ANNUAL EQUITY SUMMIT 2022 RECAP
Funding the Future and Spotting Talent
With Dana Settle, Linnea Roberts, and Natasha Mascarenhas
With Dana Settle, Linnea Roberts, and Natasha Mascarenhas
Linnea and Dana met when both were working for Lehman Brothers—at a time when there were relatively few women in the venture ecosystem. Natasha joined them to talk about the long game of creating more diversity in venture capital.
Any time there’s a market pullback, Linnea said, there’s an even bigger pullback around investing in diverse founders, and we’ve seen that in 2022. But equity ownership should be equitably distributed, said Dana. “Especially during times like this when things get tougher, people need equity. They need to have skin in the game in order to really want to continue, to dig in and get through the hard times.”
“When the markets are a little wonky,” Linnea said, it’s easy to think pushing for diversity isn’t worth it. “But I actually think this is the time that we double down. This is the time when we see there are amazing opportunities to create positions of equity for investors, for founders. Especially when the times are a little bit more difficult.”
When the markets are a little wonky, this is when we see there are amazing opportunities to create positions of equity for investors, for founders. Especially when the times are a little bit more difficult.
Venture is by definition patient capital, said Linnea. The average venture check is seven or eight years. It moves slowly. But landscape shifts are happening: When she started Gingerbread Capital in 2016, she could count the number of women-focused VC firms on one hand; today, there are over one hundred.
The pandemic and the remote nature of work has been a challenge, said Dana, because without going out and mixing as much, investors were reverting to their old networks—which are still smaller groups of mostly white men.
Dana and Linnea signed the diversity rider, which about a hundred VC firms have now signed. It’s a rider in their term sheet. It stops you in your process when you’re leading a deal and forces you to question whether you’ve been inclusive, Dana said.
Gingerbread Capital is focused on investing in women, but it is not an impact fund, said Linnea. “We’re unapologetically focused on return. And yet, definitionally, what we do is impactful, because I firmly believe that when you have diversity at the top of a company, at the top of a fund, good things happen.”
At Greycroft, Dana said, they don’t have a mandate, but they do fund a higher percentage of women just because there are three women partners. Women are comfortable pitching to Greycroft, she said, and that’s important from a market standpoint. “Often, that’s where there are opportunities—when people are undervalued or overlooked.”
Often, that’s where there are opportunities—when people are undervalued or overlooked.
If you have a woman GP, on average 30% of their portfolio companies are led by women, even without a diversity mandate, said Linnea. It’s key to get more decision makers at very senior roles. The addition of one diverse team member can shift your funnel by a huge amount. But diverse representation in the funnel, Dana said, needs constant maintenance, and it has to come from the top. “You can’t let up.”
When you bring in new people, encourage them not to bring in things you might like, but things that challenge your thinking, said Linnea. People have blind spots, Dana said, and the wonderful thing about seeking diverse perspectives is that it helps you understand your own. “We believe that diverse opinions make for better decisions.”
Building a team is like getting married, Linnea said. “If you’re a young couple, it’s very easy to have stars in your eyes and think about all the wonderful times, of which there will be many. But I always say, ’Imagine the worst conversation you have to have. Can you have it with that person?’”
Due diligence on investors is also important, Dana said. You need to really ask about how they behave in good times and bad. Get them to talk about their challenges, get the founders they’ve worked with to talk about failures, to understand how they’ll be to work with.
“We all make mistakes in investing,” said Linnea. “That’s the nature of this beast. The question is, can you learn from those mistakes? We just went through this at our fund: What worked well over the last year and where did we stub our toes? In most situations it was being reactive and getting caught up in FOMO.”
FOMO, she says, is okay. “If we didn’t make some mistakes, we wouldn’t be taking enough risk.” But really understanding the risk you’re taking is important. She’s hopeful that when people write large checks, they’ll learn from the FTX mistakes. A lot of those, she said, were “just plain governance stuff.” Governance is the right thing to do, Dana added, but that data can also help founders learn about their company.
