On fundraising and privilege
Yesterday we announced the close of Ada Ventures fund one, a $34m fund to invest in overlooked people and overlooked markets. It has taken nearly 18 months to raise the fund and it was one of the hardest things I’ve done.
The mission of the fund is to open access to venture capital funding for people building businesses serving customers who are underserved by venture-backed companies, products and services. These ‘overlooked’ people include women, black, Asian and other founders from minority ethnic groups in the UK, the over 50s population, founders from lower socio-economic backgrounds or who are economically marginalised, LGBTQ+, parents, people who don’t live in London, people who are neurodiverse or who have disabilities and more.
During the fundraise we were told “women can’t make money”, “European tech doesn’t have a diversity problem” that it is “a meritocracy where the best people get funded” and that “this fund will never be commercially viable”, that it was “philanthropic”. At times it felt impossible.
I’m proud of the mission of Ada Ventures and I’m excited about the impact it will have in enabling access to entrepreneurship from underrepresented groups. I’m also hugely grateful I’ve had the opportunity to do all of this.
However, I’m sharply aware that many other more talented people won’t have that opportunity, purely by virtue of where they were born and into what circumstances.
It makes me angry when people ignore the unearned advantages that they had to get to the position they are in. Or imply (or worse, believe) that the world is meritocratic and they just ‘worked hard’. The reality, which is starkly visible if you spend any time as a VC (and as evidenced by the Diversity VC study that we published in July) is that venture capital is one of the most elite of any industries, the majority of people are economically privileged, white, cisgender, straight, have been to private school, have attended Oxbridge or have an MBA.
Unless we talk about this reality and take steps to address it, I don’t believe anything will change.
One of the key drivers of the lack of access to venture capital roles is the money needed to have a seat at the table, the money needed to found a VC fund, which makes it the preserve of only the very few.
In the interests of openness, I wanted to share my own story of what it took to found Ada Ventures and raise $34m and why layers of privilege, many of which I’m not even mentioning here, enabled me to do this.
I’m sharing this because I think it’s important to be radically candid and honest about the whole story, not just the headlines in TechCrunch. It is only through fronting up to the inequalities that are deeply rooted in society, that we can hope to take steps to address them.
Firstly, private education. I went to a private school, St Paul’s Girls’ School, which sent around 50% of the year to Oxford and Cambridge. Going to St Paul’s was a major advantage in getting into Cambridge, but one that I was only able to access because my parents could afford the school fees. Going to Cambridge establishing credibility and a connection with potential investors. I also come from a middle-class family where this route (private school then Oxbridge) was not just normal, but was expected. I’m aware of how rare that is and how fortunate that makes me.
Secondly and in part thanks to the above, I have an extensive personal network. Some of the investors in this fund are personal connections to me and my business partner Matt; people he or I have worked with before who are backing us because they know us. I imagine that part of what got them comfortable with doing this is that on some level we look and sound the part. We are both cisgender, white, straight, we both went to private school, top universities, we’re non-disabled. In other words, we are normative and therefore familiar and ‘derisked’.
Thirdly, I had a start in the industry, thanks to a personal connection. Before you can even think about raising a fund you need a track record, in order to get a track record, someone needs to hire you in a VC fund or you need your own money. Getting this start is simply not possible for many people who either don’t have personal connections into it, don’t come from a small group of universities or a small group of industry backgrounds (finance, banking, consulting).
Then there’s the money. Raising a fund is incredibly expensive. Matt and I have spent around £100,000, or £50,000 each between us on FCA fees, travel to pitch LPs, legal fees. I was also able to survive for 12–18 months earning limited income consulting for various companies, many of which we secured through personal connections (as above). The only way that I was able to make this work was because my parents run a company that I was able to do some work for and because I could stop paying rent for six months.
Then there is the General Partner commitment, which is an essential feature of any fund. Effectively the fund manager has to invest at a minimum 1% of the fund with their own money. On a £30m fund, that is £150,000 each.
In order to prove our ability to find and pick the investments that fit our strategy and tell a convincing story to the Limited Partners (investors in VC funds), we also made investments whilst fundraising. This cost a further £10,000 (£1,000 being the minimum investment we could make).
In total that is £260,000 just to get started. A staggering amount of money.
On top of the money, I also had a financial safety net as my parents live in London. I had the opportunity to move back home whilst still doing my job. This is not an option available to the vast majority of people. This financial safety net was crucial in allowing me to take the risk to raise the fund.
All of these factors compound, leading to a massive overall unfair advantage in being in the position to raise a fund like Ada Ventures.
Until the playing field is level for the people raising and allocating the capital, it will not be level for the founders pitching and receiving that capital.
So what am I doing about it?
The mission of Ada Ventures, as well as generating best-in-class financial returns, is to find and fund founders that come from anywhere, building companies serving overlooked customers facing some of the biggest global challenges. Part of this mission is about breaking down the barriers to entrepreneurship and venture capital that people currently face. We’ve made a start at doing this by building a diverse scouting network in order to create an on-ramp for new angel investors and fund managers, removing the need for the warm introduction, assessing founding teams based on their leadership qualities rather than where they went to school or where they work, but we have a long way to go.
One area we’re focused on is our team. We will be looking to hire in 2020 and strongly encourage candidates to apply who don’t have backgrounds in venture capital, finance or come from positions of privilege.
We will be participating for the second year in the Diversity VC Future VC programme which means we’ll be taking on at least one intern from that programme for a two month paid internship in summer 2020. Details of the programme and applications can be found here.
We will be sharing details and lessons learned of our fundraise to aim to make it easier for new managers in future.
This is just the start. We have more initiatives in the pipeline which we’ll announce in due course.
There are so many inequities in so many parts of society that in some ways it feels arbitrary to focus on venture capital. However, entrepreneurship is a powerful force for social change and the financial system that drives entrepreneurship is so unfair at the moment, that it feels as good a place as any.
If you have ideas for work we could be doing, or organisations to partner with, we’d love to know.