Birth Lottery and Systemic Inequality

• Circumstances of birth (family, neighborhood, financial resources) play outsized role in life outcomes
  • Affects longevity, depression/diabetes risk, access to role models and good schools
  • Creates path to selective colleges or alternative career routes
• Random birth lottery creates unfair gaps between advantaged and disadvantaged starting points
  • Some start with great advantages, others face persistent barriers/obstacles not of their own making
  • Barriers are both personal and systemic
• Solutions require philanthropy, structural change, and private sector-backed startups
• Need to reassess talent evaluation and business definition

Speaker's Background and Journey to VC

• Freada Kapor Klein: venture capitalist with activist background
• Middle school: picketed with Caesar Chavez's Farm Workers
• Undergraduate: worked at first Rape Crisis centers in US
• Mid-1970s: co-founded first group focused exclusively on sexual harassment in US
• 1980s: recruited by Lotus software company to make it most progressive employer in US
  • Worked on diversity, inclusion, corporate culture in mid-80s before it became mainstream
• 2011: co-founded Kapor Capital with husband Mitch Kapor (Lotus founder)
  • Not office romance - decade after leaving Lotus became couple
  • Started with small team, own funds, clear hypothesis

Kapor Capital's Investment Thesis

• Hypothesis: make venture-scale financial returns with portfolio closing gaps of access, opportunity, outcome for low-income communities and/or communities of color
• Required throwing out standard VC playbook, developing new models

Founders Commitment Program

• Barrier 1: Gap-closing founders need values-aligned teammates
• Bavin (co-founder of Magoosh test prep) requested "seal of approval" to find each other
• January 2016: implemented Founders Commitment
  • No checks written to founders who don't commit to building diverse teams, inclusive culture matching consumers/business model
  • Not cookie-cutter/check-the-box exercise - customized approach by entrepreneurs

Deal Sourcing Innovation

• Barrier 2: Gap-closing entrepreneurs finding supportive VCs
• Standard VC playbook: warm intro through partner connections, business school buddies, rich uncles
• Kapor Capital: open website submission for tech startups meeting gap-closing criteria
  • See ~3,000 deals annually
• Success example: BookNook
  • No team overlap with Kapor Capital team
  • High-impact tutoring company for reading skills grades K-8
  • Now in 7,000+ schools and educational institutions
  • 6,000+ tutors
  • Recently raised $25M funding round

Talent Evaluation: Distance Traveled

• Standard VC playbook: credentials, pedigrees, work at VC-backed companies
• Kapor Capital: "distance traveled story" - where you started vs. how far you got on own steam
• Example: Fedra Ellis Lampkins (Promise)
  • Raised by single mom (hardworking waitress)
  • Attended local public school with free/reduced lunch program
  • Had to stand in different line than kids with lunch money - humiliating/scarring experience
  • Life path: improve quality of life for hardworking low-income people with respect and dignity
  • Company Promise: helps people behind on water/utility bills
    • Traditional process: take day off work, stand in line with paperwork to prove poverty
    • Promise solution: text how much you can afford, preferred payment date
    • No fees, no interest, paid from public coffers
  • Pilot results in Louisville KY and Los Angeles County: 95% repayment rate
  • Outcomes: public coffers got needed revenue, low-income families improved credit scores, path to mainstream financial system
  • Promise now profitable business with $1M+ pipeline

Entrepreneur Characteristics and Challenges

• Most entrepreneurs have similar distance traveled stories
• Use lived experience to design real solutions to real problems
• Face doubt despite "do well financially and do good" rhetoric
• Common pushback: "take diversity out of pitch deck, take impact out, just focus on making money"

Financial Performance Results

• 12 years, couple hundred companies, 60% underrepresented founders (Black, LatinX, LGBTQ, women of all backgrounds)
• Financial returns: top quartile performance
• Beat 75% of other VC firms of same size and vintage
• Outperformed not just diversity/impact-focused firms but "greed only" firms focused solely on money

Succession Planning Innovation

• Most VC firms do poor job at succession planning with tension between new/old partners
• New co-managing partners: Ulili Onovakpuri and Brian Dixon
• Ulili background:
  • Grew up in low-income family in San Francisco Bay Area
  • Worked hard, got into UC Berkeley, designed own major
  • Early Kapor Capital employee, started summer associates program for people unfamiliar with VC
• Brian Dixon background:
  • First summer associate working on MBA
  • Computer science undergrad degree
  • As teenager started custom sneaker business, secured LeBron James as customer
• Together raised $127M, making it one of largest Black-led VC funds in country
• Ulili philosophy: "I open doors and put in door stop" - ensures she's not last one through, lots of others follow
• Expected to maintain firm's core rigor while taking it to new places