The Diversity, Inclusion and Anti-Racism Framework for VC
The Anti-Racism Ownership Framework, a new best practice for Venture Capital
Over the past couple of months systemic issues of racial injustice have elevated to a deserved level of priority in society broadly, and within the VC industry as well. As a Black man in America, who is also a general partner at VC firm M25, I entered the discussion with “Racism won’t die in 2020”, “There’s No Debate: Good People Aren’t Good Enough”, and “Founders need stewards, not masters”. After an overwhelming response from thousands of readers, I’m writing this piece as an answer to the call from many allies within my industry to answer the question…
“So, what do I do?”
Without spending hours with you and your team, it’s likely impossible for me to tell you something to do, that isn’t inherently generic, probably impractical, and possibly not even impactful. What I can do, though, is offer the thought framework by which partners at venture capital firms (that truly want to be a part of the solution) can adopt, execute, and use to eventually arrive at the answer to that question for themselves. M25’s senior team went through the same process before making our own announcement today, and in addition to explaining the framework itself - I’ll be referencing our firm as a real life example with the hope that it better illustrates the framework, methodology and opportunity for varied results.
I’ll also be sprinkling in some emojis to encourage you to stay with me until the end.
Let’s begin 🙂
I believe the first part of the process to answering the question that everyone is asking is to reframe the question entirely. Instead of asking, “What do I do?”, let’s ask…
“What is mine to own?”
The thought framework I’m suggesting revolves around and ends with that question, and must continually be asked as it relates to:
Your portfolio companies
Your role in the VC industry, broadly
Your role among the founder / startup ecosystem, broadly
Your role with the LP landscape, broadly
Okay, simple enough.
Except… wait… no, not really that simple at all.
To arrive at something meaningful, there are seven questions (or thought trails) that present the opportunity for the rigorous pursuit of answering the question of what is specifically yours to own in this. They are...
What’s my honest math when it comes to “true impact vs. opportunistic marketing?”
Am I here to react? Or, am I here to receive (aka listen and learn), digest, proactively think, and consciously make moves?
Is it more important to me to “be responsible” or drive impact and change?
Do I want to ask LPs for permission, forgiveness, or none of the above?
What is actually feasible for me to consider given my firm’s resources?
What am I uniquely positioned to do?
Is whatever I’m saying, doing, and committing to in this moment authentic to me? My firm?
These seven steps make up the Anti-Racism Ownership Framework. This framework and methodology is designed to help you best answer “What is mine to own?”, and by doing so answer, “So, what do I do?”. The phases are…
Observe & Reflect
… and create the acronym O.W.N. (or NWO depending on how you look at the pyramid). If there’s one phrase that I think most likely resonates and will stick with most VCs, though, it’s “target ownership.”
Okay now we’re getting some juice flowing. Let’s squeeze a bit more out of each of these.
Am I really here to solve problems or to add “ally” to my brand narrative?
This is the time for an honest gut check. Why do you want to be “an ally?” Is it because it’s sexy right now? Is it because you think LPs want to hear it? Is it because you think it’s required for founders to still take a check from you? Or, is it because you value diversity, want to take on the proactive nature of truly being anti-racist, and are ready to hold yourself and others accountable to being a part of a solution? Candid example - the question came up at M25 if we should have a collage of our black and brown founders as part of our announcement post. The answer came in the form of another question…
“Who actually benefits from that?”
Come on people. We all know what I’m talking about, and one of the best things we can all do is proactively nip “diversity theater” in the bud.
The answer to the question of who actually benefits was… not the founders… so, while we obviously celebrate the diversity of our portfolio - we decided not to do that. Of course, there is “opportunity” out there for firms that see this as something to include in their brand narrative and benefit from. At M25, we started by acknowledging that and then confirming that without a doubt that our interest here is to do the best we can to be leaders in driving impact and change. Then, after acknowledging that there could be misguidance found in marketing opportunity, we made a clear decision to say that if we are committed to our efforts not being about us, then let us hold each committed initiative to the standard that it must clearly benefit the underserved more than it benefits M25. The first step, though, is confirming where exactly you and your firm truly stand on this, and making it known to all involved in your process of answering the questions “what’s our’s to own?”, and “what do we do?”.
Reactive vs. Proactive
Consider this a qualifying question. If you’re asking yourself honestly if you want to (A) slap a band-aid on this as fast as you can to check a box or (B) put in the work that is required to reap real rewards, and are coming up “maybe?”...
“maybe” this isn’t really for you. I’m not looking to sound harsh or judgmental here, but for systemic racial inequality to be deconstructed we need efforts from allies who see the label anti-racism as less of a meta tag and more of a neck tattoo.
Don’t sleep on this question.
And, between you and me, even if your answer is one that would disappoint me if I heard you say it out loud - the good news for you is you don’t have to. For the benefit of us all though, don’t pretend one thing and then leave the underserved high and dry. Be authentic to you, and maybe there will be opportunities offered down the road that are lighter lifts that you can commit to and be a small part of maintaining the change that others have catalyzed.
Responsibility to Driving Change / Leadership Spectrum
Next, we have some more honest reflection to do. What role do you truly feel called to play in this? Are you looking at the world and feeling moved to pick up the flag, lead with reckless abandon, and waste no time on anything that doesn’t yield massive chunks of industry disruptive impact? Or, are you sitting here and candidly feel moved to “shore up the fort,” fill in the cracks and gaps at home, hold yourself to a better standard and set up shop for better accountability? You may find yourself on one side, the other, or scattered across. The main task here, though, is to take the time to wrestle with this and arrive at the truth - whether it’s a convenient one or not.
Good news - if you’ve made it this far, the pre-work is almost complete. The next major question to answer is how do you want to approach the whole LP situation. And, by that I specifically mean your LP situation / relationship to the LP world.
Are you a first time fund manager that has no track record and everything to prove?
Are you a veteran fund manager with track record and nothing to prove?
Something in between?
I’m asking because what I really want to know is this: how do you want to approach asking for permission and gaining buy-in, versus acting with authority and asking for forgiveness if necessary? Or, neither of those?
At M25 we sit much closer to the emerging manager / still proving our track record side of the house, and while we want our LPs to be aligned… we don’t want to have to be asking for permission OR for forgiveness. What that meant for us was thinking really deeply about what resources would we be potentially allocating or reallocating that our LPs might expect to be purely directed towards driving returns. For example, announcing we were only going to invest in diverse founders or making a new hire we weren’t already planning on were non-starters. Confidentially 😉 we’ve had small funds with small fees and a small team that’s run super lean for the entirety of our existence, so allocating a massive amount of fees to anything arguably philanthropic also wasn’t going to fly. Technically we do have a small amount of discretionary budget, though, and that led us to thinking much like a startup in that we should perhaps consider running an experiment that we could measure results from and justify investing more later. The example of that for us is what we’ll be doing to subsidize the cost of employee referral bonuses for diverse hires within our portfolio companies.
One more direction to explore in this vein is that many general partners out there are not just on the other side of the track record spectrum, but also have the bandwidth to be LPs themselves.
If that’s you, please don’t sleep on that.
Reality / Feasibility
Okay! You’ve acknowledged this isn’t about you, you’re committed to do the work to do something meaningful, and you’ve come to terms with your approach to the whole LP situation. Now it’s time square up with yourself and simply do a reality check.
What can you actually do?
We’ll get to your unique capabilities in a bit, but for now just iron out the basics. What’s your budget? Cash in cash out… what’s the fee generation situation versus fixed costs at your firm. If you’re like M25, then it’s genuinely super tight, although recently that travel line hasn’t been what it used to be… 🤔
What’s your bandwidth? Do you have a big team? Is there generally more work required than there is time available, or more time available than required for the work at hand? Earning the title of most active VC in the Midwest and launching (+ maintaining) MidwestStartups means that M25’s answer is strongly the former, and that impacted what we could commit to as well.
What is unique to me?
Now, let’s take this whole capability assessment a step further. What is unique to you? What position are you / your firm in that’s different? What resources are already at your disposal that are uncommon or perhaps truly rare?
Some examples of this could be:
Truly top percentile network
Deep respect of vast LP bandwidth (aka you can vouch)
Personal ability to be an LP / invest
Truly differentiated platform resources
Subsidized costs / buying power for tools / resources
World class expertise
… whatever your favorite thing is to say to founders you’re trying to get to choose you when there are competing term sheets....
For M25 we identified a couple things that stood out.
First, while we are a small firm and don’t have any hiring plans near-term, it did come to our attention that we actually have the makings of a pretty valuable “one year rotational associate program.” I say it came to our attention, because honestly this was both largely by design and largely not. Saving you (the reader) a tangent here on that… we saw an opportunity here to add to an already “good thing going” by committing to partnering with a group like The Black Venture Capital Consortium or BLCK VC’s Breaking into Venture program to source one woman or man go through M25’s rotational program each year for the next few years. Not only could we provide exposure to the industry, but be a conduit, as our past few “graduates” have all found full-time roles as venture professionals or VC-backed startup executives.
Second, our M25 Summit has become the biggest gathering point of VCs in the Midwest, with well over 100 VC firms participating for the last few. We saw a great opportunity here to leverage that existing event, and add on to it in a way that could direct that same attention to diverse founders across our region… hopefully in effect helping our ecosystem solve for some of the access and pipeline issues that are commonly talked about.
Problem <> Solution <> Authenticity Mapping
Oh 👏🏾 My 👏🏾 Goodness 👏🏾 Gracious 👏🏾 We 👏🏾 Are 👏🏾 Almost 👏🏾 Home! 💪🏾
We’ve wrestled with the intention behind our desires to do something, we’ve laid out the legitimate tools and tactics that we can actually bring to bear, and now it’s time to tie things all together. The thing is, if you really want to formulate a winning strategy, you need to make sure to account for how the solutions(s) relate to the key problem(s) you’re passionate about solving, AND ensure that where you’re landing here is truly authentic to you and your firm.
If you’ve somehow arrived at this essay, gotten this far, and don’t actually have a sense for the problems within the VC / startup / tech ecosystem(s)... I’m going to point you to a few places to help you explore that more deeply. That’s not the purpose of this piece, and I’m not going to pretend to be the best person / expert to lead you in that journey.
If that’s you, please consider checking out any/all of the below:
… let’s be honest, if you’ve Googled it you know results are endless
Assuming you’ve educated yourself on the problem(s) and know what you’re specifically keen on impacting, ask yourself genuinely what of the things you have to offer are things that you can actually point at and fire on the problem(s) that you want to address. For M25, a common thread we landed on is that we are passionate about access and opportunity driving meritocracy in the industry.
Access and opportunity for diverse founders to find capital.
Access and opportunity for diverse professionals to get their shot at entering the venture capital industry.
Access and opportunity for our portfolio companies to have a bit of an advantage in their own efforts to build diverse teams of their own.
We also feel called to be more of leaders in this, because for systemic change to occur… we believe that now is the time for people to emphatically step up, as there is not yet enough momentum where anti-racism can afford for those with leadership potential to simply find existing efforts to casually lean in to. To that end, we care a lot about accountability as well, and are making that part of our mix.
Finally, reflecting back on the first half of this process, and asking a question more directly now - “Is what you currently have on the table truly authentic to you?”. This matters for three key reasons, among others:
If this is not authentic to you, you’re not likely to stay committed for the long-term.
If this is not authentic to you, it can be perceived as “diversity theater”, and can be more damaging than good.
If this is not authentic to you, you’re less likely to be able to get allies and partners to rally with you and do your best work.
To account for this at M25, we didn’t just nod our heads and say “yes”, we went ahead and added one last touch to our commitment going forward by saying that we’d 1) include the personal efforts of our senior investment team in our annual reporting, and 2) publicly state it is an expectation of our firm that current and future senior team members act and contribute in ways that show their shared values. The goal here being a simple one - we want people to see and know via past, present and future that the people behind the M25 banner aren’t being pulled into something here… but by knowing a bit more about us, anyone can see that what M25 as a firm is doing is being pushed outward by the hearts of the people core to our firm.
Now, as I said in the beginning, I can’t tell you what are the best opportunities for impact for you / your firm. Now that we’ve walked through the framework by which you can figure that out for yourself, I’ve laid at a handful if ideas to maybe bounce around or get your juices flowing:
Be an LP in funds with Black GPs. I have massive respect for the team at Corigin Ventures for their recent announcement to do this.
Help your companies find, attract, and retain diverse employees.
Bring diverse people into the VC industry. I am struck by and in awe of the commitment that Susa Ventures announced today.
Set goals on top of funnel deal sourcing and make them public. Groups like BLCK VC can help you pursue this, and IMO accountability is table stakes.
Introduce diverse GPs to your LPs… and actually vouch for them.
Find new ways to partner with other VCs. We leverage each other for networking, co-investment, and industry insights all the time… why not this?
There is no one size fits all answer to the question that partners at VC firms are asking, “What do I do?”. However, the Anti-Racism Ownership Framework, designed to establish what is each partner’s and firm’s individual piece to O.W.N. in this, can be powerful.
Observe and reflect by asking yourself what are your real desires, wrestling with being proactive versus reactive, and coming to terms with your own LP situation.
Weigh out all your options by laying out what’s actually feasible, clarifying where you fit between wanting to just being responsible or stepping up as a leader, and pinpointing what might be unique to you.
Finally, navigate by mapping out the possible solutions in front of you against the problems you’re most passionate about solving and whether they’re actually authentic to you.
It’s my hope that more partners and firms across the VC industry adopt this framework, and share their own results as well. Just the sheer power of seeing others in positions of relative influence share their own intentional commitment to charting a proactive course can and will be inspiring by itself to other VCs, Founders, LPs and perhaps even some outside of our industry as well.
To all of you who join M25, other allies and anti-racist firms…
See you on the front lines.
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