How to Build a Successful and Diverse Venture Capital Portfolio Without Really Trying

After checking out The Information’s “open dataset” on diversity in venture capital, I felt pretty disappointed.  It didn’t include the most important statistic of all–the results!  Who is actually building a portfolio whose founders reflect the diversity of the greater population?

I went back and calculated the number of companies in the first Brooklyn Bridge Ventures portfolio who have at least one founder who is female, from an underrepresented minority group, or LGBT.

A whopping 17 of the 32 companies (53%) have founders that fit into those groups.  So, while my fund might be 100% run by one white guy, I’m sure I’d fare pretty well on The Information’s list if they added actual funding data.  

Yet, here’s the thing: I’m not actually aiming for diversity.  Not directly, anyway.  There’s no social impact clause in the fund’s mandate and the background and status of the founders arent criteria.

So that possible with such a skewed ratio?  And does it work?  Well, so far, the fund is clocking in at about 64% return, compared to the NASDAQ’s annualized return of about 15% over the same period–so I’d say it seems to be going in the right direction.

Here are some ways I think this works out in practice:

The Earlier You Go…

Most people need a little bit of capital to bring a product to market–or they’re an engineer.  Well, if the stats say that most of the people getting funding are guys and that most of the engineers are guys, then if “have money or code” is your criteria, you’ll wind up funding mostly guys.

Of the 32 companies in my portfolio, 18 (56%) were pre-product.  If you’re doing that many companies at such an early stage, you’re bound to be choosing from a wider audience.  You’ll have more zeros, but your winners will be that much bigger for you because you’ll be in at attractive valuations.  Four of my best performing companies–Canary, Orchard, Ringly and Tinybop–were all pre-product investments.  

Be Accessible

I think the biggest unnecessary speed bump in the world is the requirement for a warm intro to an investor.  If you’re putting yourself out there that you invest for a living and you want to see deals that fit into a certain criteria, then you should be willing to see those deals.  In today’s world, who isn’t connected to you somehow?  Making entrepreneurs grab a random coffee with someone they haven’t spoken to in a while just so that person can write up an intro to you wastes at least two people’s time.  VCs have an inflated sense of the value of their own time.  We should be willing to go through the firehose of crappy deals in their inbox for the money we make.  Warm intro or not, no VC has the magical stream of only quality deal flow with nothing stupid added.  Heck, most of the worst deals I see are from intros to perfectly nice people with perfectly awful startups.  Why?  Because those people aren’t VCs so their deal sense has no reason to be any good.    

When one of the problems is that certain groups aren’t connected to capital and you make the prerequisite already being connected, you’re just going to perpetuate the problem.  

Diversify Your Life

What do you have in your life that mixes up your network?  Obviously, if everyone in your network looks like you, that’s going to be who you fund.  While diversity isn’t a criteria in my fund, it certainly is in my life.  The kayaking program that I run serves a population of an estimated 50% minority participants and is staffed by an extremely diverse volunteer base ranging in age from 20 to 68.  My home and office are in Brooklyn–one of the most diverse places in the world.  I’ve even tried to diversify the investor base of my fund.  Five women actively invested in my previous fund (not counting couples where a husband has taken the lead on the investment) and I’ll be adding at least three more in my next fund.  

Stay Unfocused

Some of the biggest startup opportunities in the last few years have come in categories that you wouldn’t normally have considered to be VC backable–Tesla, Uber, Blue Apron, WeWork, Shake Shack, Fitbit, Warby Parker, etc.  If you keep an open mind about areas in need of disruption, there are serious returns to be made–and you’re likely to get exposed to entrepreneurs who don’t look like the base of entrepreneurs already getting funded.  In my first fund, I’ve invested in seven companies that make a physical product and two companies that have a physical retail location.  I’ve also made investments in the daily fantasy sports, financial infrastructure around cannabis, and three companies in the kids space.  So, yeah, it’s quite a mix.  

Run More Events Than You Attend

If you keep showing up to panels of white guys and audiences of developers, maybe you should think about taking the reigns on what you participate in.  Brooklyn Bridge Ventures hosts multiple dinners a month across neighborhoods all over NYC.   I run #notapitch events where anyone can come and share their ideas while getting super early investor feedback.  By doing all of the marketing and much of the curation for these events, I can change who is in the crowd of people I get exposed to.  

So far, it’s all worked out pretty well–and to be honest, it’s been a lot of fun.  I can’t say that this approach is going to work for everyone, but hopefully it’s something investors can be more conscious of as they run their portfolios and think about how to spend their time.