The facts are the facts: Black and Brown companies are underfunded. Women-led companies are underfunded, earning less than 1% of venture capital funds over the last decade. This panel will get to the root of the problem and discuss how entrepreneurs can attract future capital.
Bukie Adebo Umeano, Investment Principal, Anthemis Group Michael Proman, Managing Director & Partner, Scrum Ventures Derek Smith, Founder & CEO, Plug In Ventures Moderator: Ali Jackson-Jolley, Assistant Managing Editor for DEI, Forbes.
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Bukie Adebo Umeano, Investment Principal, Anthemis Group Michael Proman, Managing Director & Partner, Scrum Ventures Derek Smith, Founder & CEO, Plug In Ventures Moderator: Ali Jackson-Jolley, Assistant Managing Editor for DEI, Forbes.
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LifestyleTranscript
00:00Please welcome back Allie Jackson Jolly and
00:03panelists Buki Adeba Umano
00:06investment principal Anthem is group
00:09Michael Prohman managing director and partner scrum ventures and Derek Smith
00:14founder and CEO of plug-in ventures
00:23Yeah, so the name of this panel is show me the money and that's exactly what we're going to be asking these
00:30Venture capitalists to do with us, but Buki I'm going to start with you as a woman in this
00:37field
00:39what do you see and
00:42Second part of that is
00:45What can what do you see that you think the rest of the VC?
00:50Industry isn't seeing in terms of how they can open up access for women and
00:55people of color
00:57Yeah, so you kind of hit the nail on the head second part open up access and the reason why access needs to be opened
01:03Up is that it's very closed right now, right?
01:05so
01:06Ventures an industry that's very network-driven
01:08Most people do deals because they know the person or they felt comfortable backing that founder
01:14They believe in you especially at the earlier stages. So I invest at the precede in the seed stage
01:19So some of the first institutional money to come into the business
01:22Sometimes there's not even that much business, right? It's just about the person
01:26So you really are making a bet on the founder and that's why it's super easy for the bias to come in
01:32Because you're making a decision based on a person
01:34And so it's easy to say well, I don't know if they're the right fit
01:37I don't know if they have the exact right background
01:38I don't know if they really it just doesn't click for me me and that founder and so that's so of course what typically ends
01:44Up happening is that people just keep investing in people who look like them people who feel familiar to them people who have similar backgrounds to
01:50Them and so that I think that's the underlying nature of the venture capital industry
01:56And that's one of the things that I would like to see change
01:59And how about you know, there's been a lot said that when you're investing as a venture capitalist
02:07You're investing in the person as much as the idea. And so
02:12When you see women pitching is there anything that?
02:18Knowing from research that we've looked at that women tend to
02:23Be a little bit more
02:25Behind the scenes as Ayanna Parsons was saying is there something that could be done differently in terms of?
02:33Black female founders or is that just antiquated to expect the founders to change and it's the industry that should change
02:42so I
02:44It's the industry that needs to change
02:46But I do think that founders can learn to beat the industry at their own game, right?
02:50So if you know what they're looking for
02:52It's easier for you to walk into that room and make sure you're ticking the boxes that are gonna be in their head
02:56because one of the things that we talk about all the very first question of venture capitalists is gonna try and understand is is
03:01This business big enough to return my fund. That's the first question. They're gonna ask themselves
03:05So if the if the VC firm has a hundred million dollar fund
03:08Like for example, and they invest into your seed round by the time your company exits
03:13They're probably gonna own like two two and a half percent of your company
03:16So that means in order for your company to return their fund
03:19Which is what they're looking for right because most of their businesses don't succeed
03:22So they need a handful of companies to return the fund in order for your company to return the fund
03:26It has to have a four billion dollar exit
03:28Right, if you know that when you walk into the room if you know that math and you know, okay
03:32They're looking for a four billion dollar exit every time they invest when you present the revenue opportunity
03:36You have to make sure that you're showing them an opportunity that could eventually lead your company to be valued at four billion dollars
03:42Right, so that's how you beat them at their own game
03:44If you don't present them with an opportunity of that magnitude, you won't even get a second meeting
03:49Yeah, so knowing that when you walk in the room, I think helps to build your confidence now
03:53It doesn't mean that you can erase the fact that they have bias, right?
03:56But you can at least start to check some of the boxes that they could use to keep you out of coming into the room
04:00Again, yeah, I like it Mike
04:02Let's just address the elephant in the room
04:06So in sitting in your position as a white man in venture capital
04:11I want to talk to you about
04:14Underfunded
04:15founders
04:16What is the root of the problem?
04:18And I have a second one
04:20But I'm gonna let you start with just telling us from your position that what you may see that we don't see
04:26What's what's the root of the problem? Yeah, it's a great question. And thank you again for having me here
04:31I think there's a direct correlation between
04:35underfunded and under networked
04:38And I mean that in in kind of a the context of Jabari hosted a panel up here earlier today where we talked about
04:44intellectual property
04:46In a world of AI in a world of commoditization in some cases
04:50What is the one thing that you can actually own is your network, right?
04:56That is the thing for me personally
04:58That I think about when I think about IP
05:01People run circles around me whether they be on my team the founders I meet probably everybody in this room for that matter
05:09But the one way I feel I can kind of hold my own is the network
05:14And so that's something that's really powerful. I think and it's really under tapped
05:18I think in the fundraising process is that when I get on a call with a founder even if it's a preliminary or kind of
05:24an initial stage conversation
05:26It's a two-way street
05:28I want them to pick my brain my network the experiences the people who I've been
05:33fortunate enough to work with throughout my career and then even if we're not able to
05:37Write a check or if it doesn't fit the fun thesis or something of that sort
05:41They need to be able to walk away with better connections
05:45Potentially connections that are going to help them raise capital
05:47But maybe also connections that are going to help them commercially be successful
05:52And so again, I think as a venture capitalist somebody who wants to see more inclusivity in the space
05:57It's not just about writing a check. We oftentimes get tight-casted as just the bank so to speak
06:04But as a former founder myself as an operator as somebody who's worked in places like coca-cola here
06:09The National Basketball Association in other ways, there's so many different ways. I feel I can add value to this ecosystem
06:17Yeah, and is there anything else that you think isn't really being talked about?
06:22That should be talked about in terms of underfunded
06:25founders and communities of color
06:29Absolutely. I mean, I think we just need to have more social curiosity and more awareness
06:34We need to go out of our way
06:36I mean, it's very easy to stay in your lane and be hyper focused on a certain, you know
06:42Spec or kind of what are the the folks that we're looking to fund? We need to be open to new ideas
06:48We need to invite people into the conversation and into the room that have different perspectives
06:52Good example of this is we just added Kyle Kuzma as an advisor within my fund
06:58Kyle brings a network and he brings I would say an acumen that nobody around the table has right? And so when I think about
07:07The types of companies we go after I always ask myself who's missing, right?
07:11I think that's the question
07:12We all have to ask ourselves is whose perspective is missing here today
07:16And how can I be better as a an investor to surround myself with the right people around the table? Yeah, I like it
07:25Derek I'm gonna go to you
07:28So as the founder of inventors, I was hoping you could describe to us in
07:32As few words as possible the mission and thesis of your firm
07:38Thank you for that. Yeah plug-in ventures is focused on supporting
07:42Early stage black and brown entrepreneurs bring it to market
07:47Solutions that impact, you know
07:50Consumers and really the world
07:53So what does so tell me now dig in a little deeper. What does that mean?
07:59You're specifically looking at
08:02Founders who have a solution that will impact the world
08:05What are you looking for? Yeah, we focus on a few sectors that plug-in ventures fintech climate and sustainability
08:12Digital media and digital health. These are sectors that we think if we can sort of find
08:18Founders with big ideas addressing big problems. We can transform not just sort of like markets but also impact communities along the way
08:26Yeah
08:27And so I'm looking I want to go back to you and ask you also the same thing. Could you explain the thesis?
08:34and the mission of
08:36your company
08:38Yeah, so
08:39Anthem is group is focused on investing in businesses from pre-seed through growth that touch the world of financial services in some way
08:46So typically that means it's a fintech business and insure tech business and embedded finance business and by embedded finance
08:53I just mean that it's some other type of software or tech platform that can embed financial services down the road and make money off
08:59Of those financial services. So anything that touches financial services or any adjacent industries fits within our thesis and we're multistage
09:05And what makes you the most excited like looking it's been it's been a hard economy, right?
09:11inflation sub
09:13as our
09:14Rates, but what makes you before I ask you what makes you scared? I'm gonna ask you what makes you excited looking forward
09:22So we're I mean the last six months or so. I feel like quality deal flow has picked up
09:28So we're seeing a lot of enthusiasm from founders. We're seeing a lot of entrepreneurs who?
09:32For one reason or another a lot of them actually came out of a playoffs all the tech layoffs that happen people are in a
09:38Position where they're like, you know what when I go out on my own and start my own business
09:40So we're seeing a lot of talent in the in the early stage space right now
09:43So I'm pretty excited about that and then when it comes to financial services specifically
09:48I'll double-click on one of our thesis areas that I'm pretty excited about so
09:52moving forward
09:54Yes, you have your financial institutions that you're gonna go to so you'll go to your bank
09:57If you want to start a checking account, you'll go to an insurance company if you need an insurance policy
10:01But increasingly we're gonna see financial services meeting people where they are
10:04So instead of you having to step out and actually go to a financial institution or engage with financial platform
10:09you'll be served up the financial product in your social media platform or in your ride-sharing app or in your
10:16You know, you name it and so the idea of financial services kind of meeting people where they are
10:20That's the the concept of embedded finance
10:22And I think that as you layer generative AI on top of that and it becomes a little bit smarter and more intuitive
10:27You're gonna start seeing people interact with financial services in a way that they never had before and that's gonna make it more
10:32Personalized and more effective. So that's probably the space that excites me. Okay, so now I got everyone excited
10:37Let's talk about what you find what you think is scary again the raids, you know, it's it's a it's a turbulent
10:46Economy. What makes what do you think is?
10:48the hard thing for
10:51Your industry and specifically for founders in in looking for VC right now
10:56Yeah, I'd love to hear if my panelists agree, but I think the capital is still scarce, right?
11:03People talk about the fact that there's unprecedented amounts of VC dry powder. So a lot of VCs have cash
11:08And I don't think it's enough just to have the cash right because a lot of them
11:11They're reinvesting that money into their existing portfolio companies that are struggling
11:15They're writing checks at a slower pace because they're anxious right their portfolio took a hit over the last couple of years
11:21Their LPs aren't happy
11:22So I think the thing that scares me most is that capital is still scarce
11:25People are not quick to write checks
11:27And so if you're going out in market to fundraise make sure you give yourself a lot of buffer
11:31We're encouraging our founders to like increase their runway go to market when you have 10 12 months of cash left
11:37Not when you have five months of cash left
11:39So that's probably the scariest thing right now is it's still hard to actually get the capital in the door
11:43Yeah, and Mike, how about you know your firm focuses on?
11:49Sports tech
11:51What are you looking for? What are you seeking in?
11:552025 let us know so we can try to you know, get it in front of you
11:59Yeah, you know, we're very fortunate that we're in a pretty high-profile space when you talk about sports and entertainment
12:07it certainly
12:08Brings a lot of people to the conversation in that regard
12:12But at the end of the day sports entertainment is a relatively small industry
12:16And I think when you look at it from a venture lens
12:18It becomes more challenging if you're only looking for endemic solutions, right?
12:23If you're only selling into teams leagues and properties, it's probably not venture backable
12:29It's probably to industry endemic as Buki said
12:32We're looking for that 10 20 plus X type of exit and to be able to get that
12:38You need to really democratize the technology and so a lot of the focus not just now but looking ahead to 2025 as well as
12:45Looking at adjacencies looking at bigger markets that speak to elite athletes
12:50But also speak to everybody on this panel or everybody in this room who's not an elite athlete, right?
12:56So we've invested in the sleep health company. We've invested in the company that is in the volumetric video space
13:02We've invested in a display technology and you could argue none of those are sports tech companies
13:08I really like the idea of saying we are a
13:12We are kind of more of a tech investor
13:15Playing in the sports and entertainment space looking at adjacencies looking at things that transcend the vertical then we are
13:22hyper-focused in the vertical itself
13:24yeah, and
13:26Derek one more question for you before I go to the speed round and ask everyone the same question
13:31and that is
13:33You know, like let's go beyond check writing, right?
13:37What do you say to founders?
13:41When is the right time to actually look for that check and when is it time and I think you spoke a bit to this
13:47But I want to hear your view on it to to take some time and not
13:52Not, you know necessarily look to be venture funded right at the moment. Yeah, this is a very important sort of
14:00You know point that I think we're
14:02Having a lot of conversations with founders at the present moment, right?
14:06You know in this market what we're telling companies is that you need to make sure that you
14:11Validated a product market fit in the marketplace and that you can move the business forward with cash flow coming in the door
14:18This is where all founders need to be focused right now in this current market if you have a software base
14:24You know sort of venture backable business the markets have shifted
14:28Five years ago, it would have been the opposite
14:30You know that would this would not have mattered as much but in this current market
14:35you really have to demonstrate that there are customers out there who care about the problem that you're solving and
14:41Find this product or technology or service relevant to them at scale
14:46Yeah with the sense of urgency. It's really important
14:48that's another important piece that I call that that the problem is urgent and that customers are showing that you have the
14:55secret sauce to solve their problem
14:57that is the most important piece to really navigate in the current market at the present moment so that you can then dial in to
15:04Venture and or investors that really believe in this vision and can see it through how the business is operating and winning customers
15:11Yeah, and so
15:13speaking of secret sauce
15:15With three minutes left to go one minute per panelist. What is the secret sauce?
15:20What makes you the most excited in a founder like when you there's a someone who's coming to you and looking for funding and you
15:27Say, you know, that's it
15:29They have the secret sauce because they've done X Y & Z or they bring, you know, one two and three
15:37Okay
15:38No pressure. There's a lot of things that can make a founder really compelling, but I'm using I have recency bias
15:43I'm thinking of founders. I talked to last week
15:45So one, you know your space intimately and you have a connection to the space in which you're building
15:49So either you have worked in that space before right?
15:52So you have real hands-on experiences or you have a personal experience in that space that makes it really important to you
15:57So it doesn't just have to be professional, but you're connected to the space in a meaningful way
16:00You challenge me and bring me it bring me a new insight my favorite meetings the meetings where I'm like, wow
16:06I had a completely different viewpoint when I walked in and this founder helped to shift my perspective
16:09Or expose me to something I'd never thought about before so that's a huge piece of it
16:13The fact that you've done your homework on your customer base
16:16Like do you know your customers intimately and I don't just mean from like data
16:20Don't just know the customers the numbers right like the percentage of people who do this or that
16:24But have you spoken to them? Have you met with them? Do you understand their needs in a meaningful way?
16:28I would say those are the three big things. I look for in a founder. Wow. Well done. Can I just like take that?
16:35You took the words out of my mouth cookie, I mean it the level of thoughtfulness that founders
16:40Need to have is really critical. But I think again, it's a two-way street
16:44I I work well when I'm being challenged
16:48By founders in a respectful way and and and I'll you know challenge the the founders, too
16:55We need to develop chemistry and rapport
16:57With the companies that we invest in as we talked about before as we did it's just a good product or it's a good piece
17:02of technology
17:03It's really the jockey too and it's somebody that you can get behind and that you can collaborate with and you can partner with and there's
17:10Got to be that chemistry there
17:12You know, it's it what's what's super kind of ironic is it's not too dissimilar from kind of the dating process in some ways
17:20Right is that unless there's kind of that complementary feel in which you're really adding value and that you know
17:25You share kind of the same values and there's good alignment
17:29That's gonna make things really challenging in the future. And I think really understanding your space is super critical
17:34What is the value we can bring as an investor that nobody else can and that goes back to kind of that network IP?
17:41And kind of the residual effect there
17:44Right and Derek same question. Yeah, just double-clicking on what these two have said
17:49I think it really is about the founder having a clear vision
17:54Vision is not I want to exit this company vision is I see this industry and space
18:01Changing and evolving as a result of this technology that I'm bringing to market also experience how much experience you have in the sector
18:08And if you don't have experience that's okay, too
18:10But you must be aware right founders who are aware that they lack subject matter expertise to solve this problem
18:16But know that they have specific people that need to bring into the early team to solve it is also another sort of secret
18:22You know sort of ingredient that the founder
18:25You know sort of has in their toolkit that gets me excited when you can see that come out of them in your conversations
18:30With them. Yeah. Well, thank you. Thank the three of you from giving us some transparency into this
18:37We could I could keep going on but we're out of time
18:39But I do look forward to let's keep the conversation going get more access to VC. Awesome. Thanks for having