Yesterday, my employer 500 Startups organized a conference in LA called the Unity and Inclusion Summit. The focus was on diversity issues in startups, and one of the central topics was on unconscious biases in the industry.
This is a really important issue that often gets shoved under the rug. I can’t begin to tell you how many times I hear people say stuff like, “Oh, well, I don’t see a problem — Silicon Valley is a meritocracy.” Or, “This issue is a gender issue; it doesn’t apply to me.”
But this could not be further from the truth. Everyone should be concerned. For me, one of the big problems that I have with the current startup ecosystem is that I think there are a lot of founders who don’t get a fair shot to demonstrate their merit when it comes to fundraising. That’s a priority issue that needs to be solved. Unconscious biases in how investors assess founders can be tied to gender or race, but it extends much further than that. For example, there are investors who have unconscious biases against introverts or non-pedigreed founders. If you have a certain kind of foreign accent, you should also be concerned about investors who are unconsciously (or consciously) biased against you.
The problem is that it’s hard to know to what extent there’s a lack of meritocracy. If a female founder gets dinged, is it because she didn’t get a fair shake? In this industry, frankly speaking, most founders are not going to be able to raise money. The odds of raising are against ALL founders. Period. So, if you get dinged, you can’t simply say, “Oh it’s because I’m a woman that I wasn’t able to raise.”
Investor Paige Craig of Arena Ventures eloquently theorized yesterday at the conference that part of the reason we have this big problem with unconscious biases in this industry is that we don’t have a framework to assess founders. I think this is spot on. Assessing founders is highly subjective. I hear my peer investors (both at and outside 500 Startups) say things like, “Oh, that founder is so sharp,” or, “That founder has a lot of hustle.” Do you really know after meeting someone for just a handful of times if someone is smart or has hustle? You don’t really know the person. What you do know is that you are taking your life’s experiences and trying to superimpose what you’ve learned about other past people you’ve met who seem similar and apply them to the founder at hand.
As Paige mentions, the way to really tackle unconscious biases when making investment decisions about founders is to have an objective framework. Here’s mine; it’s a work in progress:
I value these 3 traits of founders: speed to accomplish things, learnability, and tenacity (there are, of course, other characteristics that are very important to me in choosing the people I do business with more generally speaking, including honesty and integrity, but for founders, I focus most on these 3 traits as a starting point.)
It’s important for me to be able to point to enough facts for each of these characteristics.
1. Speed to accomplish things
One of the best indicators that I’ve found to measure speed is if a founder says he/she will do something by a specific constrained time and then does it (and repeats this pattern consistently).
For example, if I meet with a founder this week, and he says that he will do xyz by next week, when next week rolls around, I might check in and see if he has done it. If this pattern is consistently positive for several weeks, you’ve got someone really special here.
I realize this sounds ludicrous because shouldn’t everyone be able to follow through with what he/she says he/she will do? As it turns out, most founders I meet are not able to do so. Something comes up and task xyz doesn’t get done. Or maybe the founder is not good with time management or scoping out reasonable goals within short periods of time. Or maybe there is conflict with the team, and the founder isn’t able to work with people well. Or maybe the founder is distracted by speaking at too many conferences. It doesn’t matter the reason a founder doesn’t accomplish his/her micro goal. The ability to quickly accomplish tasks that you set out to do is a very objective criterion that I like to use when I assess founders.
When we say things like, “Oh she is such a hustler,” we really should say things like, “Oh this person sent out 2000 outbound emails last week. And 1000 the week before.”
This is a tough criterion to assess objectively.
To a certain extent, this criterion is tied to coachability. If I give a founder a piece of feedback this week, has he/she changed something about himself/herself or the business by next week? At the same time, I don’t necessarily believe that my advice is right or best; in fact, it’s a founder’s job to assess whether or not to take advice. If a founder doesn’t take my advice, I’m ok with that; it isn’t a negative mark, per se. If a founder does take my advice, and implements it quickly, that’s an indicator that he/she can learn quickly.
Other ways I assess this is when hear from a founder about a time he/she taught himself/herself a new skill. When I hear about how he/she accomplished his/her goals, I ask about what he/she had to learn along the way.
Instead of saying, “This founder is smart,” which is subjective, I prefer to say, “This founder learns quickly because he/she taught himself/herself enough Python last week to throw up this script to scrape ABC.” Starting a company requires founders to constantly learn new things quickly, so this is a really important piece of criteria for me.
Learnability is very different from being “smart.” People who go to, say, Ivy League schools have proven they have strong skills in being able to take tests and do well in them, but these skills are very different from the ones you need to run a company. They don’t transfer over at all. The best founders are constantly learning new skills they don’t already have and are mastering them quickly.
The last piece of criteria is also really hard to assess objectively. If a founder has a story about how he/she powered through a difficult situation (cancer, a rough childhood, etc.), then that’s a plus. Most people don’t have a crazy adversity story, so this one is tough. Often, I just end up not having any data points on this criterion.
These are the three characteristics that I look at most when I evaluate founding teams and try to come up with facts to support a case for each point. This isn’t always easy, but the more facts there are under each of these, the easier it is for me to assess a founder.
Of course, founder assessments alone do not make an investment decision. Other criteria are just as important and in some cases more important: market, whether a company will be able to raise further, existing traction, product-market fit, etc. Given that assessing a founding team is a really critical component to evaluating an early stage investment opportunity, being objective here is really important. At the moment, my framework for this is OK, but it can definitely be improved. I’m open to any thoughts, suggestions, and feedback.