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When the #MeToo movement reached Silicon Valley in the summer of 2017, former Facebook executive Alison Rosenthal wanted to do something—maybe leave Silicon Valley to run for office or work in policy full-time.
Then the onetime professional cyclist remembered a lesson from her former coach: “Race your strengths; train your weaknesses.” Rosenthal was impressed by work groups like All Raise were doing to promote more female tech entrepreneurs and investors. But she felt that “nonobvious” founders were still left out. “A lot of traditional firms have made some incremental changes, which I applaud,” she says. “I wanted to do something differently and more forcefully.”
The result is Leadout Capital, a new $27 million fund that focuses on investing in pre-seed and seed-stage startups whose founders come from, or cater to, underserved communities. With Rosenthal, age 42, as managing partner, and a group of early ex-Facebook employees as investors, Leadout Capital has already made five investments and counts Melinda Gates and TPG Capital co-CEO Jon Winkelried as investors. Megan Smith, a former Google executive and chief technology officer of the United States, is a key advisor.
There’s so much money left on the table and talent that is wasted in this country and in this world; very exceptional people who have genius ideas and ‘don’t look the part.’
As high-valued tech companies like Airbnb, Slack and Uber go public, or get close to that milestone, many of their employees are leaving to start their own businesses and raise millions to invest in others, seeding new startups and influencing which founders flourish.
The buzz around these companies, and the wealth they’re generating, can overshadow yesterday’s high-flying tech startups, companies like Facebook, which went public in 2012. Facebook produced its share of investors from the ranks of its early executives, such as Sean Parker (Facebook’s first president and now a former partner at venture firm Founders Fund) and Matt Cohler (a partner at venture firm Benchmark and an Uber director). But seven years after its IPO, Facebook’s story in VC is still playing out.
The new wave includes new fund leaders like Rosenthal at Leadout Capital and the women of F7 Ventures, which launched late last year. Many don’t look like the stereotypical venture capital investor, an industry still dominated by white males. And because they are pledging to back women-led startups and businesses whose founders come from underrepresented groups, their portfolios shouldn’t either.
“Systems are hard to change,” Rosenthal says. “We all have to do our part, from the edges or pushing out from within, to help get there.”
Rosenthal’s path to venture capital started with a jump from Wall Street to the world of hoodies. A Connecticut native and a history student at Brown University, Rosenthal started her career as an analyst at Goldman Sachs in 1998 and followed colleagues west to get in on the burgeoning dot-com boom in 2001 at private equity firm General Atlantic. Her path turned when, as an M.B.A. candidate at Stanford, she noticed one of her roommates, an engineer, spending his spare time on a website called The Facebook. When she saw Cohler, then one of Facebook’s top product leaders, speak at the university, Rosenthal was hooked. She joined Facebook in 2006 as one of its first 100 employees. Over the next five years, Rosenthal oversaw Facebook’s mobile partnerships and helped lead business development as one of the key executives behind the launch of the “share” button.
Rosenthal had taken up cycling for exercise with her business school classmates, and while at Facebook, she took advantage of off-hour calls with clients in southeast Asia and Europe to train and then enter and win, increasingly competitive races. For two years until 2010, she rode for the TIBCO Professional Women’s Cycling Team. Around that time Rosenthal met her wife, a global pro who raced for Team USA.
Excellence at sports, especially endurance sports, require a “certain mental grit,” Rosenthal says. They also require meticulous execution. When Rosenthal joined the venture firm Greylock in 2011 as an entrepreneur-in-residence and started personally investing in startups, her approach was simple: identify entrepreneurs with those same traits. But she wasn’t quite done with the operator itch: In 2014 she joined one of Greylock’s investments, Wealthfront, where she spent the next two years running strategic partnerships.
Then came the summer of 2017, and Rosenthal’s choice for how she could have the most impact. Reid Hoffman had become a friend and mentor during her stint at Greylock. The billionaire LinkedIn cofounder bought into Rosenthal’s desire to identify underserved founders who in turn were building companies for those markets. Rosenthal turned to a former colleague she’d hired at Wealthfront, Bennett Surajat, who is of Indonesian descent, to join her as a general partner. They named the firm Leadout Capital, for the racing tactic in which cyclists create a windbreak for their intended winner to reach the home stretch at maximum speed.
The mandate is to invest in underrepresented founders, mostly. Most of Leadout’s investments so far have been in businesses led by women and people of color. But unlike a fund like Female Founders Fund, Leadout Capital doesn’t mandate that its investments must must fit those two criteria, counting other factors like upbringing and education as “nonobvious,” too. To identify entrepreneurs who fit her mold, Rosenthal enlisted the help of two University of Pennsylvania academics and writers, Angela Duckworth, the author of a bestselling book on grit, and Adam Grant. They identified four key character strengths of entrepreneurs who might make for investment success: humility, ambition, giving and, well, grit.
Leadout Capital’s first five investments include four women-led businesses, three of which have Latinx founders, ranging from pet trackers (Pawscout) and procurement for government agencies (CoProcure) to book recommendations (Booksloth) and aerial imagery (Swiftera). But the fifth, email inbox startup Monolist, is led by three male founders who all worked at Rosenthal and Surajat’s old company, Wealthfront. Without formal guardrails in place, it’s up to Rosenthal and Surajat whether such an investment proves to be more the exception or the rule.
So far, Rosenthal’s approach has won over Gates, an anchor donor to All Raise and a leading investor in women fund managers, as well as TPG’s Winkelried, who invested personally. “We need more fund managers like Ali who invest at the seed stage and will change the dynamics and opportunity in the industry in measurable ways,” says Hoffman, who invested through his foundation, in an email.
Former coworkers and peers from Rosenthal’s Facebook days also put money behind Rosenthal’s vision, including former treasurer Cipora Herman, early engineer Jeff Rothschild and former partnerships boss Dan Rose. “There’s so much money left on the table and talent that is wasted in this country and in this world; very exceptional people who have genius ideas and ‘don’t look the part,’” says Smith, who met Rosenthal while the two worked at Google and Facebook. “They get scraps of funding compared to others, and it’s completely unnecessary.”
For a company of Facebook’s size—more than $500 billion in market capitalization today, up from $104 billion at its 2012 IPO— the company’s fingerprints around the venture industry aren’t obvious. Some Facebook alumni who got into investing before the IPO, including Social Capital’s Chamath Palihapitiya, Dave Morin (cofounder of Slow Ventures), and Cohler, have partially retired or stepped away from venture investing.
Over the years, other ex-Facebookers have become startup backers, including Kevin Colleran and Sam Lessin at Slow and former head of infrastructure Jonathan Heiliger at Vertex US. But while Google and Twitter’s investor networks rose to prominence—and now those of Airbnb and Uber—Facebook’s investor network wasn’t so easy to define.
Part of that could be a coincidence of timing. When Google’s executives were looking to make their next career moves in the years following its 2004 IPO, they were able to step into the gap left by investors recoiling from the financial crisis of 2008, lean years that would produce some of venture’s best recent returns like Twitter and Uber. Facebook was still private then. And though some Facebookers had the cash to write personal checks, those who stayed long-term with the company were more likely to keep such investments quiet to avoid the perception of conflicts of interest. “Facebook people have been raised in the, ‘We let our work speak for itself’ style,” says Joshua Rahn, a general partner at startup studio Oceans and Facebook’s seventh employee hired in New York.
But the lack of hype around a Facebook investor network could have as much to do with the current crop of unicorns, which are doing things faster and louder. Their companies are increasingly based not on campuses but in San Francisco, surrounded by other startups and staffed by employees with expectations to rise fast— and perhaps move on fast, too. And when their valuations can reach tens of billions of dollars while still private, and employees can cash out in the secondary market, their executives have less incentive to wait for an IPO.
Andrew Chen, a general partner at Andreessen Horowitz, led Uber’s rider-acquisition efforts until last year. He says he can count a dozen former colleagues who’ve joined VC firms as investors or entrepreneurs-in-residence in the past year. Similar transitions are happening at unicorns like Airbnb and Slack, where product leaders like Jonathan Golden and April Underwood have already left to become venture capitalists. At least one fund founded by Airbnb alumni, Wave Capital, made a splash in recent months by announcing it would invest in Airbnb alumni turned entrepreneurs (the fund has already walked back that focus; coincidentally, cofounder Sara Adler previously worked at Facebook).
Even as those nascent Airbnb, Uber or Slack networks form, a funny thing is happening. Facebook’s alumni keep quietly building a second wave of venture capitalists who will have the power to influence which startups succeed in the future—and they look very different from Mark Zuckerberg and his Harvard roommates. They include investors of Latinx heritage such as Cuervo, who cofounded startup studio and fund Combine in 2016, and Mike Vernal, who joined venture capital firm Sequoia as a partner that year. They also include women, like Facebook’s first female engineer, Ruchi Sanghvi, who launched tech community South Park Commons in 2015 and announced a corresponding fund last April, and Rosenthal at Leadout.
Rosenthal isn’t alone in saying the lessons of #MeToo and efforts of All Raise helped inspire a more mission-driven approach as a female fund manager. At F7 Ventures, former Facebook sales executive Kelly Graziadei joined a venture firm as an entrepreneur-in-residence upon leaving Facebook and was inspired to strike out on her own by statistics like the low percentage of venture dollars invested annually by women-managed funds (1.5% in 2018). Now Graziadei works with six other senior current and former executive women from Facebook on F7, which has already made five investments of its own and is looking to write around 20 checks of about $50,000 to at least 50% female-led startups over the next year. “My advice for others would be: If you are interested start doing it,” says Graziadei. “I was so heads down at Facebook that after, my eyes got big, and I saw the big world outside of Facebook.”
Former Facebooks sales executive Kelly Graziadei (far left) met with 50 investors before deciding to launch her own fund, F7 Ventures. She’s joined by six other current and former Facebookers, including (clockwise from left) active partners Yvette Lui, Robyn Reiss and Joanna Lee Shevelenko, as well as advisers Kirthiga Reddy and Sarah Smith, as well as a seventh who has remained anonymous due to her current position at Facebook.
PORTRAITS COURTESY OF F7 VENTURES; PHOTO OF KIRTHIGA REDDY BY MAHESH KUMAR/AP; AVATAR FROM FACEBOOK.COM
Pawscout CEO Andrea Chavez was skeptical of venture capital when she met Rosenthal at Leadout Capital. One of five Mexican-American siblings to go from a low-income upbringing in New Mexico to Harvard University, she had received a law degree and Master’s in computer science from Stanford University and had cofounded two startups and worked as an executive at another. But when she went to raise funding for Pawscout, which sells internet-connected smart tags for pets, she kept getting turned down.
With hundreds of thousands of users and thousands of units sold at the time of its pitch meetings, Pawscout seemed too big for a first check and too small for a later-stage one. Its product, meanwhile—hardware for pet owners—was easy to dismiss. “Investors didn’t know how to peg us,” Chavez says. But when Chavez met Rosenthal, the two geeked out about how Rosenthal’s Facebook experiences could help grow Pawscout’s increasingly popular social app for its owners to share photos and tips. Leadout Capital became the first VC firm to back the startup with a $1 million check.
“It seems like a perfect match. They are focused on nonobvious people, and to be nonobvious is both thrilling and embarrassing at the same time,” Chavez says. “I am thrilled there are firms like theirs focusing on people like us that might be overlooked. But it’s somewhat tragic that there have to be firms like this, because to me it’s pretty obvious.”
May 16, 2019 at 06:04AM
Forbes – Entrepreneurs