Radical Changes from outside the System

We had originally planned to write a book of the three parts you’ve seen so far: an introduction and outline of the history of VC, the experiences of investors and operators past and present, and best practices that could be used to inspire systemic change henceforth. By the time we concluded the last set of interviews and compared what was being said by the capital allocators with those who continue to fruitlessly seek capital as underrepresented GPs, innovators, and entrepreneurs, we instinctively knew that we weren’t done.

Harking back to our original mission—to create a practical guide on how to change the venture capital industry—we needed to cast our net further afield and reach out to people who we originally thought may not have the power to fundamentally change the tech industry, because they were working either outside or alongside the traditional power structures. In hindsight, it appears that the tech industry as it is may well serve the existing power structures a little too well for it to be radically changed from within. Change by insiders is limited in terms of the scope of what they can achieve without being cut down and out. A clear example is that Black-led funds are emerging across the globe, yet there are less than a handful that have closed more than $30M for their first funds, with much of the investments in charitable or impact funding buckets. By comparison, the average first-time VC fund size in 2021 was $85M in North America and $110M in Europe; in their recent report, BLCK VC concluded that Black GPs on average raise funds that are 46% smaller than this average. We are far away from a level playing field. What we heard were often excuses: we want to do things differently, but change will and must take time to actualize.

The conversations in Part IV: New Ideas represent what we term the “radically different”; they moved us on from diversity to inclusion, from capitalism at all costs to sustainable growth, and from “mirrortocracy” to fair advocacy and allyship, while renewing in us a sense of hope for the future. We speak to academics, non-profits, founders, bankers, and big tech companies. What we have to conclude: it is very likely that this “radically different” future for VC will rest outside of the existing confines of the “as is” venture capital ecosystem.

The first section in this part of the book looks at the often neglected “I” in DEI: inclusion. In the first conversation in this section, we bring together people fighting for more inclusion in a variety of ways across ecosystems. Grace Lordan, professor at the London School of Economics and Political Science (LSE), has more than a decade of inclusion research under her belt, and is the founder of LSE’s Inclusion Initiative. She outlines her work for the next ten years—providing evidence-based research to ensure that people are hired, promoted, and rewarded based on their skills, talent, and ability rather than their networks. Kate Pljaskovova and Bibi Groot founded and work at Fair HQ, a London-based inclusion consultancy that aims to put research into best practice via a tool that enables employers to assess their level of inclusivity and take steps towards continually improving. Having worked with countless investors and, most importantly, founders of startups, the two share some very practical insights of how to move from “skin deep diversity” to true inclusion. Lolita Taub details how she defied all expectations of a Latina from a lower socioeconomic background, while adding insights from her experiences as a Latinx operator, investor, and newly minted GP on the US West Coast. Her new fund, Ganas Ventures, turns the VC model upside down by starting and ending with historically overlooked communities on the investor and decision maker side, as well as on the side of the founders they back.

Katja Toropainen rounds up this inclusion section with a series of applicable steps for anyone wanting to delve into becoming more inclusive. Formerly part of the core team of one of the world’s biggest startup conferences, Slush, Katja contemplated leaving the tech industry because she was so disillusioned with the inherent lack of diversity. Instead, she founded the non-profit Inklusiiv, through which she aims to ensure that there is practical advice and tangible actions available to anyone who would like to create a more diverse and inclusive ecosystem.

In addition to changing our behavior to become more inclusive, we need to change how the systems and structures work. This means figuring out ways to make the systems more fair and inclusive in terms of how we hire people, how we decide on promotions, and how we share responsibilities.

The next section looks specifically at access to capital. The fast-scaling, exit-focused VC track has worked well in creating unicorns. The resultant flywheels have focused on blitzscaling unicorn founders—in an ever repetitive mode benefiting the same kind of proven investor and founders. So how do we begin creating these flywheels for diverse and overlooked founders, particularly when they don’t have a standing start?

Harvard Business School professor Laura Huang, who is also the author of Edge: Turning Adversity into Advantage, shares insights from her research with us. From questions about bias from VCs to the structural inequality that has been holding overlooked funders back, Laura has some ideas about what works to help founders turn adversity to advantage and what VCs can do to get more capital flowing to historically overlooked groups.

Next we spoke with Village Capital, who have been shaking up and disrupting the traditional VC model since their inception in Atlanta in 2009. Their focus on impact and equity is clear and inherent—just under 50% of their portfolio are female-led companies. Their focus on changing the structural inequalities seen in VC today lean on a “nothing for us without us” approach that sees them working with allies such as the Black Innovation Alliance (BIA) to create solutions with the communities they seek to serve, rather than for them. We spoke to Heather Matranga, Ben Younkman, and Dahlia Joseph from Village Capital, and Bianca St. Louis from the BIA. Innovative reapplication of multi-ethnic savings plans for capital allocation, collective community action, and reinvestment into their ecosystem to create a flywheel are present in their thesis, and we are excited to see where it leads, and indeed who will follow suit.

Next we turned to Hadiyah Mujhid, founder and CEO of HBCUvc—a training ground for VCs at historically Black colleges and universities—for her thoughts on mobilizing the next generation of venture capital leaders to increase access to capital for historically overlooked communities. Hadiyah believes that the success of traditional VC leaves clear and replicable clues for all communities wishing to emulate the creation of flywheels. Much of what is there rests and relies upon networks, therefore, the key to success is diverse groups not only being able to leverage their own networks, but also connecting them to the existing VC networks.

Those tight networks and relationships (which are usually anchored in universities) that exist in traditional VC, we also have them in our program. … It is important for us that we are not creating separate but equal. We are not creating a separate silo of networks in this VC network that will operate independently. It is important that we build strong bonds with the community of existing networks.

For the last conversation in this section, we sat down with the creator of the Female Founders Alliance (FFA), Leslie Feinzaig. When FFA started, it was as a Facebook group that solved Leslie’s own gripe of often being the only female in the room without peers to support her. She did not expect it to grow to more than 25K members and to become one of the biggest communities of female founders, nor to be able to spin out an accelerator and a fund (recently rebranded as Graham & Walker) that have gone on to successfully lead and broker deals for other female entrepreneurs.

Similarly to Hadiyah, Leslie is now able to seed the next generation of potential investors. This, in our opinion, is what makes them radically different. Diverse fund managers being able to demonstrate a track record of successful investments could eliminate some of the first-fund barriers faced when attempting to obtain future LP commitments.

The prospect of companies being funded differently, and as a result behaving differently, led us to our next section on different kinds of founders and how they can be supported. A new wave of entrepreneurs and enablers are thinking slightly out of left field by balancing sustainability with still creating significant returns—to their investors and their wider communities.

Frustrated with the industry status quo, the co-founders of Zebras Unite collectively wrote their manifesto, “Zebras Fix What Unicorns Break,” in 2017. Two of those co-founders, Mara Zepeda and Astrid Scholz share their vision for a more sustainable breed of companies, and how they plan to educate and influence existing investors rather than raise a fund themselves.

Evgeni Kouris, founder of New Mittelstand, and Ines Schiller, founder of Vyld, are keen to hold onto the old traditions of medium-sized (or family) businesses, while simultaneously adapting to the pace of startups. We sat with them to explore this approach, which is centered around combining the best traditions of medium-sized companies—which have historically been the backbone of the European economy—with the lean agility and redesign principles of startups, in order to create a new economic future for Europe. As Evgeni explained to us:

What is missing in Europe is this diversity oriented and bottom-up way of doing entrepreneurship. We call it New Mittelstand because it is a new way of old business, a new definition for the 21st century. We are open to learning from startups and learning from all kinds of methods to do radical innovation, but you cannot forget your roots.

From one backbone to another, we found that immigrant entrepreneurs are pulling outsized weight in contributing to economic success to their respective countries across the globe. We caught up with Manan Mehta, founding partner at Unshackled Ventures, to learn more about how they are leveraging the largely nascent talent of immigrants, who often struggle to obtain work permits to build lives and careers in the countries they have the potential to add so much value to.

Unshackled not only provides funding for immigrant-led startups, they also provide immigration support, with more than 150 successful applications under their belt, and the full Y Combinator-style experience of investor and mentor access throughout the 10–15 year startup journey. The model is truly fascinating, and portfolio founder Kesava Kirupa Dinakaran joined our conversation, crediting Unshackled with their role in his success.

While this volume is mainly concerned with VCs, the final section focuses on “other” players who can help produce radical differences (and are perhaps our best bet to do so). For the last few radically different ideas, we spoke with allies working in research, as funders, and as a collective of enablers, without whom we all acknowledge the struggle for equity would be considerably harder.

Given the relatively tiny number of startups that are able to successfully raise VC each year, and the global shift in entrepreneurs wanting to solve problems in a more sustainable way, it felt remiss not to ask: is the VC track the right course for all startups? While we don’t seek to alleviate any of the responsibility on the VC industry to actively become more diverse and inclusive, our conversation with Aunnie Patton Power sought to dispel the myth that VC is the only way to successfully seed and scale a startup.

Aunnie was able to shed some much needed light on some of the alternative sources of funding available to entrepreneurs, from venture debt to equity-based finance and more. Most exciting was her take on using alternative funding vehicles to broaden access to wealth creation on both the company and investor sides of the landscape.

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.

Our next conversation took us back into the belly of the beast and an unlikely, but welcome, source of future LP commitments: big tech. Usually created by VC themselves, big tech companies are not usually known for advancing DEI agendas—yet Twitter has been radically reshaping its DEI policies internally and externally, while setting clear examples for other enterprises to follow. One such effort is centered around being a LP that injects capital into VC funds led by overlooked GPs. In our conversation with Twitter’s (now former) Chief People and Diversity Officer Dalana Brand, as well as Director of Corporate Development and Strategy Peter Lenke, we learned the tech giant’s plan for aligning DEI with the heart of Twitter’s strategy through 2025 D&I goals, and their responsible investing efforts to create a more level playing field for diverse investors and founders.* Peter Lenke explained further:

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.

Maya Ackerman is a professor in artificial intelligence and machine learning at Santa Clara University and founder of music-generating startup WaveAI. Maya began investigating the lack of diversity in tech 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 consistently produced powerful data-driven research with infinitely more precise insights ever since. This interview is a must-read for anyone interested in using data to drive change through the industry.

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.

Taking on the task of putting research into action and tackling the biases head-on is Nicola Corzine, the executive director of the Nasdaq Entrepreneurial Center. She is responsible for the Center’s strong focus on equitable entrepreneurship, more recently through the Venture Equity Project, which commissioned the creation of the ecosystem history maps provided by Terry Irwin and featured in Part I of this volume. In this conversation, Nicola shares what she feels can be done with research, teaching programs, and community to move the needle for diverse entrepreneurs accessing the capital, connections, and contracts they need to thrive.

Building on the theme of collective responsibility, our final interview of the book was with a collective of allies who are open about working on themselves first, and then working to support and deliver DEI-focused initiatives throughout the tech and VC ecosystems. Ed Zimmerman (tech lawyer and LP at First Close Partners), Mitch Kapor (Lotus founder and former GP, also featured in Part III), and Eddie Kim (co-founder of scale-up Gusto were joined by female fund managers Maya Horgan Famodu (Sub-Saharan-Africa-focused Ingressive Capital) and Marie Ekeland (Paris-based 2050). This conversation offers a clear demonstration of the power of allyship in creating positive outcomes for all. Not for the faint of heart, there are a few expletives in this interview, but it cuts to the heart of what needs to be done to create radical change.

What we learned by adding this final part to the book is possibly the most important takeaway for us: many of the established players—investors, LPs, policy makers—within the system are willing to change, but their style of change is incremental. This kind of change has so far led to very few tangible differences in terms of who controls and who receives VC capital. Our hope is really with the kind of people we talked to in Part IV: academics with a different kind of overview and insight, operators and builders who push new flywheels from the bottom up, and some unlikely allies in big tech, law firms, or non-profits. Our hope is that the recent developments—COVID-19 in particular, and the ongoing tech-market correction—don’t further put pressure on these new avenues for change. What we mustn’t do is go back to business as usual—that will just lead to further reproduction of the existing power structure.