Structural Disadvantages in Venture Capital and Investing in Overlooked, Under-Represented Talent with Check Warner on The Full Ratchet with Nick Moran

Check out the Episode Page and Show Notes

Key Takeaways

  • The over-60 market is the fastest-growing segment of the population, yet few startups have been built to service this group
  • Women make up 51% of the population but venture-backed Fem Tech is rare
  • Gen Z (or the population ages 7-23) is an under-represented market
  • Urgency is one of the hardest things to create for LP’s – it takes an average 2-3 years before they invest
  • Important Founder Qualities:
    • Leadership
    • Humility – someone who can listen to feedback
    • Commercialism
    • A strong mission – some kind of purpose that drives them forward
    • Relentlessness

Intro

Check Warner (t:@checkwarner) is co-founder of Ada Ventures, a VC firm for over-looked founders and markets and Diversity VC , a non-profit group seeking to increase the diversity of thought in the venture capital and technology industry.

Nick Moran – host

Ada Ventures’ Thesis

  • We believe talent is available around the world, but opportunity is not. The VC industry is missing out. Ada’s mission is to unlock that under-represented, overlooked talent .” – Check Warner
  • Ada Ventures is named after Ada Lovelace- born in1815, she was an early mathematician who worked on a machine that preceded the computer and coined the term “algorithm”
    • She was over-looked and not recognized

How Do You Define the Over-Looked?

  • The “over-looked” include women, those with ethnic minority backgrounds, the disabled, those over age 60 and individuals identifying as LGBTQ
  • Most venture funding goes to white males who attended certain colleges

Is it Tough Getting Up-Rounds from Tier 1 VCs for Underrepresented Founders?

  • Yes, they have to work to educate the VC’s and explain what they’re missing
  • Ada Ventures launched in December 2019 – “The rest of the industry might not see value in what we do” – Check Warner

Underpriced Market

  • The aging population market– the over 60 market is the fastest-growing segment of the population, yet very few startups have been built to service this group
  • Women make up 51% of the population but there are few venture-backed companies that exist to meet their needs = Fem Tech
  • Gen Z or the population ages 7-23

Recruiting and Incentivizing Scouts

  • Check started with people who are leaders of diverse companies, but didn’t know anything about angel investing
  • She and her partner built a network of 50+ people representing 10,000 entrepreneurs
  • The incentive for finding a company that was a good fit for Ada Ventures? A 5,000-pound finder’s fee and a split of carried interest if that company created a return
  • “We want to create a network of angel investors”- Check Warner

Fundraising Effectively

  • Check talked to experienced LP’s who said 30 companies is the right portfolio size for the ownership they were targeting
  • Ada Venture works in the pre-seed stage – they raised 500,000 pounds in the first round in the UK, for about 30 companies with a 500,000 pound reserve rate= a 30 million pound fund
  • It took 17 months to raise the 30 million
  • Urgency is one of the hardest things to create for LP’s – it takes an average 2-3 years before they invest – some want to wait and see what will happen
  • Ada Ventures hosted an event before they even had a fund
  • Visualize and act “as-if”
  • Having prospective LPs, committed LP’s, founders and they’re scouting network in the same room together gave momentum

Biggest Surprises During Fund Raising

  • The LP/investor community is conservative
  • Their excuses:
    • “We don’t invest in new managers”
    • “We won’t invest until you’re on your third fund”
    • “We only invest with people we know”
  • This is all terrible for the minority community

Investing Framework

  • Follow a consistent set of questions across the investment process:
    • It increases the quality of decision making
    • It reduces potential bias
  • Ada Ventures published a seed-investing checklist that has resonated with people because it offers transparency
  • 3 questions to ask:
    • What percentage of the company’s users would be very disappointed not to have the product tomorrow?
    • What percentage of users are organic sources, not paid-for traffic?
    • What is the market size of potential users? Ada Ventures hopes most could reach a billion people

Important Founder Qualities

  • Leadership
  • Humility – someone who can listen to feedback
  • Commerciality
  • A strong mission – some kind of purpose that drives them forward
  • Relentlessness

Benefits of Transparency

  • “Imitation is the sincerest form of flattery – that’s okay. We want more funds like us.” Check Warner
  •  Transparency forces them to keep innovating
  • Authenticity matters

Importance of Diversity

  • There are huge barriers especially for black founders
  • The VC community needs to be more inclusive
  • “I’m hopeful we’ll see more action: not just words. These are long overdue conversations.”- Check Warner
  • People are scared to do or say the wrong thing
  • Check founded Diversity VC, a not-for-profit dedicated to promoting diversity in VC and tech
    • It’s goal: Help entrepreneurs from diverse backgrounds access capital
  • Mentors need to be more diverse and mentoring needs to come with money
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Notes By EWerbitsky

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