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

Protocol Pipeline: Is this week going to change VC forever? It's up to you.

Cake Ventures' Monique Woodard

Hello and welcome to Pipeline. This week: Venture capital's wake-up call, Citizen's big moment and San Francisco rents are finally falling.

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Biz on Biz

Make the hire or send the wire

Let's acknowledge that it's been a hard week. When I started thinking about what to write for this issue of Pipeline on Monday morning, I wondered if people would care to read about diversity by Saturday morning; if there would be fatigue over the discussion; if the diversity theater would be over.

  • Frankly, this week I even pondered what my role as a journalist who covers venture capital was — whether it even mattered at a time when there are so many bigger issues.
  • But as Axios' Dan Primack put it: "Venture capital is not the primary cause of, nor primary solution to, America's racial inequities. But as a major driver of wealth and opportunity, it does exacerbate them."

We've known for years about VC's race problems. Only 2% of all partner-level investors at firms are black, according to BLCK VC. More than 75% of investment rounds go to all-white teams, according to Kauffman Fellows research.

  • But the shock that a lot of venture firms are feeling now reminds me a bit of covering the #MeToo movement a few years ago when all-male firms realized that they had been complicit in exacerbating the inequality due to whatever biases or systems had been set up.

This week was a critical inflection point in the venture industry. Of course firms have issued a flurry of statements acknowledging support for racial equality, but there's also been a push to actually take action and do more than just write corporate chicken soup for the soul.

  • SoftBank and Andreessen Horowitz created new funds. SoftBank set aside $100 million for an opportunity growth fund to invest in people of color. Founding members include TaskRabbit's Stacy Brown-Philpot and Pindrop's Paul Judge. A16Z took the donor-advised fund route and set aside $2.2 million (plus up to another $10 million in matching donations) for its Talent x Opportunity fund. ("Fund" may be a bit of a misnomer; it's more of a mentorship program that will fund itself with investment returns — a model that's attracted a lot of criticism on Twitter).
  • Venture capitalists are dedicating more time to underrepresented founders. Saastr founder Jason Lemkin says he'll only meet/Zoom with black founders in June. Eniac Ventures is using Superpeer to schedule one-on-one 15-minute mentorship meetings. Anathem Ventures Crystal McKeller pledged to ensure black and Latinx founders represent 50% of the meetings she takes this year.
  • There's been a flood of donations from startups, including 23andMe and Airbnb, and venture funds such as Sequoia. Some have made big commitments, others promised to match employee donations. Protocol is keeping a running list — let us know if we've missed any.
  • Over 150 black tech founders, workers and investors signed a new pledge"Black Tech For Black Lives" — to fight racial injustice in the Bay Area, by engaging with police chiefs and committing to vote for progressive leaders.
  • There are renewed calls for pressure on LPs. TechCrunch's Connie Loizos had the best argument I saw on why the "money behind the money" should be held equally accountable. Investing in diverse funds is proven to lead to better returns, so they could add diversity mandates that would require funds to invest in a certain percentage of companies with founders from underrepresented groups. At the very least, they should also be investing in and anchoring the funds of emerging black fund managers.

That's all a good start, but plenty more needs to happen. On Thursday, I tuned in to BLCK VC's We Can't Wait event alongside 3,700 other people to learn firsthand from the experiences of black entrepreneurs and investors. That was 10x more viewers than there are black venture capitalists, its co-founder Frederik Groce pointed out.

  • VC has been the "least accessible" role in finance for minorities, said Greycroft's Brentt Baltimore. "The concept of apprenticeship is baked into our industry, but black recruits are often not given that foundational knowledge, the how-to, the why."
  • Plus it's still a challenge just to measure diversity. Many firms will throw around the term "partner" but it can be hard to understand who has the check-writing power and the economic benefits from a fund.
  • "Pick some metrics around diversity, make them public, and hold yourselves to it," said Bessemer Ventures' Elliott Robinson. (His personal story in Silicon Valley is its own kind of wake-up call.) VCs give a lot of advice to their own portfolio companies on metrics, but don't follow it themselves. Being public is key: "If you only do it internally, it's very likely that you'll just let them slide."
  • Those new office hours? Commendable, but they mean little if you can't write checks, said Cake Ventures' Monique Woodard. "Black founders are often over-mentored and under-invested," she said. "Check your desire to open up office hours and mentor exclusively versus your ability to write a check. If you can do both, that is wonderful. But if you have the ability to write a check, but you will only offer mentorship to black founders, that is only helpful to your ego."
  • And admitting there's a problem will be vital. Already, Union Square Ventures acknowledged that it must "confront the uncomfortable reality that we are part of the problem." After 16 years of investing, it's only invested in a few black founders, and it's now pledging to release the data so it can be held accountable.

The key is to make all of the efforts institutional — not a one-off or a special case.

  • "We should also be well beyond this idea of separate but equal, but in venture, it seems as though we are moving right back there," Woodard said. "Black entrepreneurs don't need a separate water fountain. You have to fix the systemic issues in your funds that keep black founders out and keep you from delivering better returns."

Protocol's Transformation of Work Summit

Workday

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Register here

Inside Track

Need to Know

Five Questions for...

Threshold's Emily Melton

Who is a person in tech you've never met but would love to have dinner with?

Judy Faulkner, founder of Epic. I have never met her, and it's a system that so many hospitals use. It started with good intentions and has created many, many complexities, so I would find her very interesting.

What's your favorite part of a startup's pitch?

A lot of times, when you get pitched by a founder, you're focusing on what they do. And I think as important as what they do is: why. Being a founder is not a rational choice, and there's usually something deep down inside of them that's motivating them to do something that has a high failure rate, that they feel like they're uniquely capable. That's one of my favorite things: getting to the "why" behind the "what." And what I have discovered over 20 years of investing is the what often changes as the market changes, as product changes. The why never does. You will be a better partner to your founders and be a better mentor to them and be a better guide if you can really understand the why.

What's a secret obsession most people don't know about?

I actually studied political philosophy and I worked with the ACLU on prison reform. My honors thesis as an undergrad was a Rawlsian critique of the American justice system, basically saying we were using the justice system as a way for social and racial controls. One of the passions for me is Rawls' invisible veil: If you had to create a system not knowing where you would be in the system, how would you create the most just society possible? I care about politics, but I care about the philosophy. I'm also obsessed with chocolate souffles: like at my wedding, we had a wedding cake but i didn't care because I served everyone a chocolate souffle.

What's one of the worst predictions you've ever made?

Just a couple months ago when we went into shelter in place. I thought the market was gonna tank. I was convinced this was like a 2000 type moment. In some ways I was right because there was a massive economic cost, but the market is being decoupled from the economic consequences. But in that moment, if my husband hadn't stopped me, I would've been like: Sell everything! My prediction in terms of where the public markets were going to be is not where we are today.

What was your first check?

My first investment as a partner was in Redfin. I had just bought a house, and it was so frustrating. [Redfin CEO] Glenn Kelman is also one of the greatest people in the world. The day it was announced, I was flying high, and then I got an email from a friend like: "Oh, I'm so sorry." Valleywag had written an article saying: Glenn Kelman gets fundraising, but not from star investor — like, why didn't any of the men invest, like, why not Tim Draper? They had a picture of me — young, blonde — and it was the first time I really, really realized the perception that I wasn't taken seriously. All my partners or the young guys didn't have that.

It's been a great investment, but the one thing that I really remember is that Glenn went onto [the article] and made a comment, like: She is as sharp as anybody else. Usually you make an investment, and you're defending the investment. I made an investment, and my founder had to defend me. I think that, for me, has always led to the way I think about it — such a symbiotic relationship, that if we're really successful we help fund founders, and the founders help us. It's that give and take. So it was a really poignant one for me in a lot of ways.

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