like those parental leave policies to have more parity in terms of having both parents join in on that.

GMa: There is a lot of variation in terms of maternity and parental leave policies in the UK. Corporations have a big role to play to voluntarily go beyond the minimum statutory requirements if they can, as the impact can be significant. Governments can create the framework for people to take leave, particularly shared parental leave, but then individuals need to feel that they can take this, including men. I have two men working on my team that both recently became fathers at the same time. They are now taking parental leave (in addition to their paternity leave), which is great. That is what you need to really move the dial on this particular point, you actually need to see people taking leave if they want to, particularly senior leaders, both men and women.

KB: Yes indeed, it is a very good thing to do that very visibly. My boss is the minister for digital affairs, and he had a baby right when he started, about a year and a half ago. I remember him telling his staff, in the first few months in office, “I am not going to come into the office until 11 o’clock for the next few days because I split the duties with my wife on taking care of the kids.” He goes into these ministerial meetings, stands up and very vocally says, “I need to go home. It is my shift with the baby.” They seem like small things, but coming from people such as these ministers in very public meetings really helps to set the standard.

GMi: Not only should the men be good role models with this respect, but there should be more female role models who decrease the time of their parental leave. In Germany, the culture is more, “You are going back to work after three months? How? Why do you have kids?” It would also help to show that it is totally possible as a mother to go back to work after a short amount of time.

EB: Speaking of role model organizations in the state and setting examples, in many European countries the state is also an LP. That comes with a lot of power over GPs, but also a massive status as a role model organization. Unfortunately, often they fail to take this responsibility seriously; for instance, the European Angels Fund (EAF) investment portfolio is 95% white men. How does that need to change?

GMi: It needs to change quickly. They should have quotas to crowd in as many females and non-white investors as possible. This is my personal opinion. It is not only the EAF, but the state as an LP. There are also state funds in Germany like Coparion, KfW Capital, and HTGF, and they should ensure that there is also a diverse group of general partners.

GMa: At a LP level, the biggest state investor in the UK is the British Business Bank and British Patient Capital. When it comes to due diligence on the funds that they are investing in, they do include questions around the makeup of the team and D&I policies. They have templates that firms need to complete on a regular basis and have adopted the ILPA DDQ on D&I. What we have been doing here in the UK, whether it is ourselves, Level 20, or Diversity VC, is collecting and publishing information on the number of men and women and other genders in investment and non-investment roles within venture capital and private equity firms.

EB: I am not sure if questions are enough at this point in time and I am also quite concerned about the fact that most of the hires are made at junior levels and then people have to work their way up for firm in a way that their male counterparts just do not need to, or indeed if it is on the ethnicity side, their white counterparts do not need to. I struggle with the ethnicity data being difficult to obtain when we have done some research in which we have been able to obtain it.

KB: Information around ethnicity is not just difficult to attain, it is also illegal. It is a different approach where France, at least administratively and legally, does not recognize race. This term, widely used by Americans, tends to be considered offensive by the French. In France, race is a word that is more appropriate when discussing dogs or cows, but when it comes to human beings, there is only one race, which is the human race. The word diversity in English is not used the same way in France. When we say “diversity” in France, what we really mean is, equal chances, meritocracy, and socio-economic justice; our policies reflect this. For example, we choose to orient affirmative action or, what is referred to in French as “discrimination positive,” based on economic needs: preferential admissions in our top schools are given to the brightest kids from the poorest neighborhoods, regardless of the color of their skin.

JL: If you could do any policy to increase D&I in tech and venture capital, what do you think is the most needed and the most effective for right now?

GMa: This is a hard one because if you want change, you need people to buy into that change and make that change happen. If you force it, you do not always necessarily get the right result, but where we are heading to is actively encouraging transparency and targets. Once you start measuring diversity in your team/investments and tracking progress, you are more likely to implement policies and change to improve upon those metrics—“what gets reported gets done.”

KB: This is a tricky one, because then you have to decide if you look at the entire pipeline. If we are talking short term, such as trying to inject more diversity over the next five years, then I am going to have to go with policies of not necessarily imposing quotas but obliging a lot of VCs to actually be transparent about their pipeline. How many women or people from diverse backgrounds did they actually meet in the first place? How many have they actually invested in? What numbers? What is the average ticket invested in a company launched by a woman or co-launched by a woman? We should be making that just as normal as performance and a general standard, which is something that LPs can do. It is a policy that the state can put in place as an LP, but it is also something that LPs themselves can start doing.

GMi: I like what Kat did, talking about long run and short run. For the long run, the part about bringing entrepreneurship to schools is definitely my favorite. In the short run, I would really like to have more data available about how successful non-white, non-male teams are with their startups. There are several studies, such as one by the Boston Consulting Group, who found out that female founders generate a high return on investment, have fewer write-offs, and take less time to exit. I would really like to have more and broader studies that really show that investing in diversity is good for you as a VC also.