How to Diversify Your Portfolio with Diversity

Elizabeth Edwards, General Partner @ H Venture Partners; Zavain Dar, Partner @ Lux Capital; Sutian Dong, General Partner @ Females Founder Fund; Laura Chau, Principal @ Canaan Partners

Ascent Conference 2019

Elizabeth Edwards [00:00:07] My name is Elizabeth Edwards, I’m the general partner of H Venture Partners, we are a consumer focused fund. We invest all over North America and seed through growth, equity and all the major consumer categories. So I like to say, if you can find the category at a mass retailer like a target, it’s probably a category that we invest in. But a lot of our brands are digitally native and they end up and retailers like Target, Whole Foods, Nordstrom or Stand Alone retail. So I just want to open up our talk with a little bit of context. And I thought it was so timely because I was in the airport on my way over here. And I’ll just show you the covers of Entrepreneur magazine and Karlie Kloss code with classI, the founder and also a very prolific angel investor here in New York is on the cover. And then ink, we have Audrey Gelman, who is the founder of The Wing, which is a coworking space focused on women. And then we have Fast Company and Whitney Wolfe Hurd, who’s the CEO of Tumblr, the dating app. So there’s a theme here, which is that it’s a great time to be a female and diverse founder, but there’s so much work to do. And I want to just give some context around that work. So whether you look at the U.N. study or Helena Morrises, 30 percent club or categories, pipeline equity estimates right now are that it’ll take about 100 to 200 years to reach gender parity, which seems to me like a long time to wait a Korean pitch. But only about two percent of venture dollars go to female founders. And according to Forbes, only about five percent of venture decision makers are women. Credit Suisse tells us that there’s a lot of money left on the table because adding one woman to an all male corporate board increases performance by twenty six percent. First round capital tells us that of their portfolio companies having at least one female founder on the team, that means that those companies are outperforming the rest of their portfolio by 63 percent. And when we talk about racial and ethnic diversity, according to McKinsey and Fairview Capital, there is a linear relationship between financial performance and diversity on the management team. So for every 10 percent increase in racial and ethnic diversity on the senior executive team, earnings rise by one percent. So there is, I think, a compelling business case that we can talk about here today about why diversity matters. And I’m so excited for our panelists to do so. So they’re going to tell you just a little bit about themselves and their firm, what they invest in, so you can hit them up later. And also, I’ve asked them to share a couple of companies that they’re invested in that you may have heard of. And then one fun fact, which is what you’re first paying gig was.

Zavain Dar [00:03:20] So I take it off, OK, get the one guy leading that off, I’m Zavain Dar, I’m a partner at Lux Capital. We’re based in Menlo Park in New York. I spent time in San Francisco and New York. I teach at Stanford, of course, on machine learning and philosophy. A few companies of note of ours, one of whom was just acquired by Facebook two weeks ago, control labs. I just learned right now sitting on the boyfriend was the chief strategy officer. Josh, their small world, it’s a very small world. Another one we sold earlier this year, orris for upwards of six billion to JMJ, a surgical robotics company. Our bread and butter is deep tech. So that’s EHI block chain robotic space, autonomous cars, a good amount of biotech, a pretty broad gauntlett, but really probably stay away from consumer mobile or low hanging kind of tech enterprise. SAS. We just raised two new funds about a month ago, so five hundred million early stage fund and then a five hundred and fifty million growth stage fund and fun fact about me. Anything. First job, first job, first paying gig was in high school, knocking door to door over the summer, selling solar panels. So learn salesmanship early.

Sutian Dong [00:04:38] Awesome, well, I’m so, so excited to be here and thanks, guys, for for choosing to spend your time in this panel. My name’s Sutian Dong. I was most recently a GP at Female Founders Fund. Female Founders Fund is the preeminent fund for early stage female founders based here in New York. It was founded in 2014 with the thesis that the world is changing. Very simple, right. And that the face of entrepreneurship, if you think about it today, is going to looks very different than what it did 10, 20 years years ago. And it will continue to evolve 10, 20, 30 years from now. And we were set up in 2014 with this belief that there was an absolute return opportunity by investing in a portfolio of solely female founded companies. Some of the names that you may recognize in this portfolio are companies like Rent the Runway, Zola Talla, Mavin Clinic costar Freney, Astrology and astronauts out there and a host of other early stage companies across both consumer and enterprise with the again aligning characteristic that all of them are female founded. I left Female Founders Fund full time. Let’s see, this was only two months ago to start a new project that I’m excited to share more about in in twenty twenty. But it’s safe to say that I will be doubling down on this focus in diversity by funding not just the companies and founders, but also the voices and funders in this space. Let’s see one fun fact about me, my first job or my first moneymaking opportunity was in elementary school when I would convince my parents to go to Sam’s Club and buy me those bulk packs of candies and then repackage them in a very, you know, not probably health conscious way in these little Ziploc bags and go around school, try to sell these to my friends, which was popular until my teachers found out.

Laura Chau [00:06:40] Hi, my name is Laura Chau. I am a principal at Canaan Partners, which is an early stage fund. We’ve been around for about 32 years, have five million assets under management and are currently investing in our out of our 11th Fund, which is an 800 million dollar vehicle. Some of the companies in our portfolio that you may have heard of are companies like the real real instr Cataldo Bird Roe Help. And we are a pretty diverse fund in a number of ways. We invest in both biotech and technology, so both consumer and enterprise on the tech side. And then in terms of our partnership, 40 percent of our investors, even at the GP level, are women and about 25 percent of our or 40 percent of our investors also are either immigrants or first generation. So around the table, we really talk about diversity, even among our investors. That is having a huge trickle down effect in terms of what we invest in and the types of conversations that we have a fun fact around. My first paying gig when I was 11 or 12, I also went door to door selling things, but it was Popery. I started a potpourri business and sold popery out of a red wagon knocking door to door. It was actually a pretty good business.

Elizabeth Edwards [00:07:59] That’s awesome. Well, thank you guys so much for sharing that. So shooting at Female Founders Fund, I’d love for you to share and also as leader of Global Women and VC, that’s also a really great platform for for female investors. I’d love for you to discuss the challenges that you’ve seen for women raising capital at the earliest stages.

Sutian Dong [00:08:24] That’s that’s a great, great starting question. So, you know, I think Inventure, when you invest it, it’s both in art, in a science, in the earlier you invest in a company’s life stage, the more of an art it is. And with that comes less a fewer numbers. Right. And more and more intuition or pattern matching or seeing something in an entrepreneur that compels you to as an investor, to make not just a financial commitment, but a commitment to work with that founder in that company for the next seven to ten plus years until the business exits. And I think one of the challenges historically for female entrepreneurs is that, you know, honestly, there weren’t that many women on the other side of the table. And as a consequence, they had a harder time raising capital because not only were the businesses and the the the industries, they were operating in slightly different, slightly foreign to some of the men across the table. But because women tend to and again, speaking generalizations, women can pitch differently and share their ideas differently. And if you’re an investor and you’re taking 20 minutes to make a decision, not if you want to invest in that company, but if you want to take another meeting to get to know that founder in that business better. The female founded companies we found often fell off the pipeline earlier so that they just didn’t reach the final decision point. That being said, the number of female founded companies that I’ve seen has ballooned, just exponentially grown from 2014 when Female Founders Fund was established to now. And that’s just not in the number of companies that have been started, but also in the companies that have raised not just seed funding, but series A, series B and Series C, and I think an ongoing challenge and an ongoing, you know, point of of discussion among founders and funders is, well, how do you continue supporting these opportunities? There is no dearth in this current market. There’s no dearth of early stage capital. And there’s many people who want to support female founders and honestly diverse founders who see the world a little bit differently. But the question is, will one who is going to find and what firms are going to continue funding these companies as they scale? And to what are the opportunities for funders to raise more capital, to invest more money in these companies? So it’s not just a problem that originates from the companies side, but it has also affected the thinking for VCs around how they finance their own business.

Elizabeth Edwards [00:11:04] That’s great, so Zavain you pointed out that you’re the only dude up here, but your mom has a Ph.D. in feminist studies, I read in your bio, I thought that was so interesting. So you probably have a leg up on the research, I would imagine. I would love for you to discuss how you’ve seen diverse teams succeed and why you think diversity in those management teams is so important.

Zavain Dar [00:11:31] It’s a good question. So my mom actually has a piece in feminist ideas, but before that she had a masters in computer science, in undergrad math at Cal. And I remember spending as she was a single mom raising my sister. I mean, I remember spending nights in the computer science department with her during her masters and even even noticing back then she had to leave computer science because it was so male dominated and just kind of like the cultural and the kind of work expectations on her as mom being in the lab, you know, until 2:00 or 3:00 a.m. working on problem sets, which is something that I guess as a single dude or even as maybe a single woman. But once you have a family, particularly, women tend to get the burden of the familiar expectations on them just having to get kind of whittled out and actually moving to the social sciences. So it’s been something that’s been, you know, top of mind, very, very close to home, no pun intended for a long time at Lux in Canada. Even as I think about my portfolio companies and boards, I was reading a stat recently. I think male CEOs tend to be more honest and more accountable if there is at least one woman in the room. And I don’t think that’s one of the stats. Yeah, I just I just saw that maybe on Twitter this weekend. But it’s interesting thing to note, and certainly I know that even at Lux we we had a for the last four or five years now, we’ve had a female partner on our team. And I think that’s increased kind of the level of candor and kind of intellectual integrity that that we hold ourselves to, which is important. It’s not just kind of superficial. And certainly I think like, you know, like race, religion, gender, sexuality, all of these things kind of play play big things. But where we invest, which is deep tech, the best companies tend to have kind of intersectional backgrounds of founders. So, you know, it might have some mad scientist from computer scientists, some kind of, you know, molecular biologist and maybe some business person that’s having diversity from from kind of both an intellectual background, a background of perspectives, a background of experiences or varied experiences. And all of those tend to be important. So, you know, I can ramble on and on. I think there’s truth for for both. One, the quote unquote superficial, because, again, we are, you know, a collection of our experiences. And superficially, we’re all very differently based on kind of our outward appearance. And that tends to affect how we think and act and and speak and how we feel comfortable talking. The other is, of course, actually the kind of cognitive diversity that’s kind of fundamental ground truth. So we look for both and I think they’re both important.

Elizabeth Edwards [00:14:00] Yeah, I love for folks that are investing in deep tech when I see, like biologists and, you know, I teams, right? I actually started in the computer science lab at University of Michigan trying to figure out how human beings make decisions. And we were actually working a lot, you know, with biologists right at the time. So, um, really. So, Laura, you spent a lot of time in consumer as well. And we know that there are a lot of female founders and consumers, about 85 percent of consumer purchasing is done by women. Talk about some of the women that you’ve invested in and just what compelled you about them.

Laura Chau [00:14:42] Yeah, when it comes to venture, I think typically it’s all about pattern matching. Right. You’re looking for companies that fit a certain profile or founders who maybe hearken back to past success. And I think that’s a huge pitfall when it comes to investing, especially when you’re putting diversity as a part of that category, because a lot of female founders don’t necessarily fit that stereotype of wearing a hoodie at Stanford or having founded multiple companies before. So you really have to rethink what the criteria is that you’re looking for and essentially take it down to the ultimate characteristics or first principles of what you think are important in a founder. A couple of the founders from kanon that I think are fantastic. One is a portfolio company that I share with Sutian, a company called Khodary, which has two female founders. And I think you mentioned only about two percent of venture capital dollars go to fully female founders teams, but they were repeat entrepreneurs. So they hadn’t been CEOs or executives before, but they had been on a founding team of Daily Harvest in New York and previously before that at Birchbox. So they’d really shown that they had the ability to work at early stage companies. They knew how to hustle. They knew how to operate and execute. And when it came down to what I was looking for, individuals with a huge amount of hustle, with a vision, with deep understanding and expertize in the space that they were going after and a hunger. And I think they hit all of those characteristics. And even though they hadn’t been founders before and maybe didn’t look like the typical Stanford hoodie wearing student, I felt very compelled to invest in them. Another example is a company called Quiana, which is a women’s apparel and accessories brand. Again, a female founded company, two women and the CEO, Carla was an immigrant from Ecuador, had a very traditional path through Goldman and had been at Brown before that, but was a very timid founder in many ways. I think compared to some of the founders that you see that are very aggressive and paint this huge vision, she was much more conservative in her approach and it took a little bit of a kind of understanding her and realizing that she had a different way of presenting her company and maybe didn’t throw the huge pie in the sky vision out that some other founders might when they’re initially pitching, but had really strong bones and foundation to what she was doing. And it’s a fantastic company. You can go see their store down in Soho and multiple locations around the U.S.

Elizabeth Edwards [00:17:23] I remember Sarah and London when they were at Daily Harvest. And even then I think it was probably one of the best models that I’ve ever seen because London owned the model. And even now, like, just if you have a chance to check out Khodary, it’s the only way that you should be buying your party supplies. So I want to I want to just really, like, humanize this issue as investors, because I think we’ve all been in situations where we’ve had that moment where we’ve realized just how important diversity is and making investment decisions and in building great companies. And so I asked each of you to think of a situation a moment when you really realized that and just, you know, what happened.

Zavain Dar [00:18:19] I don’t know if there’s a single moment I’ll it’s top of mind, because it literally just happened this morning. We were in a meeting and of course, the locks on Mondays, we have kind of external teams come in and present to us. We had on entrepeneur come in and he was actually quoting Steve Jobs autobiography and saying he really loved one particular quote, which was, you know, the best way to invent the future, the best way to know the future is to invent it yourself or something along those lines. And then he kind of chuckled out loud to himself and said, you know, it’s hilarious. Like, you know, me and all my guy friends, we love that book. We like love jobs. And my wife and, you know, all of our female friends, they’re all like, he’s such a douche. And and I think my partners and I all we kind of paused for a second because it was it was doing this kind of, in his view, like this. Imagine being a female on his team. It’s like the gender expectations of of, you know, even even that kind of generalization in like, you know, and not having almost dehumanizing himself and belittling his wife and women broadly. So I think I think it happens even like, you know, of course, we’re two or three years now into the meta era and it’s still so tacit and pervasive and kind of present in all of our conversations. And it’s easy. It’s still easy to, like, laugh it off, but it’s still everywhere. And so, you know, I kind of made a mental note of that. And I was like, it’s interesting because I’m speaking on this panel in a few hours. But, you know, it still happens all the time.

Sutian Dong [00:19:51] How many of you in the room have heard of this company called Izola? So for those of you who have it, if you go to a wedding at some point in the next several years, I would put money on the likelihood that you will use Zola to buy something off of the couples registry. So Zola’s in New York based company. They are a wedding company that caters to millennial couples. Their first product in the market was a universal wedding registry, which sounds very simple. But if you’ve ever gone through Bloomingdale’s on a Sunday with your clicker or Crate and Barrel and click, click, click, click stuff for your wedding registry, ZOA eliminates the need to do that and also allows couples to add anything they want to their registry as across the Internet. So literally anything in the world, which is pretty cool. And Zola has been around. I think they were founded in 2000 and 12 or 13. And they so they’ve been around in the ecosystem for a while and now they’ve raised us. The last round was over 100 hundred million dollars. And so they’re a real company that has made an incredible impact in New York and beyond. The founder is a woman. And when we saw the company, that Female Founders Fund, they were out pitching an idea that was that had a little bit of traction and had a there there, but was not yet the the the presence it is in the ecosystem today. And when we saw the business, my partner and you and I were like, wow, this is incredible. Weddings are a multimillion billion dollar industry that really hasn’t seen any kind of innovation since Registry’s sort of went online. And if you think about all of the spend that happens in the space and all the consideration, why isn’t there a company that creates a more modern experience that can own the end to end experience for couples like. Oh, so it is probably that company. We’re going to do it. All right. That’s an oversimplification of our investment process, of course. But I want you to consider that and take the converse, which I think a lot of less diverse firms express, which was they looked at that company and they said, yeah, a lot of people get married, but a lot of people get married once. Right. So what’s the what’s the recurrence in the space? Right. What’s LTV here? And and how do you build a big business? Let’s look at all the other businesses in this space and use a historical context to project out future outcomes. And I think that’s where the flaw is, right? Where when you don’t have a diversity of thought around the table, you use you use proxies that don’t actually hold true in the real world. And so, you know, from 2013 or was a 2014 when we invested to nouse or has done some incredible things and again, become the predominant wedding company in in the space. And that was a very different that was a very different view that we took that ended up being a really good bet and unorthodox but relative to other investors.

Laura Chau [00:22:57] I will also point to one of our portfolio companies, which is the real real if you’re unfamiliar with the real real, it is an online luxury consignment platform where you can confine your used or potentially new luxury items. So clothing, handbags, accessories, art, jewelry and consignment onto a secondary market. The real real takes all of that inventory. They authenticate everything and then they sell it and they have massive amounts of data to understand how to move all of that product. Very, very quickly to company, actually, iPod earlier this year. But when Julie Wainwright, the CEO, went out to raise capital early on, she initially was pitching a number of male investors. And the response that she continually got was either they didn’t understand the business and said, why would someone want to buy used shoes from someone else? That doesn’t seem realistic. Or they would say, oh, let me go home and ask my wife and see if this is a real thing. And I think oftentimes investors get caught up in the biases of their own experience. And when you have an investor base that is primarily male or primarily, you know, a single demographic, you end up missing out on a lot of these opportunities that might be obvious to other people. And so Julia said multiple times that she didn’t have success finding an investor who understood her business or believed in the vision until she met with Cain. And I met with a female partner. And now, again, the company had a fantastic IPO earlier this year. I think there are dozens of other investors kind of have their tail between their legs and have the real real on their entire portfolio. But it’s a great example. And it was something that really struck me of recognizing not only do we need a a more diverse investor base, but also there’s huge upside and huge opportunity in investing in diverse entrepreneurs and also, you know, categories that often are for a different consumer set. The other thing I’ll add with Julie is that, you know, she was a repeat CEO. She had been CEO seven or eight times by that point. She’d previously been the CEO of a public company and she still had not much trouble raising money.

Elizabeth Edwards [00:25:18] And oh my God, I see that all the time. So one of our company’s previous portfolio, pelletized, it’s actually mostly male founding team, but they’re like target, target, like the eye. A customer was a new mom that made over one hundred thousand in income because she’s the one that’s having trouble going to the gym. Right. She’s got young kids at home. She can’t go anywhere. They pitch to a thousand angel investors and early stage funds in order to raise the first 20 million. We’re like the last two million in there. And it was really hard. It was a slog like how do you tell that story and say, like, this is a real problem. Another kind of interesting one. I was talking to some other investors in the consumer space and we’re talking about incontinence and incontinence is kind of an interesting category, because if you look at Japan and actually the U.S. is pretty close to this, the sale of adult diapers is going to eclipse the sale of baby diapers. Are it already does in countries like Japan where you have more older folks there. But that’s not the only story around incontinence. So is talking to this investor and he was looking at a deal on incontinence. He goes, yeah, it’s incredible because like what we’re finding is that these millennial women are buying it for their parents. And I don’t know if there are any women in the room, but I’ve had kids, but I’m like, really? Are you serious right now? No, no, they’re not. They’re not I’m not buying incontinence products from my mom. My mom can get online. Trust me. She buys plenty of things online. Millennial women also have issues with incontinence, which is why you have companies like Thinks an icon and like massive, massive companies that are selling incontinence products to women who have recently had a child, because that’s actually a big part of the market. And so what it really highlighted was, you know, why on this investing team, but probably also on lots of different founding teams, if you’re not really, really willing to get in there and address what the consumer pain point is and really know your consumer, if you don’t have those people on your team, you need to do a whole lot of insight work. So I think there are a lot of blind spots, so we can probably go on and on forever talking about. But one last quick question. So we have a long way to go. And seeing parity and venture capital, what do you think needs to happen in order to accelerate progress?

Laura Chau [00:27:59] I can go first. It’s a huge question, and I think there’s so many things that need to happen and are in the process of happening. First, I think we need to start at the top in terms of diversifying the investor base, which I mentioned, because I think, again, so much of that capital can trickle down. I think identifying ways to democratize access, both in terms of access to capital, access to introductions, access to community, I think a huge amount of building up kind of a an ecosystem where women or minorities or underrepresented groups can become successful, find capital or even just find the right connection to another entrepreneur who can help them out means that we need to figure out ways to build that community early on.

Sutian Dong [00:28:46] If I were to double click on one thing, it would be more more diverse. Funder’s right. So to get more diversity into Founders’ who look a little bit different, you need to have more people who see those opportunities without needing to do the depth of industry research because they natively understand those problems.

Zavain Dar [00:29:08] 100 percent agree with everything that you guys both mentioned. The only thing I’d add is just guys and kind of guy only rooms, which unfortunately still happens a lot in venture and tech and finance. And all that stuff is holding each other accountable. And again, I think about the example from earlier today. We’re down to kind of gave our guys will be guys haha joke. And in so many ways that kind of you know, it normalizes a lot of the horrible behavior that that’s happened in the last decades and business. So holding each other accountable I think will hopefully never change in the Vasseur kind of capacity.

Man in the background [00:29:41] And our time is up. Our next speakers are ready.

Elizabeth Edwards [00:29:43] Let’s give our Panelists and big round of applause. Thank you guys so much.