The last week has been rather disturbing on a number of levels. I’ve been able to reflect a little bit more methodically on what is actually happening here in the United States in the last 24 hours or so.
But before I dig into that, I wanted to share with you something that we shared with our portfolio companies this weekend to give you a sense of how at Hustle Fund are thinking about things. We write a weekly newsletter to our founders in our portfolio, and this is what my partners and I sent:
Not only are we still dealing with the surge of cases of the coronavirus, which we know is affecting so many of your businesses, but in addition, you may have seen in the news a lot of racially charged incidents that also happened this week. This spans from a police officer murdering weaponless George Floyd to a woman threatening to call the police on a Black man who was birdwatching and rightfully trying to tell her to put a leash on her dog. These are not one-off cases, but just the latest in a series of incidents where Black Americans are the subjects of casual police brutality. For those of you who are not based in the United States, a lot of this may sound completely senseless. I, too, couldn’t explain any of this to my kindergartener. It just doesn’t make any sense.
We’ve heard from our Black friends that they feel afraid and fatigued. It’s a fear and anxiety that comes back every time injustice directed towards the Black community happens. The events of this week are reminders that you can be innocently minding your own business — not even near a crime — and can be a target for violence simply because of your skin color. If you are afraid, I want to give you a big social distancing hug.
From Aeon’s How to See Race
“Race is ultimately a power relationship; racial categories are not about interesting cultural or physical differences, but about putting other people into groups in order to dominate, exploit and attack them.
In the United States race as a form of power has existed since the very beginning.
The US Constitution divided people into White, Black or Indian, which were meant to stand in for power categories: those eligible for citizenship, those subjected to brutal enslavement, and those targeted for genocide. In the first census, each resident counted as one person, each slave as three-fifths a person, and each “Indian” was not counted at all. But racialisation is often more insidious. It means that we see things that don’t exist, and fail to recognise things that do. The most powerful racial category is often invisible: Whiteness. The benefit of being in power is that Whites can imagine that they are the norm and that only other people have race. An early US census instructed people to leave the race section blank if they were White, and indicate only if someone were something else (‘B’ for Black, ‘M’ for Mulatto). Whiteness was literally unmarked.”
As startup founders, we understand power and power structures as it pertains to incumbents and their grip on the markets we are attacking; and yet we try. We are optimists who believe we have the power to change things, otherwise we wouldn’t start companies
We want you to know that at Hustle Fund, we condemn violence, discrimination, racial profiling, etc. Whether it is now or down the road, if you ever feel like you are an outsider or that you are being discriminated against because of your race, gender, nationality, age, or anything else for that matter, I want everyone in this Hustle Fund family to know you can come to us. If we even just take the smaller startup community in the broader world, I know that the startup community, too, is fraught with problems. There is a lot of discrimination and bad behavior within the startup ecosystem, especially as it pertains to raising money from investors.
Part of the reason we decided to start a VC fund is so that we can start to right the world a little bit. It will take a long time. We are not the biggest VCs. And we are not the most powerful VCs. But we have a bit of a voice. Let’s use it for good. Let’s use it to effect the change we want to see in the world — even if it starts small. We may all be different but you will always be Hustle Fund Family.
Let’s break this down further though. Also, as a reminder, these next thoughts are mine and do not necessarily reflect the thoughts of the partnership.
I am disturbed by what happened to George Floyd, a Black man, who was murdered by a White police officer named Derek Chauvin last week. I am also equally disturbed by the video that I saw of the conflict in New York between Amy Cooper, a White woman with a dog and Christian Cooper (unrelated Coopers), a Black birdwatcher. Although both cases are very different in their outcomes, the latter was also just as disturbing because it showed the sinister power dynamics in that situation.
Amy was in the wrong – she did not have a leash on her dog — but she played the power card of calling the cops to potentially wrongfully arrest or hurt Christian (even though SHE was in the wrong!). What this actually illustrates is that she KNEW very well the “power construct” of the situation. She KNEW that even though she was in the wrong, she could bring about trouble for Christian because of the power dynamics.
And that is incredibly evil.
I don’t care if that woman doesn’t normally act like that – it could have been just a bad day for her. But what it does show in that one example is what everyone deep down knows and dismisses — that there are “power constructs” based on race in this country that are so extreme such that you can call the cops because of someone’s skin color. She KNEW that something bad would happen to him simply because of the color of his skin. In fact, studies show that police brutality is a leading cause of death amongst Black men. The root of this stems from slavery, and we have not overcome this.
Let’s rewind a bit on something separate and then I’ll come back.
In the “old days” — many centuries ago — around the world, most governments were monarchies or dictatorships of some sort. Under these governments, it was very clear who had power. There was no pretense of life being fair or just. Or that you could work your way up. If you were not royalty, you just lived with it and hoped to make your life as best as possible.
And if things got really bad — like the dictator was crazy or really unjust — then you’d see revolts and governments overthrown. Usually this was instigated by a mad family member who wanted the throne, but things would have to be bad enough for a mad family member to generate support from other people. This type of government was rinsed and repeated for many centuries.
Ok fast forward. In the US, we’ve never had our government overthrown. This is because our social contract in the US is that if you generally work hard and generally follow the rules, you can work your way up. This is what is promised to us as Americans. And, in large part, for many years, if you were White and male, this is/was true. Afterall, we have a currency that hasn’t had hyperinflation, there’s food to eat, clean water, and we have rule of law that generally works. These are the basics of a developed nation. You don’t see complete anarchy unlike in other countries.
But our system isn’t perfect and is especially far from perfect for many other people. It’s been good enough such that we haven’t had revolt but under the surface, there are major systemic problems. There’s a premise and social contract that things in the US “should be fair”. I.e. if you do a, b, and c things you can get ahead. But beneath the surface, there are power constructs encoded in our laws that don’t allow for this and reinforce power in the hands of a concentrated group of people. And so things on the surface “seem fair”, but then they actually are not. Even if there are no longer physical shackles of slavery, there are legal ones that loom and are often hidden.
This week illustrated just how sneaky some of this is. For example, from all the videos that we saw, I was appalled by the police brutality on peaceful protesters and journalists who want to share the truth. In this country, freedom of speech is a fundamental right.
But it was very clear to me from these past few days that freedom of speech is a social contract that isn’t being fulfilled. The police shouldn’t be allowed to shoot rubber bullets at you for videotaping them. They shouldn’t be allowed to tear gas protesters who are chanting unarmed.
What is amazing is that even though there is all this video footage of all these things, it doesn’t even matter! The police don’t care that they are videotaped for this. Why? Because nothing bad will happen to them. As I’ve learned more recently, there are no checks and balances on the police. In many cities around the country, leadership positions within the police may be voted on directly or indirectly, but citizens have no ability to effect change within the ranks. And (thank you to my VC friend Kanyi Maqubela for this) unions and qualified immunity prevent really anything bad from happening to any cop — regardless of whether they uphold American laws or break them. This is frustrating. The people who are supposed to protect you can do literally whatever they want. And while I do believe that most people are fundamentally good people, power constructs have led to a culture to enable rampant wrongdoings and complicity in police forces in America. Ultimately, power is consolidated in the hands of a few, and this isn’t what most of America signed up for.
I know that many of you don’t read my newsletter to read about societal issues. But this a good lead in to other power structural issues that directly pertain to you. Also just to be clear, this next part is in no way meant to suggest that these next issues are as bad as police brutality or racism. It’s just another example of power constructs meant to consolidate power that directly pertains to entrepreneurs:
A power construct that should worry you, as an entrepreneur, that most people don’t know about: VC funds are only allowed to have 99 investors. There are a couple of exceptions. (ie. if you want to have a small VC fund, you can have up to 250 investors or if all of your investors are worth over $5m, you can have an unlimited number of investors). But, for the most part, most VC funds can only have 99 investors.
Let’s do the math on that. If you want to raise a $100m fund, that means that your average check size from an investor in your fund needs to be over $1 million. This means that you cannot crowdsource small investments here and there from 5000 people. If I had my way, I would just market the sh*t out of things and raise a fund from 10k individuals, and a good marketer could easily do this. But, that’s not allowed per SEC rules.
What this really means is that if you are raising a VC fund, you can only raise money from very wealthy organizations or people. The number of people or groups who can easily write a $1m+ investment check is very few. Power in the investing world is concentrated in the hands of just a few people and that money generally continues to support existing funds and the founders they support who are typically White, Male, graduated from an Ivy League or MIT/Stanford, and worked at a top notch tech company liked Facebook or Google. This is why you don’t see new money or new ideas go into investing. Literally, change is prevented by the laws that are in place.
Now let’s follow the money. If you are an overlooked founder – and by this it can mean a lot of things. It can mean race. It can mean geography. It can mean schools or workplaces that you went to or didn’t go to. It can mean age. If you are overlooked, you are likely not going to find a large fund to fund you — at least not in the beginning when you have not built out much.
If you find anyone to fund you, it will most likely be a startup fund (such as from Hustle Fund and others) that is small and cannot for many years raise a large fund because the money is so concentrated with power constructs to keep it this way. This means that it’s harder for you as an overlooked founder — there isn’t truly a free market here. Laws like this are subtle but have big impacts on society.
Again, in bringing up the fundraising issues that founders or funds have are in no way meant to be considered on the same plane as police brutality or racism. Just generally speaking, if we really want to effect change in this country, we need to change the way “hidden” power constructs like these are set up in our legal system. Specifically in the areas that consolidate power and have no checks and balances. Just like how we don’t approve of power monopolies in companies in the US and have antitrust laws (that are sometimes enforced), we shouldn’t accept power concentration in other facets of our lives. These are currently encoded in our laws in ways that the American public is largely unaware of but have huge impacts on our society.
I know that entrepreneurship can create wealth and change lives. Although money isn’t power, they are directly related, and by helping overlooked founders create wealth, we can start to — in small ways — right some of these power constructs. At Hustle Fund, 18% of our North American portfolio companies were started by underrepresented founders (Black & LatinX). This is a start but we know there is so much more work to do including:
- Welcoming and continue to welcome cold pitches. 15% of our portfolio companies came from cold inbound pitches. We didn’t know them. They didn’t have a referral. Great companies come from everywhere including outside one’s network. We don’t want to miss out.
- Building and continuing to build informal deal flow relationships with others who reach different sets of networks. This includes working with our Venture Associate Intern Jasmin Johnson who works with Score 3. Or Lolita Taub in her investor-matching program. Or relationships with a large variety of co-working and entrepreneurship organizations around the country.
- Meeting founders remotely. Even pre COVID-19, almost all of our investments have been done via phone calls and video conferencing. Contrary to what many other investors think, I think meeting with founders in person doesn’t actually show you a person’s true colors – it’s just a show. People dress up and they put on a pitch show. And in-person pitches also introduce unconscious biases — everything from ability to pay for travel to how a person looks / dresses to how good a person is in pitching. I just want to know the raw nuts and bolts of a company and, to the extent possible, minimize unconscious biases across pitches.
- Post investment, helping our founders by:
- Getting to know and introducing our founders to other microfunds and angels who share similar ethos in funding entrepreneurs based on execution rather than based on network or ability to pitch.
- Building a following online to help amplify our founders’ stories — one of our founders raised $80k+ from angels through our tweets.
- Running growth camps (4-6 weeks) to help our founders increase their revenue right away so that they don’t need to rely on more investor money
- Scouting new team members. It’s no secret our team is almost entirely Asian and we are not racially, nor by background, a diverse team! Furthermore, in the GP-ship, we all went to Stanford and have been friends for 20+ years. We are exactly guilty of what my VC friend Rich Kerby writes about here! At the same time, we also have no management fees as a small fund to bring onboard new paid hires (and actually rely on grants and sponsorships to make our current budget work). We have been slowly getting to know & “courting” a couple of talented operators whom we would love to work with so that we can add more talent to our team in the coming 2-3 years. To be clear, the way that I think about things from a North American investing perspective is who do I want to eventually replace me? Who do I want to replace Eric? (hah sorry Eric) How will the demographics and needs of the United States change in the next 2 decades? What and who are underserved groups of people within the US as consumers and businesses? This isn’t some quota thing — I aspire to have a diverse partnership because I think it’s an asset in being able to identify opportunities and underserved markets, and being able to connect with different groups of people within the US. At Hustle Fund, I aspire to be a 100+ year franchise, and in order to get there, we will need a team that is different from what we have today. Always be scouting and building relationships early.
Credits: Special thanks to Jasmin Johnson, Dr. Billie J. Moore, Shiyan Koh, and Eric Bahn for all their incredibly helpful thoughts & feedback on this post