6: Beyond the Agenda, Improving Odds and Creating Opportunities

[Music] Welcome to the Early Bird Podcast. I'm Louise Beaumont. Over the past five episodes, we've explored the amazing impact being made by leaders in the Early Bird Ecosystem. From building a strong company culture to using success as a catalyst for positive change, our guests have shown first hand just how we can all influence our industries and society. Now in the final installment of this series, we're going to come full circle and turn the spotlight back onto the investment ecosystem. Why are we doing this? Well, there are a number of difficult truths about the investment ecosystem and who gets peace of the funding pie. According to the European Investment Bank, women made up only 1% of European venture capital investment in 2021, with their American counterparts making up only 2% of American VC investment. Startups led by founders from minority backgrounds face a similar problem. In 2020, less than half a percent of European VC funding went to Blackleared startups. So, what can we as the investment community do to improve these numbers and create more opportunities for diverse founders? And where do we go from here? Coming up, we answer these questions and more with SANA Albardry of Sage Fund and Carolina Warrantka Mendoza of First Closed Partners. I'm delighted to welcome a crucial player in the investment ecosystem for our deep dive today. SANA Albardry is the CPO and founder at Sage Fund, an early stage startup with a mission of changing private banking for good. She's joining us from Sweden where she's completing the Fast Track Malmo accelerator program. Hi, it's lovely to be here. SANA, it's great to have you here. Can you please tell us a little bit more about what you're building at Sage Fund? Yeah, so I'm on a mission of changing private banking for good because Lenos are inheriting 57 trillion by 2040 and they really don't know how to invest and the private banking industry doesn't know how to attract them. They have no digital offerings. So, we are providing a digital and sustainable solution to help them invest and guide them throughout their lives. Over the past five episodes, we've learned that early bird supports its startup founders in various ways beyond funding. They offer in-house PR expertise, growth and HR support, plus local networks. They prefer being an active investor and sparring partner and leveraging their existing portfolio to help founders. They also created Vision Lab, an impact fund for Gaston Entrepreneurs in Germany with a migrant background. So, as we wrap the series, we'd like to take a more critical look at the landscape. So, SANA, to flip the conversation, what are the things you look for from an investor for your business? I think this is one of the benefits of getting people to invest in your company is that they are joining you essentially on your mission in Vision. So, this is a really big point. For me, I always look for investors that understand my vision and that they're excited about the problem that I'm trying to solve. They don't just see me as that's an easy way to make money because if we're trying to change an industry, it's going to be all right. Off the back of that, what would you say to investors who find themselves walking the fine line between being active supporters and not wanting to be overbearing? I think being a founder, you generally choose that path because you are a self-starter and you don't mind just doing things your own way in your own terms. Obviously, you work with other people, but generally, you are that kind of self-directed person who just goes for their challenges. And how does this extend to the investors and partners that you work with? So, to me, I want to build an inclusive product. So, that to me translates on all the levels, not just my marketing, my branding, my customers or me, but also the investors I work with. I wanted to also add that I also do my background check when I'm speaking to an investor. And it's very important that I feel that what they're doing and how they invest also reflects my values. So, I really also focus on whether their investment funds consider ESG in their investment process. And I also check how diverse their team is. I feel that especially in Germany, this is kind of cliche of you, you live in Munich and you're founding a B2B sauce and your whites and male and you're like 30 or 35. Then you will get funded almost. Like, it feels a bit that way that there is a certain profile of founder that feels like a safe bet. It's always hard, probably will always be hard to build a company and raise funds. So, sometimes it's hard to say, "Is it am I playing it on extra hard mode or is it just hard no matter your background?" But there is some evidence that I have where I do feel that my background is a bit of a disadvantage. An investor's and venture firms will see this in the data, won't they? They'll see in the number of pitches that they receive. The number of pitches that get chosen to have that first meeting, that first conversation. And they'll see it in the number of startups that receive funding. And if they're not seeing it in the data, it's because the data is excluding those founders right from the get-go. Yeah, I just think there's a really big gap. If let's say if we see has a funding rate of 0.2% in the case of Alibur Adventures for female founders, but then some of the better performing VCs on that metric have like 20% or 15% and these are pretty respectable funds. So, it must be a different process and it must be a difference in network and even in bias and selection. And I often get this response of, "Oh, but we're just trying to choose the best teams." But nobody's disputing that. They are obviously awesome women everywhere and they're clearly not getting funded. Nobody's ever suggesting that we should fund women that aren't the best. It's just that they don't get funded. That's the problem. One of the things you mentioned was that you wanted to have a product that was going to appeal to a diverse customer base. So, tell us a little bit about that. Both in terms of the diversity and the impact your product is having in the market. Yeah, it's a really great question. I would say that I remember when I had money to invest and I was looking for solutions. And they didn't exactly appeal to me. And I noticed that most of my female friends don't invest, for example. And I even noticed that there was a section of my male friends or people in my life that didn't invest. And I looked very closely at the types of products I saw on the market and how they are communicating their value proposition. I started realizing there's a huge gap. So, if people are aware of the numbers, 70 to 80% of Europeans don't invest. So, even though companies like trade, republic are very successful, they're clearly actually targeting a niche market without realizing. So, there are other niche markets of customer groups that just aren't being targeted. So, I was also thinking about it also from a business case. Like, how can I target a market that nobody's managing to address? So, I also saw that as an interesting challenge. And obviously, I would love to serve those customers. I think they have to invest to retire well and to live a decent life. And they actually have no choice but to invest. So, how can we help them make a good decision? Also, when people talk about financial education, if you ever look at the education, it's really poor. If you read like the investor pediat entry on ETF, it will just say, it's an exchange-traded fund that is traded on the stock market and it replicates an index. And this is exactly the same definition that then start-up use on their apps when they teach you about investing. But nobody understands what it means, what is an index, what is replicating, what is exchange-traded. People often don't even know what is a fund. So, I feel that when people talk about education, they have to really start like really basic. You have to tell stories, you have to show metaphors. You have to make it much more lifestyle. You have to role models that you aspire to. So, these are things that find as industries not the way. Now, I'd like to bring this back to the core theme of this series, which is impact. I was wondering, what do you focus on when you're thinking about impact and how do you express it to your potential investors? Yeah, I think that ultimately impact is genuinely about taking a risk and having a big vision for a better future. That sounds really corny, but if you look at what you see in the media or the standard narrative about the future, it's very dystopian. And so do this become normal. Like, this is what we assume that things are just terrible and they will get worse. But I think that if you really want to have impact, you have to do bold things and take risks and innovate. And you can even see corporates doing this. So, at first, when I started thinking about impact, I was very much focused on ESG integration. So, this was always very important for my own investment process and also for the funds we choose at Sage Fund. But I also believe that ESG is not enough. Apple, for example, they have really good ESG ratings and they have done a lot to improve their supply chain. They end up with top ratings, but clearly it's not enough because they're still like Bye. far away from being circular, having a genuinely low impact on the environment. So I think that impact has to be much more about taking risks and funding novel solutions. So I'm really excited so there was this project by L'Oreal and they invested millions into this startup called Carbios and they have an innovative solution based on enzymes where they recycle now all common plastics and bring them back to Virgin Pet Standard. So that's really incredible and as much better than simply banning plastic straws or bags. I think people need to be taking risks and then seeing that it actually pays off like it will work eventually. So Sanna, over the course of this podcast we've had a little pushback, both from founders and investors about this term impact investment. In part that's because I guess it's still largely associated with investment in environmental causes or sustainability. But also because people seem to think that it runs the risk of lower and slower returns. What do you think? Do you think the term itself needs a bit of a rebrand or does it actually hold any real value? I mean it's quite interesting but to me I associate impact or ESG with strong financial returns. So personally also because I looked a lot also at the research and seeing that impact investments have actually outperformed. Obviously not in all cases but on aggregate they did. And to me this makes completely logical sense because the biggest challenges that are ahead are impact topics. So then it makes sense that businesses that are providing solutions are making returns. To me or the circles that I'm from it's seen as a good thing or even a scalable thing because most issues of the future are impact issues. And I also would really like to add that we see have funded lots of things that took many years to develop. I would say all of deep tech or life sciences or biosciences. It's very hard to end up with solutions that work and then being able to scale them. But still the investors took the risk because they knew that if it were to work it would have a transformative effect. So I wish that in the let's say standard or institutional like financial sphere that they see this on the same level of innovation for example. So it's been a great conversation. Thank you. Thank you so much. We wish you and Sage fund a really successful journey. Coming up I speak with Carolina Rancamendoza of First Closed Partners about her experience as an investor, educator and entrepreneur. Hello listeners, at EarlyBadVentureCapsule we are optimistic risk takers. Founded in 1997 we've become a leading VC in Europe with two billion euros under management but we're not just satisfied with numbers and awards. We aspire for truly disruptive technology which will make our world a better place. This is the kind of entrepreneurship we look for and support with our technical expertise. If you want to learn more you can connect via LinkedIn at EarlyBadVentureCapsule or on Twitter at EarlyBadVentureCapsule. Know that overall underestimated founders receive less funding than their right counterparts. Because underrepresented founders having gotten funded for so long it kind of skews all the numbers that whole funders back from moving forward. We tend to invest in potential of people who look like us. Raising capital is hard enough as it is without feeling as if you are starting out at a disadvantage. Anyone who's just not been the status quo is having their day but I'd absolutely know that this is just the beginning of that. Founded in 2020 First Closed Partners backs venture funds owned and managed by underrepresented managers especially to help them get that first close. Their clients include venture capital firms operated by women, people of colour, those from the LGBTQ+ community, those with disabilities and other groups that continue to be underrepresented in the industry. They currently operate in the US, Africa and Europe. Joining us for the final entrepreneur insights segment of this series is First Closed's Co-General Partner and Investment Committee member, Carolina Warranke-Mendoza. Before joining First Closed in October of 2021, she was an advisor at Cape Ork Capital and a scout at light speed venture partners. Hello, Carolina, welcome to the AliBred podcast, it's great to have you here. Hello Louise, thank you so much for having me here today. Well thank you very much for being here. Can I ask you, what initially made you think First Closed Partners is the one for me? So I think it has a lot to do with my own journey. So I am First Generation in the United States, my parents fled during a really tough time from Peru, 85,000 people died within a 10-year period during the shining path. I was the first person in my family to go to college, I grew up cleaning homes. So this idea of equity and access and democratization has always been something at my core. So it was a natural progression. What we do at First Closed is we fund venture funds that are owned and operated by underrepresented managers all over the globe. So being able to do that on a global level was what excited me. And number one, I also have always known as an underrepresented woman of color that the segment of URM fund managers, though they are underrepresented, will overperform and we have data to back that up. So First Closed doesn't invest directly in startups. It backs the venture funds owned by those underrepresented managers. So that's really specific, but it allows you to make, I'm guessing, a much bigger impact on the investment ecosystem. But maybe you can explain exactly how. How does it do it? So as you mentioned, we invest in these fund managers. And as a result, there's this multiplier effect because these fund managers could be investing in hundreds of companies and then we do reach about like a hundred of those fund managers. So the impact that you can have is significantly vast. So that is the way that we feel we have our impact. But I do want to posit that we do not consider ourselves an impact fund. I think there is often a compounding where people see diversity and impact as the same. We don't. We separate them out. So you can have both. Exactly. So what is it you wish the investors knew about what it's like raising funds for people from underrepresented backgrounds? If you had a message for them, what would it be? Well, that is a really challenging question. I'm happy you asked it. I would say the reality is biases and barriers exist. And I think often we don't talk about those. One of the things that I would say is sometimes those investors are the limited partners, the people that put in capital to those fund managers are from closed networks. So open up your networks. Be open to meeting people that you haven't known before. We at first closed actually have been open to our policy and that anyone can apply. And we look at every fund manager that applies. So it's an open application. Unlike other people, you actually have to have a connection and some investors who invest in these funds do not want to be found. Small family offices, high net worth individuals. There's no list. So if you don't have those networks, you can't get access to them. So my biggest piece of advice, unlock the network. You talked about first closed, not defining itself as an impact fund. But does it define impact in any particular way? We feel that the impact is in who we invest in. And another thing that we've noticed that is ongoing is although there are other people who want to invest or corporates that are setting up these efforts to invest in these new underrepresented emerging fund managers, they constrain their thesis. So for example, yes, we will fund you underrepresented fund manager, only if you fund underrepresented founders. We do not ask white straight males to only invest in white straight males. And I think that's something that sometimes these things can be uncomfortable. But I think if we say them out loud, they're important for us to kind of realize what the state of the ecosystem is. So going back to my initial point, at first closed partners, we believe you as an underrepresented, fund manager should have the agency to invest in your superpower, whatever thesis, whatever it is that you know. But invest in that. We don't expect you to be a social impact warrior, but I guarantee you and we have seen it. That because of the networks they have, they just naturally have diversity as a value. It doesn't have to be a mandate again, because we don't ask white straight men to have a mandate on investing in white straight men. Although they seem to impose that mandate upon themselves and do it really religiously. A very fair point, a very fair point, and it goes back to this piece of who our networks are and why we should be unlocking more of these networks. One of the things that we also provide is we have these quarterly meetings where hundreds of our fund managers come together and then they start trading deals. They start interacting with our LPs and they start interacting with our LPs. they keep kind of expanding their networks. And that's something that I keep honing in on because I think it's such a powerful piece of how we can increase the pie for all. - Increasing the pie. Everyone talks about having a bigger slice. I always think it's better to have a bigger pie. - Yeah, a bigger pie. And also I think the challenge is there are limitations on what these institutional investors can invest. So I would like to see more first closed partners. I don't think we should be the only one. I think we should have many people kind of anchoring funds. Us that can be a strategic check at this time. I mean, there's a whole tech stack around limited partners that I think needs to be created. - Is that one of the challenges you see faced by those underrepresented venture fund managers? - So this is one I think we often don't talk about. And as I mentioned, I was very intentional about sharing my personal story. Many VCs don't say that they grew up clean homes, right? And I'm very proud of that. That was my first concept of what entrepreneurship was it because I never thought of myself as cleaning. I thought of myself as starting a business. But my story is quite common. In many of the funds, let's say someone wants to start a $10 million fund, right? Often you'll be asked for something called the general partner commitment or a GP commitment. That commitment sometimes can be 1% of the fund. So if you think about it, if you come from a family that is not of wealth and if you want to start a fund, maybe you didn't know you wanted to start a fund. Did you save appropriately for that 1% GP commitment? Are you gonna take out a loan or more to drop home for a GP commitment? People do not talk about this, but there are a lot of people that go into massive debt. Other people restrain the amount of money they raise. They could probably raise a $25 or a $50 million fund. But because of that GP commitment, the fund size gets smaller and smaller and smaller. I do understand that some people think, well, you need skin in the game, right? Why should we take such a massive risk on you? How much are you putting in? And they try to use the GP commitment as the proxy. But number one, it's a challenging thing for someone to say, how much have you put in or what is that amount? Why don't we have the conversation, is this meaningful to you based on your network? We shouldn't even be asking that question to be quite honest, right? So I think that's the other piece. If you actually studied that there's a gender gap in the US of how much women making comparison to men, right, we don't save as much because we haven't made as much, right? So there's this issue of the wealth required. And then they may not look the same. I would say many limited partners may just not know how to diligence underrepresented folks because they may not understand the thesis or this perspective that someone else has. So I think those are things that we need to consider. But the GP commitment is one that keeps me open at night a lot. So what advice do you have for those funders who are looking to diversify their investments and build those partnerships with underrepresented managers? People need to do the work themselves, because they can come to us, but expand your own network. Do this on an individual basis? Because the reality is when you inventory your own network and I did this for myself, I overindexed in some groups and I had to kind of ask myself and be self-reflective on why that was the case. And if I didn't have friends in certain groups, then what was I doing about that? So I think there's that piece as well. - You've got to look for all your blind spots, haven't you? - Thank you so much for mentioning that. I think everyone has biases, everyone has blind spots and there's nothing wrong with that. Now if we don't take action around that and to change those blind spots, then that's a problem. - There's clearly lots of room for improvement in the UK system. What are some of the ways that the investment community can lower the existing barriers for underrepresented fund managers? And what are some of the ways they can help right now, not in five or 10 years' time? If you're an LP, get over the GEP commitment, evaluate track records in different ways. So sometimes people are very formulaic and they're like, did you work at a past fund? They have all these proxies that actually lock out people. So I think the question is be expansive about how you define someone's commitment to the fund but also be expansive about what track record means. Maybe they were advisors and just didn't have the income but were really helpful to start up. So that's one. On the other end, I'm gonna hone in on this idea of do the work, go to where those diverse communities are and expand your network and unlock your network for others. If you really care about expanding the pie but making this look more diverse, I think there's that piece. And it's also important for us to change our mindset and that diversity doesn't mean concessionary. That underrepresented fund managers as a class inventor, I believe, over-perform. So let's continue to promote the research behind that. And I am sure I will put that out hypothetically. In the future, I'm sure we'll be talking about our research behind that. But I think even questioning our own biases and why we might think that URM don't perform or we create different buckets of it, even in some of the LPs that are bigger endowments. For instance, I have had off the record conversations where I asked about a particular URM fund manager and they were like, oh, we filled that bucket. And I said, well, you're making an assumption that we filled the diversity bucket. And then I said, OK, well, I have these six. They all happened to be from the same kind of group. There was also this assumption that because they were URM and from this particular group, that they all had the same thesis or invested in the same way. So I actually went through the analysis and looked at all the portfolio companies and said how many investments they have in common. And I think it was six out of hundreds of funds. That's the other thing that we have to break. The questioning of the biases that we have and looking at our blind spots, if you all have them. And then this piece of thinking that all URM have the same thesis and that we don't overperform. For me, it's like, let's just show the data. So everyone who's an LP in this space, let's unlock the data and show the performance of those funds. And data dispels down, right? You know that lingering fear that these people are no good? Well, we can get rid of that with the data. Yeah. I mean, obviously I shared my north star, but the data proves it, right? So I want to lean into the business argument or the data argument because at the end of the day, we think we're going to be making and generating a lot of wealth and doing a lot of good alongside these amazing fund managers. You know, ultimate, the end of the day, one of our biggest values and the question, I am always asking myself, is who do I also want to make money for? Because you have these investors. You want to make money for investors that are aligned with the mission, but also people who haven't had access to this asset class before. There are a lot of people who know what venture is. I didn't even know what venture capital was until I was 25. That's just a reality. That's not the language my family spoke. And if we can also open ourselves with first clothes and other LPs are saying, hey, we want to bring more Latino limited partners and investors to be on funds. And then we can start again, this is where I think the impact comes and how I think about it. It's who do you make money for? Diversify who the investors are in the funds. Then have those people be advisors or even board members in the venture fund LPAC, but also maybe in the portfolio companies. And that's how you keep expanding the diet. I'm one final thought. First clothes operates all over the world during the US in Europe and in Africa. Is there any difference in the way that you approach working with underrepresented fund managers in those different geographic regions? I think what we try to do is also contextualize what diversity and what underrepresentation looks like in different regions. So my focus on what the US is very different than where my home country is in Latin America. On what there, I'm going to over index in, yes, you may be a Latin fund manager. But if you actually did the research, and I'm just speaking personally, of who gets capital in Latin America, it's still men. So then is it focusing more on gender and having a gender lens as well as Afro-descendants and Indigenous fund managers? So I think what's important to us is we know we don't know everything. We are global, but we spend time really contextualizing what diversity and underrepresentation looks like in every region. And then in terms of how we are hands on and support those funds, I think one of the things we're quite intentional about is not being prescriptive. We want our fund managers to tell us how they want us to support them because we are one check. So if they're thinking about their strategy, they might have different investors that have different superpowers that they can leverage and rely on. Thank you so much. I've learned any enormous amount, and I've enjoyed it along the way. Wonderful. It was such a pleasure. This final episode came with IAC thoughts on how we can move forward and made us look critically at what the ecosystem needs and how we make it happen. Carolina reminded us that diversity and impact are two separate things and that diversity doesn't mean concessionary. There should be no compromise. So how do we make the change? Sarnamade it clear, do the work yourself, expand your own network, look for your blind spots and take action to fix those blind spots. The proof is in the data and founders, investors and VCs can and should use the data to encourage diversity. And what about the future of investing? Well we need to demystify the world of investment and hopefully this podcast is one step towards making that happen. The more stories are shared, the more we communicate with one another, the more change and impact we make. As we've learned the future will be improved not by governments necessarily but by disruptive technologies and companies. We've had a host of founders, investors, public figures and more who've inspired our guests over the course of this series. So for our final episode we ask one last time whether it's in the impact they have on their company, their sector or their society, who's making a difference. In our deep dough of conversation Sarnamade mentioned dust in Moskivitz, the American IT entrepreneur and CEO and co-founder at Sarnamade. You might also know him as Mark Zuckerberg, sex roommate and the co-founder of Facebook. He has the Open Feed Lanzarpie Foundation and they tend to give grants to high impact charities so they also try to fund NGOs that are also taking a risk and a big focus areas also criminal justice reform in the US and animal rights. And how can we think about the long-term future and the risks that technology poses? Because I think that people who are in the technology sector are always very excited about the potential of technology but then maybe don't consider also the risks. Carolina shared a venture capitalist who is hernal star. Dr. Frieda K. Paul Klein, a partner at K. Paul Capital and the K. Paul Center for Social Impact. K. Paul Capital was founded in 1999 and 23 years ago made a pledge to only invest in companies that prioritize diversity and focus on products that close gaps of access and opportunity. She's a PhD researcher so she leads with the research in K. Paul. They were talking about all this back in the 80s, right? So there are people who've been doing the good work and I think they're a great model to follow in terms of how they've looked at the entire ecosystem diversifying like who's a pipeline for technical talent, how they invest in impact that's not concessionary but they're top core tough fund but they also have a thesis around investing and emerging underrepresented fund managers as well. So they've done the entire stack so they are my go-to and kind of like my North Star so much of Rita. A big thanks to Sona and Carolina for joining us. As we wrap this series we also want to thank you for listening. Throughout these episodes we've spoken to incredible investors and leaders about their challenges, their successes, lessons they wish they'd maybe learned a bit sooner and the ways they've made a real difference. This series has encouraged us to take a more active and critical approach to the way we view impact and how we can bring it to our work, our industries and our communities. We also hope the series has inspired you to think about impacting new ways and how you can make it happen. If you enjoyed the show reach out to Elly Bird via Elly Bird.com's contact page linked in or Twitter. For more stories and in-depth insights ahead to Elly Bird's view our publication on Medium. This podcast was produced by Bear Radio for the last time for Elly Bird. I'm your host Louise Beaumont.