With our ##ESGinVC initiative, we want to foster a discussion around ESG and help each other develop and improve our frameworks. As part of this initiative, we spoke to leading managers and LPs about their ESG frameworks. The long-form interviews will be published in a reader on our website, while we will regularly post interview extracts on our social media channels (Linkedin — Twitter — Medium).
The extract below is from the interview with Farooq Abbasi, founder of Preface Ventures and co-founder of Diversity VC.
Coming soon: Kinga Stanislawska (Experior VC & European Women in VC), Bettina Denis (Gaia Capital Partners), Ha Duong (Ocean Investment), Andreas Surya & Richie Wirjan (Kejora Ventures) and Catherine Dupéré (Isomer Capital).
As an emerging GP on the West Coast, how do you approach your ESG responsibility?
While we don’t have an existing ESG mandate, we always actively think about our stakeholders. You simply have to, if you want to build a platform that endures. When we think about our founders, our LPs and local communities, we know that our decisions reverberate for a long time and I hope that venture capitalists appreciate this.
Some of the most important companies in technology, enterprise and infrastructure come from the West Coast. So as a capital allocator in that region and space, I need to ask myself where my dollars go and if there a net societal positive impact to our investments.
What is really near and dear to me personally is the diversity lens. We have to ask ourselves: “Is there a way to practice venture capital and reduce founder bias?” And the short answer is yes.
At Preface Ventures, we built an algorithmic sourcer that is gender and university agnostic. I´m happy to say that of the companies that we have funded, over half of the employees are female and two of the teams have a female cofounder. Also, 50% of our LPs are female and people of color, in a place like enterprise infrastructure, which is not a very diverse place.
In approaching ESG responsibility, measurement matters. You have to use data to see who has the best possibilities in your organization, you need the right sanity checks and people who will disagree with you. Thankfully we are seeing investors starting to pay more attention to this topic, with investors like Sequoia reaching out to historically black colleges to add new members into the LP base. For Preface Ventures and our portfolio, we report gender split by function and turnover in the reports to our LPs.
Finally, we want to be part of the community and closely work with organizations that drive ESG forward. On our website, we show all the organizations that are part of our tribe, including not only our portfolio companies, but also groups that we support like Black Lives Matter. We also give our employees the day off for voting at the US elections.
How did you decide to start Diversity VC and what initiatives are you implementing?
I have been in VC investing for 12 years and it is the only job I have ever had. While I am so grateful for the firms that I have worked and partnered with, most of my peers are Caucasian and male.
One of the reasons for cofounding Diversity VC is that it was a really long and hard road for myself personally, being a person of color and someone from an atypical background. I got one random chance from someone called Mood Rowghani, who founded Bond Capital with Marry Meeker after she was at Kleiner Perkins. This career changed my life and ended up being a really good fit for me, and it is important that everyone get such a chance.
At Diversity VC, the first thing we do is to collect data, because you can’t change what you can’t measure. We created our first report in partnership with Atomico to quantify gender, age, ethnic background and schooling in European and US venture capital. For this Diversity in VC Report, we use a combination of artificial intelligence, scrapers and volunteers who actually look into the data and correct it, so that we get a more accurate picture.
Secondly, I feel most happy about getting people from different backgrounds actual jobs in the venture capital industry. We set up a fellowship program called Future VC, where hundreds of participants go through a series of classes, case studies, mentorship to get more exposure. It is wonderful that we already have alumni and crazy how things can happen so quickly.
“We are truly multinational, with 23 countries across 5 continents, and are making a small but meaningful dent”
Finally, and this was always the secret dream, we are working on a compliance stamp that shows that a company has diverse practices. We will deliver this certification together with an unbiased third party and I really hope that many LPs take an interest in this. It is called the Diversity VC Standard and we are giving out the stamp of approval on two levels: Diversity in the company and inclusion in the deal funnel and hiring. We are truly multinational, with 23 countries across 5 continents, and are making a small but meaningful dent.
What is your outlook on diversity in the VC industry? How long will it take to make significant improvements?
Economic equality and mobility across socioeconomic classes are the long-term goals for the VC industry. Technology does tend to be more meritocratic than other sectors, but it still is not perfect. I see diversity developing in cascades for the VC industry.
First, and people don’t think about this enough, LPs need to be more diverse, including on the endowment and family office side. They are the ones that get GPs into business and they need to be a better reflection of the whole world. Secondly, the warm introduction phenomenon is still a big issue in the VC world. Limited partners still put a strong weight on the source of the introduction and invest because a person looks like or went to the same school as them. This needs to change, we should not back folks just because they are a from a certain country or university.
My guess and hope is that in two decades, there will be many different types of new venture capitalists. The source of venture capital flows will be more fluid, there will be more liquidity for the companies in the asset class, which will produce a whole new range of angels.
“The aperture is widening and people more than ever are getting rid of the warm introduction bias.”
Finally, Covid has accelerated the openness of VCs towards meeting startups from different countries. Before, they would simply not board a flight to Romania or Riga, now everyone is much more accessible. Also, net new deal flow for most firms is lower than usual. The main use of management fees is to hire a lot of people who are now sitting at home.
As a result, people need to be more creative in finding new entrepreneurs. The aperture is widening and people more than ever are getting rid of the warm introduction bias.
About Farooq Abbasi
Farooq Abbasi is the founder and sole general partner of Preface Ventures. Prior to founding Preface, Farooq was with Costanoa Ventures where he led investments in companies such as Alpha Health, Lively, Auterion and Leap.
Prior to Costanoa, he spent time with DN Capital and Mosaic Ventures on both sides of the Atlantic investing in enduring businesses such as Remitly and Auto1. He began investing as a sole VC in companies including but not limited to Redlock (PANW), Armory.io and Ambient.ai.
About Preface Ventures
Founded in 2020, Preface Ventures is a venture capital firm based in San Francisco, California.
Preface focuses on early stage investments for founders building the frontier of enterprise infrastructure and software. Its investments amount to over $10BN in cumulative enterprise value, with portfolio companies such as Ambient.ai, AUTO1, Lively and armory.
About Marco Cesare Solinas
Marco is an Analyst at Blue Future Partners, where he is responsible for sourcing and analysing new investment opportunities. He is passionate about Technology and Venture Capital and making an impact with investments. He focuses on both direct and indirect investments.
Previously, he has built an international and multicultural background across Italy, US, Germany, Turkey and Malaysia. Marco holds a CEMS Master’s in International Management and a Bachelor´s in Economics and Finance from Bocconi University.
Linkedin — Twitter — Medium
About Blue Future Partners
Blue Future Partners is a Fund of Funds with decades worth of experience in investing in Venture Capital. We specialize in backing Emerging Managers focused on early-stage technology investments. We are people-centric and relationship-driven. We have a global mandate and existing relationships with Emerging Managers in the US, Europe, Israel, China and South East Asia.
Website — Linkedin — Twitter — Medium