⚡ Venturing Toward Progress

How to build a more equitable venture capital ecosystem

Many of the perspectives we share at Reboot are understandably skeptical of venture capital (VC) as a model for funding socially impactful technologies. At the same time, VC-backed businesses constitute a whopping 21% of U.S. GDP — leverage that can’t be ignored.

Therefore, creating more equitable economic systems is one piece of the puzzle, but we also need a more diverse, thoughtful ecosystem of tech investors and founders funding our future. In today’s guest essay, student-investor Ivan Zhao outlines the problem and some tools for getting there:


venturing toward progress

By Ivan Zhao

Hop on Twitter any day of the week and you’ll probably see a four-letter monosyllabic word raising a round on a $4B valuation. You might think, “There’s no way this app is worth four billion dollars, especially if they’re not making any money.” Before I got into venture and startups, I was right there with you (and honestly still am).

I dipped my toes into the startup world after speaking with Seattle-based founders for a small high school research project. As a student with zero clue what he wanted to do in life, it was invigorating to be in an ecosystem where people were motivated by the personal drive to build a better future, and I knew I wanted to do something similar. In college, I joined the team at Dorm Room Fund (DRF), a student-run VC fund backed by First Round Capital that has funded over 260 startups over the past decade. At DRF, I’ve been able to talk with founders at the earliest stages of their business and been given the power to make investment decisions.

I was also entering a world that, as a queer Asian, wasn’t the most welcoming. There’s a ton of impostor syndrome that comes from the feeling of not having enough experience, and when you’re arguing with straight, white, cis, able-bodied men about whether companies focused on STD testing for queer people are too “niche” of a market, it becomes clear that the products getting funded are propagating preexisting systems of power.  

As such, it’s up to us to rethink how VC operates as a system. Silicon Valley touts a motto of “moving fast and breaking things.” Instead, I argue that the industry should focus on “moving forward and backing things.”

on doing diligence

If we're creating a better world through venture investing, we must hold ourselves to a higher standard. The question therefore becomes: how do we design an ethical framework that integrates with our current due diligence process?

One idea, speculative design, is inspired by speculative fiction. Speculative design addresses big societal issues with design processes and seeks to imagine what ifs. In Ivica Mitrovic’s Intro to Speculative Design Practice, he states that “by speculating, designers re-think alternative products, systems and worlds.” Designer and teacher James Auger says that speculative design (1) moves away from the constraints of the commercial practice; (2) uses fiction to speculates on future products, services, systems and worlds, examining the impact of new technologies on everyday life; (3) and initiates dialogue between experts (scientists, engineers and designers) and users of new technologies (the audience).

If we take Uber as a case study, early investors were excited about the prospect of expanded mobility. However, what they failed to consider, and what could've been discussed through speculative design, is what the world would look like once Uber scaled. What would happen to taxi drivers? What we’d see is that in an industry where over a quarter of taxi drivers/chauffeurs are Black, Uber’s “disruption” would take money from the pockets of marginalized communities and instead line their own.

One might look at this example and say that it’s easier to criticize a company retroactively than it is to anticipate problems in advance. To illustrate how speculative design might be used to evaluate an up-and-coming company, consider the increasingly popular live audio chat spaces. On top of accessibility considerations for the Deaf community, one question an investor could ask during a chat with a social audio founder is about moderation — for instance, how does the founder plan to deal with the potential for deepfaked audio recordings? For an early stage company, it’s too early to expect a detailed response, but hearing how the founder approaches this question could provide insight to how they think about building usable products more broadly.

The other key question that investors should consider during the diligence process is whether a product should exist in the first place. What are all the ways the creation of this good or service could affect different people and communities? Keeping in mind this range of positive and negative scenarios, is the world where this product exists a world that you want to live in?

One space that has been extremely popular recently is blockchain, with applications ranging from DeFi to MMORPGs. Understanding the hype around blockchain requires exploring it through a speculative lens: people are excited about DeFi because a peer-to-peer financial system would circumvent outdated, slow, or restrictive banking bureaucracy. In a world where peer-to-peer protocols are the default, sending money to friends and family would be far simpler, though financial crimes and illicit content markets might be harder to track and shut down. Simultaneously, speculative design can be a tool to imagine alternative solutions to the same root problems: how else might we promote financial accessibility: especially across borders, for sex workers, or for people living under authoritarian surveillance states? In addition to technology, what social and political arrangements might support this future?

on (who’s) backing things

It's blatantly obvious that tech and venture is still a rich white man's game, and many new products aren’t built with marginalized communities in mind. Consider Slack’s new feature which lets users DM (or harass) anyone or Intel’s sound mixer that lets you turn up and down different types of hate speech. Meanwhile, diverse and underestimated founders are building inclusive products and products that center the needs of marginalized communities. These founders are on the path to create a better future, something that VC should be backing more.

However, recent funding reports say otherwise. In 2020, Black women were the fastest growing group of entrepreneurs in the country, yet received only 0.27% of VC funding. That’s because startups are a lopsided marketplace where investors have all the decision-making power. Given that 58% of all VCs are white men, we’re left with an industry that thinks that machine-powered juices are the future.

Until we reach a point where the demographics of founders are reflected in the investors they’re pitching, we need to hold both sides of the market to a higher standard. Investors, especially those with decision-making power should back a diverse set of founders, especially those from underrepresented and underestimated backgrounds. Simultaneously, founders should aim to diversify their cap table, and can use matching tools such as Lolita Taub’s. As part of DRF, I’m excited to launch the Prism Investor Track, which focuses on nurturing LGBTQ+ investors. But as long as most investors keep “pattern matching” to support the same type of founders, we’ll continue to see predatory startups that take advantage of marginalized groups as they grow at "all costs.”

on the path forward

For all its glory and attention, VC isn’t a perfect investment vehicle for every business, and certainly not for every social problem. At the same time, VC can’t be ignored. Given that returns in VC represent 21% of US GDP, we need more investors who are women, Asian, Black, Latinx, LGBTQ+, people with disabilities, and especially those that sit at the intersection of multiple affinity groups to participate in and transform the ecosystem.

For founders and investors who feel that this industry isn’t built for you, it really isn’t. But I’m optimistic about a new wave of technologists, founders, and investors who are centering marginalized voices and thinking about the communities that we’re building for. We can support each other in taking VC back. Therefore, I highly recommend finding a community or a peer group that you can lean on. If you’re looking for groups, Gefen’s Bunch of Founders is fantastic; and Lolita, Mac, and Elizabeth, all tweet advice based on their personal experiences. If you’re currently a student, DRF provides summer tracks just for you. We’re here to help — seriously.

At the end of the day, I want people to recognize that venture capital cannot be divorced from the policies, people, and societies that it affects. Thus, the people who inhabit and build it cannot be either.

Share

Wanted to drop a thanks to everyone who has read or edited this — thanks so much to the entire Reboot editorial team (Jessica Dai, Jasmine Sun, Ben Wolfson) and some of my friends who helped parse my thoughts (Anh Pham, Jacky Zhao).

Ivan Zhao is a 2021 Reboot Fellow and a Computer Science student at Brown University. He’s currently an Investment Partner at Dorm Room Fund, a Software Engineering Intern at Blend, and probably baking focaccia or thinking about corgis. Find more of Ivan on his website or on Twitter.

What have you learned in the process of building Prism?

I’ve learned so much, which is kind of a cheesy answer, but it’s true. Concretely, I’ve learned how to be a better manager, how to keep people accountable, and how to sell a vision. I’ve also learned that if you stay up until 1 a.m. working on a project, you can’t fall asleep because your brain keeps thinking about it!

Who in the startup or venture scene inspires you?

In terms of startups, I absolutely love and respect Tobi Lutke from Shopify. Not only is his founding story super inspiring (Rails still scares me), but he’s extremely thoughtful around things that are not strictly technical, especially on the people/psychology side. I also love that he’s a huge gamer.

In terms of investors, I have so much respect for Arlan Hamilton. I read her book It’s About Damn Time and was hooked. From there, I basically gobbled up all the knowledge she’s shared about her story, her interests, and just everything about her. She’s truly a hustler (and not in the weird hustle porn way) and Backstage Capital does amazing things.

What’s one book you loved this year?

Tools for Thought by Howard Rheingold


🌀 microdoses

  • 🩺 Reread this guest essay by Shohini Gupta, who was a DRF Managing Partner and spearheaded their Female Founders Track, where she discusses the limits of VC funding models for healthtech in particular.

  • 📧 Was Marshall McLuhan the OG Substacker?

  • 🤳 A provocative, snarky critique of Silicon Valley’s social app obsession: “It is very much a case of people in their 20s and 30s being funded by people in their 30s, 40s and 50s trying to make products for people who are 12 to 17 years old, while also creating a product that appeals fiscally to the 30-50 crowd with all the money.”

  • 📊 A biotech founder reflects candidly on the personal cost of building a startup.

💝 closing note

Shouting out recent achievements by Reboot community members:

P.S. If you’re a young person looking for a community thinking critically about tech, humanity, and power, Reboot runs a private Discord — more on that here.

Venturing forward together,

— Jasmine & Reboot team