Conscious Conversations: How Early-Stage Managers are Changing Venture
Venture capital is having a moment—and the forecast continues to be positive. In 2020, a year of radical turbulence and uncertainty, venture fundraising surpassed a record $80 billion, according to Pitchbook’s venture monitor findings. This number is expected to increase in 2021. With this growth in dollars comes the consistent increase in venture capital funds, with more today than there has ever been before. (The United States alone has nearly 3,700 funds.)
An engine for national and global economic growth, venture capital is a critical component of the evolving world. We wanted to look deeper into what this growth means for those directly involved in the ecosystem, from the General Partners to the Limited Partners to the founders, with a specific lens toward early-stage venture capital funds that are typically capped at $100 million. Albeit substantially smaller than larger funds, the early-stage players are paving a unique road in the market by offering the founder in which they invest a greater level of equity, inclusion, and overall support.
Eva Yazhari, founder of The Conscious Investor and General Partner of Beyond Capital Ventures, recently sat down over Zoom with Victoria Pettibone, Managing Director of Astia; Gale Wilkinson, Managing Partner of Vitalize; and Barbara Iyayi, Founding Partner of Unicorn Growth Capital to explore the present and emerging fields of the venture capital landscape.
The conversation covered a wide range, from the benefits of having a smaller VC fund, to the unique challenges of early stage investing, to what is needed to allow for more innovation in future venture capital. Below, you’ll find the entire webinar to view, as well as a condensed portion of the conversation, which has been edited for brevity and clarity. You can watch the recording here.
A Conversation with Victoria Pettibone, Gale Wilkinson, and Barbara Iyayi—moderated by Eva Yazhari.
Eva: What are the advantages of being a smaller VC fund? Even though $100 million is still substantial, these are smaller pools of capital. What might be some of the implications for the founders looking for capital from a fund like yours?
Victoria: Being at an early stage is the most exciting place to be because you are able to get in at the ground with the companies—even a little beyond where some of the early-stage funds participate. But still, we're right at that point when everything is that big inflection point and there's so many critical decisions being made. We’re able to be there by the side of the entrepreneur, advising, opening doors, making recommendations and bringing other advisors in. And really adding water to really exciting progress that's been made to date. Also, we see women founders, we see underrepresented founders […] we're there at that early stage to provide the funding.
Barbara: That’s absolutely right. One of the biggest things we provide as emerging managers is we have a different game plan compared to some of the larger funds. In ecosystems that are just developing, we're even more powerful. If you think about what goes on in the US, there are all these new diverse ecosystems being formed in Atlanta, and Texas, and all these different areas, emerging managers are at the center of that. The larger funds wouldn't have built that. If not emerging managers, we wouldn't have seen the portfolio duration of those types in the ecosystem. And then internationally, in markets in Asia and Africa, emerging managers were at the forefront of developing those ecosystems.
Eva: Which provides value to the investors. What do LPs need to know is that this set of VCs is truly driving opportunities that they can't reach otherwise.
Gale: Yes, that's right. There's such alpha in the group of emerging managers as managing these smaller funds or earlier funds. For example, our organization, we have over 600 co-investors in our database. And the last time I looked at the data, over 60 percent were underrepresented co-investors. Our networks of deal flow are so broad and diverse and varied, that there's real richness there, which some of the larger firms are missing out on. To your point, there's that value being added on the investor side. And then also on the founder sides., I've had women, I've had people of color, I've had LGBTQ+ individuals telling me like it's so nice to see somebody sitting across from me, who doesn't look like every other investor. And even if I'm still different than they are like, they recognize that I'm a minority in this world. That allows them to feel comfortable. That representation is critical for the founders.
Eva: Part of why early-stage VC is really changing is because we've all said it's a different game plan. It's a response to a more traditional Silicon Valley model of investing. Some may ask why does this model actually need to change, but Gail, to your point, I think about inclusion and moving beyond this purely[…] transactional mindset. Let's take a step back and talk a little bit more about what are some of the core reasons or philosophical reasons that there is a need for a founder to point out that you look different than other investors. What is actually motivating us all to really think differently?
Gale: I think we've had incremental change so far where some more founders will get funding and then they have exits. And then there's a little bit more angel capital to go into the system and you continue to see the incremental changes. But what's happened is that there have been enough founders and enough investors of underrepresented backgrounds who are now in the ecosystem. So we're all looking around and saying, ‘okay, we need a bigger shift.’ It’s easier to speak with both the founders with investors about what kind of change we need to see. And we're finally starting to see model shifts, and new innovations.
Eva: The world at large is really going through immense change. It’s not just us rethinking our own models of VC and being emerging managers. This extends to a global pandemic, to protest movements sprung from long overdue conversations around race, equity and inclusion, to global warming. Do you feel there are also behavior changes from the public informing how you're running your fund?
Victoria: What I love about my firm Astia is the model is quite unique and different. Astia has been around for 20 years, it's a not-for-profit organization […] Our fund exists under Astia, which is the GP of the fund and then myself and my three partners—the four of us—all have incentives based on performance in the form of bonuses, and all of that. So we're properly incentivized. But at the end of the day, the more successful the Astia Fund, the more successful Astia the organization, which also is doing a huge amount of advocacy work and thought leadership and other programs to support women entrepreneurs. There's this amazing mission alignment. And then, we have built a sourcing and screening process that leverages the broader Astia community who are all volunteering time because they are mission-aligned. And we're able to use a sourcing and screening methodology that is set up to remove bias in the decision-making process. So it's really values-aligned investing, and it's not sacrificing performance at all. In fact, what ends up happening is you get better performance because of that alignment. This is the time for these kinds of models. What I do see from the general public is a much better understanding of why this kind of model actually is beneficial and does drive performance.
Eva: Barbara, over to you. Do you want to talk more about this opportunity for LPs to invest in emerging VCs? And if you could shout something from the rooftops, what would that message be about the value proposition?
Barbara: The top founders I come across are saying that the larger funds don't pay as much attention than the smaller funds [so], so there is value in being a smaller, focused, niche—whatever you call it. That's what we are trying to do at Unicorn Capital. We're focused on FinTech, we have entrepreneurial backgrounds. Frankly, I would love to build some of the companies my founders are building. So we approach it through partnerships, like we're entrepreneurs. We want to see you be successful. There’s this mindset that some of the larger funds are just finance-focused, and they're just trying to get to unicorn status, and they're not really trying to really help these companies win in their industry and become big. That is the sense that people are expressing, so it's very refreshing when they see someone who has an entrepreneurial mindset, partnership approach, underrepresented background. It’s all very different from what they get from the larger funds. All of that equals value equals returns.
Eva: What's really standing out to me from this conversation is that as emerging managers, we have more freedom than operating in the old paradigm of venture. That we’ve been able to rethink VC and understand the rules that we want to apply and then use other strategies coming from different backgrounds. For those burgeoning GPs or emerging managers, what is your advice? Are there any challenges that you would illuminate for this group?
Gale: The most important thing for any emerging manager is to be authentic to yourself. Really sitting down and understanding why you want to be in this industry? And what is important to you? And what do you want to stand for? That’s the number one question that my executive coach asked me. In this particular situation, what do you want to stand for? It's so helpful to step back and frame that and get really clear on it. So that's one of the things that I love about being an emerging manager in the space. Our team stands for really great process. We are transparent communicators, we are inclusive, we help our founders with connections to customers and financing sources. And we're all about building thought leadership and future work and learning. At our core, you know, things that we care about that I can base all of our decisions on those elements.
Victoria: What I value so much is having partners […] I rely on them because it is a long game to play the fundraising, it's going to take a long, long time and you're going to get beat down, so having partners there to support you and keep you going and rally and also to bounce the ideas off.. And Gale, as you said, staying true to what is the vision and having people who keep you accountable—I think is amazing. If you're going to go it alone, which some people love, surround yourself with those advisors, find that [group] that is going to be there with you. Even if you're going to be a solo GP, don't do it alone.
Eva: I’m going to take us out of the emerging manager world for a second and point out that many of the shifts and trends that we've talked about today are still emerging. And they have yet to be adopted by more traditional VCs. Does that mean that something else needs to change in the industry to really allow for more innovation around how VC is conducted?
Gale: Limited partner capital being open to new trends. I think one of the things that's been interesting for me is to learn about the institutional LP world. I have great respect for what these firms are doing. It's a hugely important part of the capital ecosystem. I'm starting to hear some institutions say they want to carve out a couple 100 million dollars to invest in the emerging manager asset class. But for today, the check sizes that emerging managers look for are too small. I am confident that the institutions that take bets on this now are going to make so much money and make a name for themselves, it's going to be awesome. It would be encouraging—and sending really great energy to all those institutions out there—to consider going against the grain of what the rest of their industry is doing and start taking some interesting bets.
Eva: Absolutely. One of my wishes would be to change the nature of this transactional relationship between investor and founders. The old school paradigm of the check writer gets whatever they want, really needs to change […] Victoria?
Victoria: Definitely what Gale said in terms of the LP capital. The large pensions are so values-aligned with what emerging managers are doing, their constituents are aligned with the constituents that our founders are serving. If there could be a mechanism that would enable them to be able to fund the smaller funds, that would make a tremendous difference. I am frustrated at the larger institutions that say that they're investing in emerging managers. And then, to Gale’s point, they have $2 billion under management, and yet $150 million carved out for emerging managers that just that math is not going to work. It's never going to really move the needle for the emerging managers. We need much larger allocations. And I sometimes feel we all talk about that there's a lot of talk, and there's not a lot of the money moving. I'd like to see more of the money moving larger buckets of money being deployed into emerging energy managers.
Barbara: What you two have just mentioned is the number one, otherwise, this conversation will keep going on. Also, I think we are living in a very crazy world of lots of capital. And some of my worry is, are we as GPS doing things properly? Are we enabling bad behavior with founders? You about all these high valuation companies and some bad behavior in the market. I do wish that we as GPs school ourselves a little bit better. I am surprised by some of the things I hear founders telling me that firms do to them. A lot of it is selfish, a lot of it is just self-serving. So there has to be more of a balanced approach as a VC. For all the new GPS coming in, I think we should have an ethos around doing things properly to be more founder friendly[…] and more conscious of the type of ecosystem we're building.
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Gale Wilkinson is the founder and Managing Partner at Vitalize, a seed fund and angel community investing in the future of work + learning software. Previously, Wilkinson founded IrishAngels, one of the largest angel groups in the country. Gale has led $65M+ in early stage deals across 80+ portfolio companies. Her experience prior to VC includes founding two failed startups, consulting for new product launches with Nielsen, and strategy with Orbitz.
Barbara Iyayi has over 16 years’ experience, spanning VC/FinTech, private equity, investment banking/M&A and technology. She is the CEO & Founding Partner of Unicorn Growth Capital, a women-led VC firm investing in the future of FinTech. Barbara previously served as the Chief Growth Officer and Managing Director for Africa of Element, Inc, was part of the inaugural team of Atlas Mara, and was Vice President, Investment Banking at JPMorgan, and UBS Investment Bank.
Victoria Pettibone is an active investor and advisor in the innovation economy and Managing Director of Astia, a global organization that levels the investment playing field for entrepreneurial teams with women leaders. As Managing Director, Victoria is one of four members of the Investment Team for Astia Fund, a $100M venture fund investing in early-stage women-led companies. Victoria’s personal portfolio of investments includes over 20 female led companies.
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