On July 4th, this past Saturday, gratefulness.org posted an apposite Toni Morrison quote as their “Word for the Day”:
The function of freedom is to free someone else.
The quote requires no elucidation. On the occasion of the United States’ 245th Independence Day, these nine words offer unflinching critique of our national history, frank commentary on our present, and actionable direction for the future.
And as the brilliant Ms. Morrison was so deft at doing, it also got me thinking further. In this case, about the form and function and identity of venture capital.
“Form (ever) follows function.” — Louis Henry Sullivan
Boston-born Louis Henry Sullivan coined this aphorism 124 years ago, as he was literally building his legacy in the Midwest. Although it has since become cliché, it nevertheless voices a truism in nature that Sullivan, his more famous intellectual descendent Frank Lloyd Wright, and generations of designers have sought to apply in their work: to create buildings or other objects whose form is perfectly in service to their intended function.
The far more flippant expression, “if it looks like a duck…” approaches form from the premise that by examining the form or behavior of an object, organization, person, etc., one can reasonably infer its (or their) identity.
Examining the present day venture sector from these two perspectives, how can we interpret its form to express either its function or its identity?
Function as inferred from form
In the US, approximately 90% of venture capital goes to predominantly straight white men from a dozen universities, the majority based in a half dozen metropolitan areas. The venture sector has come to standardize and celebrate an investment model in which the majority of investments are failures and a portfolio’s returns are generated by one or two runaway successes.
This form is widely described as a meritocracy, and more specifically a highly optimized and specialized practice for performing the function of (a) identifying and selecting for high-return innovations, and (b) generating returns to investors that significantly outperform ostensibly lower-risk public market benchmarks.
However, based on observation, it is difficult to square the sector’s predominant form with its self-declared function. Many knowledgeable observers have concluded on examining the data that venture persistently misses out on both innovation and returns in part because of its flawed conceptions about merit [see, for example, TechCrunch, BCG, Morgan Stanley, Forbes, Brookings Institution]. From this view, form appears to express a function of concentrating capital — and thereby cultural influence and economic power — in the hands of a very small and largely homogeneous subset of the population.
Identity as inferred from form
A 2018 National Venture Capital Association (nvca) survey of (US) venture firms and corporate venture practices found that investment professionals were 76% white (80% for partners) and 79% male (86% for partners). This represented a modest improvement over 2016 survey findings. 2020 findings have not yet been published.
The venture sector self-identifies as the realm of the next new thing, singularly adept at identifying innovative, high-potential talent, and has for years asserted that it is doing everything it can to diversify its talent pipeline. LPs (limited partners, the investors in venture funds) have generally affirmed this view, increasing their capital commitments to predominantly homogeneous (white, male) firms over time, even under emerging manager programs originally conceived to accelerate diversification.
Again based on observation, it is difficult to square this ponderously slow pace of change with the sector’s identification with what comes next — its near-mythic reputation for sourcing and accelerating disruptive breakthroughs. Numerous knowledgeable observers have found that LPs and venture firms alike struggle to accurately assess performance or identify novel opportunities outside narrowly familiar demographics. From this view, form appears to express an identity defined by homophily and axiom, dismissive of change or the unfamiliar.
“Do the best you can until you know better. Then when you know better, do better.” — Maya Angelou
I assert that the essential function of venture capital, and its loftiest identity, is to facilitate the growth of companies with the greatest potential to create transformative value for all of their stakeholders. At the opposite end of the spectrum, its basest forms merely concentrate wealth via practices akin to other extractive industries, creating short-term windfalls — including a few astronomical liquidity events — while sowing costly “externalities.”
It is patently evident that there are malign figures in the venture sector, as in any other segment of humanity. Just as it is equally apparent that there are those in the venture sector who truly embody its better angels. Leaving both extremes aside, it has been my experience that the overwhelming majority of venture professionals I have known or observed are sincere in subscribing to the venture sector’s self-assessment; they have simply been oblivious to the readily observable disconnects between form and function or identity in their firms and in their own habits. So this is not about blame or shame, but rather about awareness.
As Dr. Angelou and TechCrunch agree, once you become aware, you can (and should) do better.
So what shall we do with the ample evidence that to the extent the venture sector is hyperconcentrated by gender, race, or zip code, it is at best underperforming its own stated function and identity?
“Talent is equally distributed but opportunity is not” — Leila Janah
“The future is already here — it’s just not evenly distributed.” — William Gibson
“Thoughts that do not [lead to action] mean less than nothing.” — Ann Leckie
Just as the function of freedom is to free someone else, the function of the future is to permeate the present — in both cases perfusing person by person across human society, propagating by human agency and participation.
Our future is neither predominantly white nor predominantly male. It is neither shaped nor owned by a homogeneous demographic or caste. In parts of the United States that future is already palpably present; in some places it has been here for some time. How do we choose to respond to that future? Do we inhabit it in all its vibrancy or do we recoil in denial?
“Do the best you can until you know better. Then when you know better, do better.”
Maya Angelou
Reinventure is taking an active role in creating and expanding opportunity, propagating the future, generating greater economic freedom. We invest exclusively in US-based companies led and controlled by BIPOC and/or womxn founders, at or about breakeven, and poised to grow profitably— talent the mainstream venture sector seems slow or unable to recognize. We know from mounting evidence, including Ed’s track record, that disciplined adherence to this strategy both lives into a future foretold in the lofty pledges of the Declaration of Independence and generates non-concessionary returns to investors.*
We also know that the talent pool is robust and the opportunity far exceeds the scope of a single strategy, fund, or firm. Fortunately we are surrounded by a growing community of funds targeting overlooked talent at a various stages and pursuing a wide array of strategies.
If you’re ready to invest in talent and opportunity the mainstream venture sector is missing, please contact us. We will be delighted to welcome you. And if you are already actively investing in funds that are giving form to venture’s best function and identity, please share, so others can join you!
*While there’s no such thing as a guarantee in investing and no one can reliably predict the future, Ed’s prior track record delivering 32%IRR to investors provides direct evidence that it is indeed possible to consistently invest for both financial returns and social value creation. If you are an accredited investor and would like to learn more about investments that can advance social, racial, and gender equity by supporting high-value companies led by women and/or people of color, please contact us to start that conversation.
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