4 Ways Venture Capital Can Work For The 99% And Be Profitable
Ten years ago this month, we witnessed what could very well be considered one of the most significant events in modern American history: in Zuccotti Park in downtown New York, Police stormed a small makeshift compound, evicting a small crowd of occupiers and putting an end to what has become the Occupy Wall Street movement.
Or did they do it? Although the physical presence of Occupy, which I passed through daily on my way to work, was short-lived, it continues to weigh heavily in the popular and political imagination, inspiring voters and candidates for the past decade. . And its key slogan – “We are the 99%” – has become a rallying cry adopted by a surprisingly diverse coalition that includes everyone from whites to the conservative working class to African Americans struggling with a lack of opportunity. economic. Americans left, right and center say they are unhappy with a system that continues to enrich a tiny fraction of the population while ignoring the vast majority.
It is time for us venture capitalists to listen.
I say this not as a revolutionary aspirant, but precisely because I am a happy capitalist, a managing partner of a venture capital firm. I say this because I would like my industry to thrive and, as it does, improve the lives of an ever-increasing number of Americans. And I say this because even though venture capital funding reached an all-time high in the first half of 2021, reaching an astounding $ 288 billion, there is still a lot that we can do to make sure more money comes in between. hands of founders who are not. just grouped together in two or three coastal technological bubbles and which represent a real diversity in all senses of the word.
CrunchBase data shows, for example, that the founders of Black and Latinx only received 2.6% of the funding last year. And while the foundresses have started to see a slight rise when it comes to funding this year, they have fared even worse during the pandemic than their male counterparts. Beyond race and gender, geography also stifles accessibility of capital: companies based in California, New York and Massachusetts took in 73% of all venture capital funding last year, despite those states, combined, representing less than 20% of the US population.
While there has been progress on all of these fronts lately, and I think the industry is well-intentioned, it still seems very possible to make venture capital fairer and more efficient at the same time.
How? ‘Or’ What? First, let’s take a look at who’s in the room. If you walk around in any VC meeting, you will likely come across mostly men who are largely white (like me) and who more often than not reside in the same three states and have attended the same six or seven colleges. elite. This means that the number of people who have access to a lot of money is already limited to a very small subset of the population, which is a problem not only if you care about equality but, just as important, If you care about making money, you hardly need to be an Ivy League MBA to realize that focusing on a small subset of businesses based on education and l The location of their founders isn’t exactly the best recipe for rewarding bold, pioneering and lucrative ideas.
My fellow VCs are not clueless; they know it well. So why do so many people continue to limit their choices? Let’s look at the numbers. Let’s say you have a fund of $ 100 million. That’s a huge number, and one that would certainly make you proud at cocktails. But of that number, only two percent is allocated to expenses, which means that every penny spent to keep your business running (payment of partners, employee salaries, offices, travel expenses, works) comes from that pot of two. millions of dollars. Essentially, this means that even with a lot of money behind you, you are essentially running a small business without too many resources at your disposal. The game then becomes how efficient you can be with your time: you quickly learn that you can’t take all the meetings and, worse still, that there isn’t much you can do to help the portfolio company. after the investment, which means that even if you stumble upon the best idea ever but know it will take a bit of work to get the entrepreneur where it needs to go, you probably won’t be able to get it right. ‘help make it happen because you don’t have the time.
So the answer is simple: we need a different model.
What can it look like? Four key things come to mind:
- Geography matters: Don’t take my word for it. Just ask Steve Case: the former CEO of AOL is betting big on the heart of the country, understanding, as he does, that creativity knows no geographic boundaries, which is why he launched an initiative that , to date, has raised $ 300 million and supported more than 175 businesses in more than 70 cities. It is not a philanthropic endeavor; several companies funded by Case’s Rise of the Rest funds were acquired, including BacklotCars in Kansas City, Missouri, and Pear Deck in Des Moines. It’s a smart business to realize how much money is left on the table if you only look for great ideas in six or seven zip codes.
- Support the founders: The men and women who come up with ideas to transform local, national and global economies need more than your money. They need your wisdom, your experience, your rolodex, anything that can help them overcome the considerable hurdles of starting a new business. Bentonville-based venture capital firm Endeavor, for example, has in partnership with Harvard, Stanford and INSEAD business schools to help executives at its portfolio companies develop through weeklong programs.
- Look for unorthodox partners: Giving founders the support they really need and deserve, however, can be a demanding task given current venture capital models, so now is the time to seek out and engage non-traditional investment partners. to help make this possible. From nonprofits and local municipalities to strategic distribution partners, a multitude of interested parties eagerly await partnerships that would enable them to invest in sustainable growth, one that nurtures the local economy, creates new opportunities. new jobs and empower communities. My company, for example, has only one investment partner in the George Kaiser Family Foundation. These non-traditional donors, who are becoming more and more popular, can often help VCs feel a little less risk averse and ease financial pressures, allowing investors the time and effort to make great ideas a reality.
- Be diverse, for real: You can tick boxes and give lip service to the latest buzzword. Or you can take diversity seriously by creating the kind of environment that can nurture raw talent, investing in everything from incubators to the education and networking opportunities that help identify and develop the entrepreneurs that most other investors ignore it.
This is what venture capital looks like for the 99%, and it can only happen if we all work together: nonprofits and fund managers, local governments and investors, all coming together to give more. Americans have the chance to realize their potential, making our nation richer not just in wealth but in opportunity for all.
Michael Basch is a Managing Partner at Atento Capital in Tulsa, OK.