Creating diverse venture capital firms is possible, if you’re willing to do it

Venture capital firms are known for being an incredibly exclusive group. The firms themselves are often small. Even smaller is the number of partners, the actual decision-makers who control hundreds of millions — sometimes billions — of dollars. At the biggest firms, there might be a dozen partners maximum. And if you’re an entrepreneur who wants some of that money, it definitely helps to have gone to college with one of those partners.

Kapor Capital is trying to be more inclusive in whom it promotes and funds. One way it’s different: It finds founders primarily through a submission form on its website instead of networking. I spoke with Mitch Kapor, the firm’s founding partner. The following is an edited transcript of our conversation.

Mitch Kapor: It is liberating because it means you don’t have to know us, you don’t have to have a warm intro as a founder to get attention, because we put everybody through a uniform process. So it’s not who you know, it’s do you close gaps?

Molly Wood: There’s also a pretty common argument among the firms that I’ve spoken to that it’s really hard to diversify their partnerships because in some cases, firms don’t have that many partners [and] it takes years to develop someone. But Kapor Capital has four partners, and two of them are people of color. Why is your strategy so different?

Kapor: Well, we made a commitment to having a diverse team and funding a diverse portfolio when we started a dozen years ago. They say the best time to plant a forest is 500 years ago, the second-best time is today, so achieving diversity on your team is something that is an ongoing process. If you rethink who are in your networks, which demo days you go to, you broaden your network to be wider in every possible way, your network, out of which you recruit, is going to reflect that over time. There isn’t a quick fix, but there are absolutely things that you can do.

Wood: I feel like I have been doing these interviews for a while, and a lot of people say the same things. And some of the things sound just like what you’re saying, except the difference is that you and your firm have actually done it. Is it just a failure of will?

Kapor: People are — I mean, if I try to lend a sympathetic ear to what I’m hearing — they are trying, but the question is, do they take it seriously or not? Because anyone who’s been in tech knows that if it’s not a top three priority, it does not get done. And part of the problem is it requires holding up a mirror and understanding that if you’re, like, a white male VC, you have had a set of advantages that other people have not had that have gotten you where you’ve gotten. And you have to hold up a mirror and say, “That’s not fair, and I need to do something to fix that.”

Wood: What made you hold up that mirror?

Kapor: Well, I’d say two things. So first, I grew up in the ’50s and ’60s as a nerd at a time when it was very uncool. So I was an outsider’s outsider and have always had that perspective. But I would give credit to my wife and partner, Freada Kapor Klein, who has been doing this kind of work for decades, her entire adult life, for being an influence, patient … most of the time, influence on me to help me reconsider and really bring me closer to the lived experiences of people who come from very different backgrounds. Over time, I was able to connect my own sense of how bad it felt to be excluded from things with the broader life experiences of people that have experienced systemic racism. And I know that’s a loaded word, but I think we need to get comfortable including it in our discourse.

Related links: More insight from Molly Wood

I want to reiterate that the reason we keep talking about diversity in VC is both moral and because the lack of diversity is leaving money on the table. As Kapor says, genius is evenly distributed by ZIP code, but opportunity is not. I’ll remind you of our October 2019 interview with Carla Harris of Morgan Stanley about its research that says that by not investing in more diverse founders, venture capital as an industry could be missing out on $4 trillion in value. Boston Consulting Group finds increasing diversity in leadership groups boosts innovation, and that innovation translates into new products that generate revenue that’s 19 percentage points higher than companies with below-average diversity scores.

Improving innovation seems very relevant at tech companies and startups. A 10-year study from First Round Capital found that companies with female founders outperform all-male-founded companies by 63%. And so on. So if the growing mountain of evidence of possible profits doesn’t make diversity in investing and hiring a top three priority, I can’t imagine what those other priorities look like. And if I were a pension fund investing in one of those firms, I’d be asking that question.

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