Bringing Diversity to Venture Capital

An Interview with Lolita M Taub

On a daily basis, I get inquiries on and around the world of venture capital (VC) and Backstage Capital. So, when Mario Avila, an aspiring VC, reached out to me and expressed interest in typing up a few questions that could help many others, I took him up on it. I told Mario I’d answer his questions and post them on Medium.

In this post, we explore my role as a Principal, diversity in venture capital, portfolio management, and how to break into venture capital.

Mario: Thank you for taking the time today to answer some of my questions. Before we begin, can you please share a little bit about your background and how you found your way to Backstage Capital. Which personal traits have helped you excel in your work?

Lolita: As you may have read in the Wall Street Journal, “immigrants have started more than half of the current crop of US-based startups valued at $1 billion or more.” I don’t think that’s a coincidence. In fact, I believe that the string of characteristics that come from an immigrant upbringing have helped build the 40+ unicorns and have helped me get to where I am.

I credit my tech and VC success to the values my immigrant parents taught me: persistence, extraordinary work-ethic, and a strong belief in the American Dream. My parents had to work multiple jobs and keep dreaming of a better life. They told me I would have a better life. And somewhere in between, they made me believe that I could do anything I set my mind to.

It is with this immigrant-inspired confidence that I set out to live a life as a venture capitalist where I invest in the future of tech and faces of leadership.

??????? Action: Learn more about the Backstage Capital team by visiting our Crew page.

The Role of Principal

Mario: The business of venture capital involves investing in startups, managing the current portfolio, and balancing operational cash flow. As a Principal at Backstage, does your role involve all three aspects of the venture capital business: working with portfolio companies, sourcing new deals, and fundraising?

Lolita: As Principal of Backstage Capital’s Headliner Fund I, it is my number one priority to act in accordance with our fiduciary duty of protecting and growing our investors money. Activities includes: identifying and investing in the companies that will provide big returns to our investors and working with portfolio companies (a.k.a. our Headliners).

Now, keep in mind that venture capital funds are not simply investment vehicles but also businesses within themselves. That means that funds are also focused on running smooth internal operations. And, in that vein, I take great joy in supporting internal technology decisions and entrepreneurial efforts to take venture capital to the next level.

??????? Action: Reflect on how alternative investing vehicles, such as equity crowdfunding and ICOs, are shaping the new world of venture capital. To get you started, you can read a report I co-authored entitled, “Are ICOs a Viable New Asset Class for Venture Capital?”

Diversity in Venture Capital

Mario: You mentioned in one of your Medium posts a McKinsey study that states diverse teams were more likely to bring financial returns above the industry mean. What is the state of diversity in venture capital?

Lolita: Last year 91% of venture capital funding went to men. And nearly 90% of VC managing partners are men, too. Is that surprising to you? It’s not to me. It’s normal to have a homogenous community that has adopted homogenous pattern matching techniques (a.k.a. groupthink). Now, groupthink is a dangerous and costly thing. McKinsey observes that companies with racial and ethnic diversity are 35% more likely to have financial returns that are above national industry medians. That’s huge. So, the 90%+ of men investing in 90%+ men strategy is leaving money on the table.

If you ask me, these men are leaving money on the table. They’re robbing their investors of an opportunity to maximize returns.

The 90%+ of men investing in 90%+ men strategy is leaving money on the table.

On the bright side, the blindsightedness caused by groupthink, homogeneous investors provides an opportunity for Backstage to capitalize on the last venture capital arbitrage opportunity: investing in diversity with the support of a diverse set of venture capitalists.

??????? Action: Tangentially, check out the interesting stats behind women founders and funders at Allraise.org.

Mario: Backstage Capital is one of the most diverse venture capital funds around, and while there are some firms that are diversifying their teams, the majority of venture capitalists still come from a single demographic. What is the diversity breakdown at Backstage Capital?

Lolita: There are 9 investors at Backstage Capital, including me. Between Arlan, Christie, Bryan, Chacho, Del, Brittany, Greer, Amiah, and me, we cover a spectrum of professional experience, Myers-Briggs personalities, skills, strengths, gender, sexual orientation, ethnicity, and then some. To add some color to what this means relative to the industry, compare the diversity percentages of the industry with that of Backstage Capital.

Without a doubt, Backstage is changing the face of venture capital.

??????? Action: Play with the National Venture Capital Associations interactive Diversity Dashboard and take a look at generational and VC staff representation.

Mario: Can you share some of the benefits Backstage experiences because of the diversification of its investment team? Do you believe more firms will begin to follow Backstage’s lead in not only diversifying their investments, but their investment teams as well?

Lolita: Statistically speaking, the diversity make-up of the team will benefit the fund in the way of. We are 35% (at least) more likely to achieve above-average industry returns due to our diversity. And to add to the list of statistics, just read what Harvard Business Review has to say:

“VC firms that increased their proportion of female partner hires by 10% saw, on average, a 1.5% spike in overall fund returns each year and had 9.7% more profitable exits (an impressive figure given that only 28.8% of all VC investments have a profitable exit).”

I get excited thinking about the kind of returns our incredibly diverse and female partner-led fund may produce. And, you better bet that as our returns begin to materialize, that the venture capital industry will turn up the volume on hiring more than just white-male-cis talent.

??????? Action: Read Paul Gompers and Silpa Kovvali’s article, The Other Diversity Dividend, for more on diversity and venture capital.

Portfolio Management

Mario: In less than five years, Backstage Capital has invested in over 100 companies. Additionally, Backstage has over 20 people on staff. What are the benefits of having a large team and 100 startups to keep track of?

Lolita: Within the tech venture capital industry, a fund team sizes range from single-digit to hundreds. When you look at funds that have made 100+ investments, the team size is likely to range between 10 and 250.

The benefit of Backstage Capital’s team size is that there are people to support the fund’s and the portfolio’s needs. The added bonus is that the team is incredibly talented, diverse, and, I would dare to say, producing the work that you’d expect from a team of 40.

??????? Action: Learn about the Backstage Capital story and meet our 100 portfolio companies here.

Dream Big, Start Small

Mario: The usual career path in venture capital begins with an analyst or apprenticeship position, but there are few positions compared to a large applicant pool. What are some ways aspiring venture capitalists could prepare to break into venture capital?

Lolita: Disclaimer: there is no set path or preparation activities that can lead to career opportunities in venture capital. That said, below I share my recommendations for aspiring venture capitalists.

1. Get clear on where you are and where you want to be.

2. Take action.

3. Never stop learning and sharing value.

Read, take a class, and share valuable information you’ve acquired on social media.

Here are three books I recommend you read:

1. Venture Deals by Brad Feld
2. Break Into VC by Bradley Miles
3. The Business of Venture Capital by Mahendra Ramsinghani

I also recommend signing up for Brad Feld’s Kauffman and Techstars Venture Deals course.

Lastly, know that breaking into venture capital is likely to take time. So, be patient, but never stop persisting. Dreams do come true if you’re willing to do the work.

??????? Action: Get inspired by Chacho’s story on breaking into venture capital and, then, read his advice to aspiring venture capitalists.

About Lolita Taub

Lolita is Backstage Capital’s Principal for the Headliner Fund I, a fund focused on investing in Black female-founded startups. Her prior early-stage tech investing experience includes Portfolia and K Fund. Before joining the VC world, Lolita spent nearly a decade in B2B enterprise tech, consulting and selling solutions to Fortune 500 companies at IBM, Cisco Systems, and Silicon Valley + NYC startups.

Lolita holds a BA from the University of Southern California and an MBA from the IE Business School. She’s living the dream working alongside and investing in the next generation of diversity-led tech unicorns. ?? Find Lolita M Taub on Twitter, on Linkedin, or on the web here.

About Mario Avila

Mario has worked as a mechanical engineer, product manager, investment intern, and entrepreneur. He’s passionate about the subject of venture capital and entrepreneurship, specifically venture capitalists/founders who are underrepresented in the startup community. He has a background in both mechanical engineering and innovation management. Find The Mariachi VCon Twitter, or on LinkedIn.

This article was originally posted on Medium.com on July, 10 2018.