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Protocol Pipeline
The inside story of the venture capital and startup world by Biz Carson.

Diversifying the industry from the board down

Diversifying the industry from the board down


Hello and welcome to Pipeline. This week: how diversifying boards might change the industry, distributing stock versus cash to LPs, and Coupang's upcoming IPO. Note: My colleague Ben Pimentel and I are launching Protocol Fintech this week, covering everything from startups to Stripe, Citi to Coinbase, Plaid to PayPal, Affirm to Apple Pay, Radius Bank to Robinhood. Sign up here!

Overheard

  • As Elon goes: Will startups follow Tesla and put 3% to 6% of their cash into Bitcoin? Sounds like a terrible idea to me.
  • More Miami please: Nine firms either based in Miami or with one GP in Miami are raising funds with median size of $50 million, per Shai Goldman.
  • Billable hours: Who should pay for startup legal funding round costs? Some VCs pay themselves while others charge it back to their startups. Series seed legal docs shouldn't cost more than $10,000 to $20,000, but some people see $30,000.

The Big Story

From Board Level to Deep-Level Diversity

All Raise, the group dedicated to reducing the gender disparities in the startup world, wants to help transform the boards of tech companies — which have been notoriously slow to change.

The group's new Board Xcelerate program helps place diverse candidates on boards of high-growth companies. The thinking is that diverse boards can help companies be more successful and will filter down to increase diversity across the industry.

The program is designed to fill independent board seat roles with underrepresented candidates within 90 days — a relatively short time in an industry where these types of searches can take more than nine months.

  • All Raise uses its network, an external advisory committed and an executive search firm.
  • Firms participating include Sequoia Capital, GGV Capital and Sapphire Ventures and many others.
  • So far five companies have used the program: Contentful, Electric, Handshake, InfluxData, and WorkBoard. It has six more active searches now and more in the pipeline.

As many have noted, this isn't a "pipeline problem"; there are qualified candidates out there, they just haven't been found.

The venture industry has definitely made some changes since the #MeToo movement, but there's still a ways to go.

  • Many venture firms that didn't have a top-level general partner made real efforts to hire at least one female partner. (However, many also didn't go beyond that.)
  • And venture funding for female-founded startups dropped 27% last year, per Crunchbase, despite a startup funding boom.

So what else can be done to address gender and racial imbalance in the industry, besides VCs hiring more underrepresented groups?

Limited partners, the mostly quiet capital behind venture firms, are one key pressure point. LPs can push for changes within venture firms, which then, in turn, push their portfolio companies.

  • Yale University, one of the nation's most prominent LPs, put venture and other investment firms on notice that they would be evaluated based on their hiring of diverse investment staff. This is one key but still early move to push venture firms to change.
  • Still, limited partners are often not willing to push their managers hard enough to make meaningful change, so this bears watching.
  • Limited partners can fund more early-stage, pre-seed and seed funds that specialize in funding founders from underrepresented groups, who are often overlooked by traditional venture firms.

Startups themselves can also do more to improve their hiring and retention practices. Some startups specialize in helping tech companies find or train diverse candidates. SV Academy, for example, trains people who don't necessarily have tech industry experience for sales jobs in tech companies. One important area to watch will be to see if and how adding diverse board members to companies changes the makeup of these companies.

A MESSAGE FROM MASSCHALLENGE

MASSCHALLENGE

The journey from idea to IPO is full of twists and turns. At global network for innovator MassChallenge's "From Idea to IPO,"Feb 17, 10:30AM to Feb 17, 1:30PM CST, hear how two expert CEOs stayed laser-focused on impact amidst uncertainty, successfully taking their startups public during the COVID pandemic.

This exclusive MassChallenge event will feature Thomas Healy, CEO of Hyliion (MC Boston 2015), and Armon Sharei, CEO of SQZ BioTech (MC Boston 2014), and moderated by Misti Cain, the founder at Whyzze.

Save your Seat

Inside Track

  • After an IPO, deciding whether to distribute shares directly to limited partners or to sell the stock and distribute cash is a key decision but not talked about much. Sunil Dhaliwal provides some considerations to think about.
  • A widening economic and information gap is evident all around us and will require technology to help solve these problems, writes Nikhil Basu Trivedi. "[W]e must acknowledge that technology has played a significant role in deepening the divide we now find ourselves in as a society."
  • Many worry that their marketplace startup is in a winner-take-all sector. That could be true if your sector competes directly with Google or Amazon. But there are still many exceptions, Josh Breinlinger says.
  • From the stock market to the pandemic, the plebeians are taking over, and trust in institutions such as government, media and academia are at an ebb, writes Albert Wenger in a review of Martin Gurri. This doesn't mean that the public is always right. But, "how can society function when its institutions are moribund?"
  • Christine Esserman, Maya Noeth and Miles Clements of Accel, which invested in Bumble's series A, reflect on the company, which had its IPO this week.

Need to Know

  • IPO Plans: Softbank-backed South Korean ecommerce giant Coupang revealed IPO plans, and $12 billion in revenue in 2020, for what could be a blockbuster listing.
  • Turning $40 million into $14 billion: Ruby Lu, previously of DCM, led early deal in Kuaishou, which just went public.
  • Seed questions: Is seed volume going up or down? SAFEs may be the reason for the confusion.
  • From Protocol: PayPal faces intense competition in its goal to become an all-in-one super app.
  • This week in VC history: How startup Fab raised $330 million and then went bust, from 2015.
  • Your weekend reading: Creating (more) new alternatives to animal meat.

Five Questions With...

Madrona Venture Group's Hope Cochran

Hope Cochran is managing director at Seattle-based Madrona Venture Group, which raised $500 million in 2020. Previously she was the CFO of Clearwire and of Candy Crush maker King Digital, which sold to Activision for $5.9 billion. She is on the boards of MongoDB, New Relic and Hasbro, and her Madrona investments are Sila, Tesorio, the Riveter and Strike Graph.

What's one way you changed working in 2020 that you plan to keep going forward?

I have learned that having status on the airlines is not all that it is cracked up to be! Gone are the days that we fly 3,000 miles for the two-hour meeting. Although I really do miss seeing our entrepreneurs in person, 2020 was a test case for what meetings and tasks can be done more efficiently using remote-work technologies and tools. I expect a more balanced and efficient trade-off between in-person and remote work going forward.

What problem do you want to see a startup solve?

Cancer. It will happen.

What company, outside of your portfolio, have you been most impressed to watch this year?

DoorDash. My family certainly contributed to their impressive revenue growth in 2020.

What company or startup sector is the most underrated right now?

Many still don't appreciate how messy a company's back office systems can be — full of needing to reconcile spreadsheets, cobbling together many disparate systems, etc. I love to find solutions that automate or improve these systems. In addition, moving money continues to be hard and painful, despite all the innovation in this space. There is more to come!

What's the biggest problem in venture and what needs to be done to solve it?

For most of my career (enterprise software, telcomm and video games), I've almost always been the only woman in the room. This trend hasn't changed much yet, but it is improving — slowly. The solution includes intentionally working across our companies to create diversity throughout their organizations, backing strong female entrepreneurs and providing opportunities to women to move up the ladder when we recognize talent.

A MESSAGE FROM MASSCHALLENGE

MASSCHALLENGE

The journey from idea to IPO is full of twists and turns. At global network for innovator MassChallenge's "From Idea to IPO,"Feb 17, 10:30AM to Feb 17, 1:30PM CST, hear how two expert CEOs stayed laser-focused on impact amidst uncertainty, successfully taking their startups public during the COVID pandemic.

This exclusive MassChallenge event will feature Thomas Healy, CEO of Hyliion (MC Boston 2015), and Armon Sharei, CEO of SQZ BioTech (MC Boston 2014), and moderated by Misti Cain, the founder at Whyzze.

Save your Seat

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