A mindset of abundance
— an interview with Leila Rastegar Zegna from Kindred Capital
Sharing authority and decision-making with freshly minted entrepreneurs is not easy. However, for Leila Rastegar Zegna, a Co-founding Partner at London-based Kindred Capital, putting founders in the spotlight proved to be the best way forward. This approach directly translates into the fund’s way of investing — the Equitable Venture.
Before co-founding Kindred Capital in 2015, Leila worked in Silicon Valley and London — two hotbeds of innovation on two continents. While she claims that: “Being a VC, in general, is an apprenticeship, and I still feel like I don’t know a lot,” her experience tells a different story.
An alumna of both Yale and Harvard, she learned the ropes at Lazard Frères, an investment bank in New York, as well as Bain & Company. As an Endeavour Fellow, Leila consulted startups in Argentina. She was the General Manager at a startup backed by Kleiner Perkins and General Catalyst and even one of the founding team members at GenapSys, a genomics company.
This diverse professional background led Leila to learn, and share with me, some valuable life lessons on judgment, co-ownership, and the value of strong networks.
Paweł Michalski (PM): Your fund, Kindred Capital, has a unique thesis. What advantage does the “Equitable Venture” model give you vis-a-vis other VCs?
Leila Rastegar Zegna (LRZ): First of all, the Equitable Venture model reflects the belief system of Kindred’s core founders. In our model, every founder we back becomes a de facto partner at the fund. They have a stake in our carry, i.e., in any subsequent fund profits after returning the investment to our LPs. That means every founder has a piece of one another’s upside and a genuine interest in each other’s success.
This was an informed decision on our part. Coming from the operating side, we felt the venture capital model was inadequate. If one of the founders in the portfolio is incredibly successful, why don’t all of them share the benefits? We all felt that there should be another approach to venture capital — one that is more collaborative and allows founders to have a vested interest in each others’ success.
Another thing we knew was that fellow founders tend to be the most helpful people to other entrepreneurs. It’s now more accurate than ever before because knowledge becomes outdated so fast. Investors are not “in the business,” and we need to be somehow plugged into the founders’ knowledge.
Finally, as pre-seed and seed investors, we needed to have an unfair advantage in sourcing the best deals. We could have stuck to just four partners running around to find the best companies out there. Instead, we rely on tens of founders to give us the leverage to convince other people to “let us in.”
PM: You announced your second fund in September 2020, five years after you started Kindred. While you say your model works for you, are there any things that you would have done differently?
LRZ: I believe you have to change things fund over fund. If you’re not evolving, you’re not taking enough risks or being innovative enough.
As we were setting up the first fund, we spoke to maybe 20 established fund managers. We asked them what they would have done differently if they had a chance to go back and start from scratch. They told us that they would reserve more money for the winning companies in their portfolio. Being able to follow on could be the difference between a mediocre and great fund.
Having heard that, we set up two separate vehicles with different LP agreements: one for our seed investments and another for follow-on deals. Over the years, we learned that it was an administrative burden, both for our investors and ourselves. With every drawdown and every quarterly report, we felt we didn’t deliver a great customer experience. With our second fund, we found a more elegant solution and changed this mechanism.
In addition, we didn’t have a proper framework for accountability among GPs. We knew we would only work effectively if everybody holds the bar high and if we all are held responsible. What we didn’t prepare for were the false positives and the false negatives. As a venture capital firm, you need to develop a framework for how success should look for every partner.
Great results could still be idiosyncratic, but having a rigorous evaluation process helps. Now, we have a very comprehensive, 360-degree review system. We talk to founders, LPs, team members and even bring in third-party consultants to find out how we are doing collectively and individually.
PM: It sounds like you’re putting effort into talent development at Kindred. Could you tell me a bit more about how you are helping your team grow?
LRZ: We have a professional development plan for every team member. Our 360-degree review is an equalizer, in the sense that everybody goes through the same process. However, it would be a mistake to think about it as a playbook.
I don’t believe that there is a one-size-fits-all solution here. We carry weight in different circumstances and need disparate advice. The main question we are asking is how can you develop yourself as an essential contributor?
In my experience, it is a game of psychology. It’s about having the right mentality and stamina. A career in venture capital is difficult and demanding. If you don’t have the mechanisms to work on yourself, you are doing the founders and yourself a disservice.
PM: Are there any lessons you wish you had learned before becoming a VC, though?
LRZ: I didn’t realize how much venture capital is becoming a sales game these days. VCs are selling their money to founders. Money, however, is abundant — more than ever before. The world doesn’t need another pool of capital right now. It needs more VCs who can relate to founders and their problems.
If you are an emerging fund manager, you have to do something new, innovative, something no one has ever done before. Too many people are just copying the private equity model and think that it’s enough. In other words, too few people have had the operating experience.
My time as an operator gave me a lens through which I see the world and a sense of empathy for founders. I know how hard it is to have almost nothing and want to build something anyway. This has been a differentiating factor in building relationships with the founders I want to back.
PM: What is the most challenging part of this job to you?
LRZ: Most people in this line of business are Type A personalities. They want to have a quick measure of success: am I performing? Are we performing as a team and company? What are the KPIs that matter?
The biggest challenge here is that we will learn whether we are performing in ten years. It’s tough for the type of people who want to see instant progress. In venture capital, only rarely are input and output directly correlated. It’s the distinctive nature of this business.
PM: What do you believe to be the most important part of your job?
LRZ: Judgment. We are getting paid for our judgment. You’ve got to find your own mechanism for getting to the best decision. Contrary to popular belief, it doesn’t come from working fourteen hours a day. You need some space to develop your perspective and formulate a judgment. Understanding this was a huge mental shift for me — and probably for everyone in this career. And frankly, I’m still working on it! As it requires some rewiring of the brain, some “un-learning” as much as learning, and it’s a challenge but also a significant opportunity in my mind.
PM: How did it occur to you?
LRZ: When I became a mother, I simply couldn’t be the one who stays at the office the longest. Instead, I decided to spend my time on things that could move the needle.
On a separate note, if there’s one thing that helps make the best calls, it is a strong network. I believe that our 80+ founders network at Kindred helps us make the right calls. Fundamentally, this business is about people. You should build a network of fellow operators, founders, and investors — not a transactional one, but rather one consisting of people you can rely on once things get tough.
PM: What motivates you to keep going?
LRZ: Every time you found a company, you get this unique privilege to build the world you want to live in — the people you surround yourself with, the founders you back, the values you adopt. As VCs, we can craft the world we want to see, backing the people who will bring about the change. This career enables me to live in a mindset of abundance instead of scarcity.
The latter is an awful life experience. You are always thinking about what you don’t have but want to possess. I wake up every day asking myself: what do I have that I can give to other people? Maybe it’s money, our collective experiences, our network and connections, or just sharing honest feedback. I want to hear their vision, how they will change the world, and think about how I can help them. It’s a privilege to live in the mindset of abundance.
PM: Finally, let me ask you about the future. Where do you see the industry going in the next two to three years?
LRZ: We are now experiencing a spectacular shift to technology. I don’t think it’s a cyclical moment — this trend is here to stay. Our industry is growing and maturing. The competitive landscape looks almost like a barbell now. You have multistage, multinational firms building extensive platforms, such as a16z, General Catalyst, Lightspeed, and Sequoia. And on the other side of the barbell, you have more niche, focused funds that operate in a specific region, sector, or a particular stage. If you are in the middle of the barbell, you will struggle. And let me tell you, it’s tough to build a platform that could compete with a16z.
It’s the most exciting time our industry has ever seen in terms of value creation — which in turn means it’s also the most competitive time. Ultimately I think the funds that will win are the ones that are true to themselves, and that find a novel and authentic way to differentiate to create value.
