Zebeth Media Solutions

diversity

Long live the vibe capitalist! • ZebethMedia

Last week, many investors were left with egg on their faces after FTX’s valuation went from $32 billion to zero in a New York minute. VCs were left wondering, “What the hell happened?” And they’re still wondering, “Wait — did I do something wrong? Is it me?” Why yes, actually, it is you. People are led to believe that, for the most part, investors are clear-eyed, data-driven people who carefully explore the financial underpinnings of the companies they invest in. There is little room for emotions like jealousy or the fear of missing out (FOMO). Of course not. And these people investing billions of dollars surely have their eye on the ball, right? Well, not exactly. In a surprisingly honest tweet today, former SoftBank COO Marcelo Claure, who stepped down in late January after a reported battle over pay, had this to say about the FTX fiasco: I have been reflecting personally on the whole FTX fiasco and it taught me one more time that we should NEVER invest because of FOMO and we should always 100% understand what we are investing in. I totally failed here on both. — Marcelo Claure (@marceloclaure) November 12, 2022 This is from the same guy whose former firm also invested significant money in WeWork, another spectacular example of poor judgment on the part of investors. Steve Jobs once said, “Everything around you that you call life was made up by people that were no smarter than you.” At the time, Jobs was talking about building products, but evidently, this also applies to the people funding the startup ecosystem. While it’s good that Claure was so open, honest and reflective, perhaps we should all remember that investors are not any smarter than anyone else. They’re human after all, and their classic lack of self-awareness combined with venture enthusiasts’ myopia is perhaps the problem. Most investors and the founders in whom they invest are white men, and you get double points if you went to Stanford, Harvard, or MIT. These folks are handed the mantle of genius in all that they do and touch. The next Warren Buffet is rarely if ever, predicted to be a Black man.

These folks are working to bring more diversity to the venture LP investing pool • ZebethMedia

When you think about diversity in the startup ecosystem, one area that could be overlooked is the limited partner pool. These are the folks who contribute to the larger funds or individual investments. They don’t necessarily have the same influence over deals that VCs do, but they are a key piece that provides the cash to grease the startup funding framework. Having more heterogeneity in this part of the system ultimately helps bring more diversity to cap tables. One of the reasons that LPs aren’t more diverse is likely due to the fact that the VC firms themselves typically aren’t. If the partners at investment firms are seeking limited partners, they are probably going to reach out to their own networks, and that tends to be people who look like them and run in the same circles. Since the vast majority of VC partners are white and male, it’s a hard pattern to break. In fact, it takes a concerted effort to get people involved who have been left out of deals in the past. This isn’t just about diversity for diversity’s sake, either. It’s also about wealth creation, who’s being included and who’s being left out. While venture investing often involves many misses, when a deal hits, it can bring generational-changing wealth for the investors who got in early. If the cap table is confined to mostly white men, that leaves out a lot of people who have been historically underrepresented across society. A number of folks with access to deal flows are attempting to change this on their own, some as a side hustle, working to bring in a more diverse set of people to the investor pool. As an example, last year we wrote about Amanda Robson, a partner at Cowboy Ventures, who has started in an informal angel network of women and non-binary folks, who have means but have never been asked to be included in deals before. “I had a number of friends who had recently within the past couple of years become VP-level at different companies, and they had an interest in angel investing, and they had the means to at that point, but they didn’t have access,” she told us at the time. Robson created her network to give the same access that their male counterparts are getting. She has built this network on her own in her free time, because she recognizes the importance of bringing historically underrepresented groups to the cap table. And she’s not alone. We spoke to several folks who are making a concerted effort to get more people involved, some doing it in addition to a demanding full-time job. People with money, but no access There are plenty of people from historically underrepresented groups who have the money to invest, but typically haven’t been asked or don’t know how to go about it. These aren’t just people in the tech industry, either — it’s a variety of wealthy professionals who have been left out of the startup investment process. Shruti Challa and her husband, Patrick Ekeruo, launched Community Growth Capital this year to give people like this access to later-stage deals with the goal of democratizing growth-stage cap tables. This is in addition to their day jobs. Challa is CRO at hospitality startup Sonder, while Ekeruo is assistant general counsel at fintech startup Brex. The couple has been involved in investing on their own, including investments in SpaceX and Robinhood, but they want to create a network to bring in people they know, who have not been asked to be involved in startup investments. “Our goal is to give access to these underrepresented minorities and help them close the generational and racial- and minority-driven wealth gap that exists, even for people at higher [income] levels,” Challa told ZebethMedia. Ekeruo said that there are founders out there who want to diversify their cap tables, but don’t know where to start, and firms like his and Challa’s can help. “There’s a growing chorus that understands that diversifying every piece of the tech ecosystem is important, including the cap table, and we bring our diverse LPs to the cap table and to our growth equity partners, who in turn can offer that to founders who want to diversify their cap tables because they recognize it as a problem,” he said. He says that going for the later stage companies also lets them bring more tangible financials to a new investor than angel investing where you are basically investing in a person or a team with an idea. “When I’m talking to somebody who’s used to doing public company investing, it’s much easier for me to  say, ‘Look, this company has a product, has product market fit, they are raising $75 million in order to grow revenue because they expect to go public in four to five years.’” The Cap Table Coalition (CTC) is another group trying to pull in investors that have been historically left out of the investing process. Richie Serna, whose day job is CEO at payments startup Finix, helped build CTC. The network of 775 investors, many of whom are from historically underrepresented groups, grew from his own contacts and exploded from there. The firm helps people get involved by making it possible to write much smaller checks, especially in later-stage rounds. “I think one of the issues is that after the seed round, every investment is probably like a minimum $50,000 to $100,000 to get onto a cap table just because of the sort of administrative work that’s involved. And so by forming one SPV… people can invest $5,000 to $10,000 and start to build a portfolio that way [and we can include a lot more people],” he said. Expanding the pie When you include a wider variety of people in investing, it can impact the entire system from the cap table to the boardroom to founders, executive teams, and workforces, and it can lead to more diverse wealth creation over time because some percentage of

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