Last week’s Startupfest was jam-packed with something for everyone — whether you were interested in networking and casually checking out the startup scene at Startupfest’s Tent Village, or hoping to soak up insight from top investors and founders from around the world, neither was hard to find.
One of the conference’s insightful talks was an Investor AMA moderated by iNovia Capital managing partner Chris Arsenault, which included 500 Startups’ Neha Khera, Gaingels’ Paul Grossinger, and White Star Capital’s Lylan Masterman.
The talk was set up to be a casual back-and-forth between the audience and investors, and gave attendees a chance to hear what investors really think when startups pitch them, how to become more effective pitchers, and what being an investor is really like.
“To learn from what we’ve experienced, we need to pay that forward and that’s already in the works.”
– Neha Khera,
500 Canada
Arsenault said that it’s important to understand the lens of the investor you’re pitching to — considering factors like whether they’ve lost money, or operate from a finance or operations perspective.
“Understanding who you’re talking to is extremely important in order to understand what type of filters that person that you’re talking to has, so it goes beyond the brand of the fund and the team, down to the people that you’re going to be talking to,” he said.
Khera added that it’s important for a company to consider whether venture capital is right for your company at all, calling VC money a ‘stepping stone’ in a journey.
“A lot of the companies I see actually aren’t suited for the VC model, which is scale fast, look for an exit in six, seven, eight to 10 years, and a lot of these companies are going to be bringing in lots of cash and become extremely profitable — but they’re not fitting that VC model and that’s not a bad thing, that’s just something a company has to think about.”
Inevitably, the conversation turned to diversity and culture within the tech community; the investors were asked questions like whether a non-diverse founding team should be seeking out diverse investors.
Listening to the Investor AMA at #StartupFest @lylanm @naykhera of @500Startups @chrisarsenault @pgrossinger open about venture capital pic.twitter.com/1OgXjO1022
— Naveco Power Inc. (@NavecoPower) July 13, 2017
“Diversity is so important. I mean, study after study has shown that diverse companies perform better. I think the issue that we all face is just when you’re looking at 100 companies, maybe three to five of them have a female involved,” said Khera. “It’s such a small number, and we were talking about this actually before the panel — that issue is so much more deep rooted, it goes down to getting more diversity in STEM to begin with and getting those people to funnel up and actually start companies.”
Grossinger — whose fund specifically invests in LGBTQ+ founders — provided his perspective on how specifically focusing on a diversity vertical has turned out for his firm.
“One of the things that we found is that unquestionably, diversity of the founding team leads to founder returns. We do find that LGBT founders are actually statistically far more likely to work with a female co-founder, have a female co-founder, and also have a diverse co-founder. So 50 percent of our portfolio actually has one female founder,” he said.
He adds that investors can do a small part to encourage diversity within the investing community by being thoughtful about their round strategy. For example, he says that earlier stage rounds are syndicated to some degree, and even the big VCs will allow in value-add investors if they know them personally.
Companies with great cultures attract and retain the best talent, and therefore are often the best companies.
– Lylan Masterman,
White Star Capital
“When you think about that, you can say okay, I want to have the big fund, and then beyond that I have these three very strategic Angel Syndicates, mini VCs that are specifically strategic to me because of diversity, or because they know my space well whether it’s retail or what not,” he said. “If you come to your large investor with that planning and say, I want [these people] because of these specific reasons, they’ll typically respect that, especially if the cheques that those folks are filling are small enough that the large investor doesn’t feel threatened by that. It’s a non-threatening strategic assistance and then you can also do the same thing with LGBT or female-led funder.”
The investors were asked, in light of what’s happening at Uber and revelations of sexual assault at in the Valley, whether that’s changed the way they evaluate earlier stage companies. For Masterman, encouraging a positive company culture is not just important for the good of society, but for the benefit of the company itself.
“Fundamentally, companies with great cultures attract and retain the best talent, and therefore are often the best companies because of their people and therefore generate the best exits. And so it’s largely my financial interests in companies that have amazing cultures,” said Masterman.
Coming from 500 Canada – and in light of allegations of harassment by 500 Startups co-founder Dave McClure — Khera was asked for her perspective.
“500 now has an education job to do to say we’ve learned from our mistakes — here’s what we’re going to pass on to all the companies that we’re investing in to say, ‘here’s what to look out for if this happens to you, here’s what action to take,’” she said. “To learn from what we’ve experienced, we need to pay that forward and that’s already in the works. Some programming is going to come out. Some really great initiatives are coming out around that.”
Khera also suggested that investors sitting on boards can do better to make culture a more integral part of board discussions.
“What investors hear at the board level is not culture; nothing to do with culture. When you talk to employees in those companies about culture, the board does not get any of that, so there’s actually something that needs to be done where boards actually receive a bit more of that information about culture to start helping,” Khera said. “I think that’s the case at Uber. Those investors probably didn’t know what was happening because they were shielded from it right or in meetings you’re talking about numbers and all the hard metrics, culture rarely comes up.”
Photo via Twitter