Signal from noise: what BACKED VC has actually done for DE&I
When BACKED launched its first fund in 2015, the team consisted of two upstarts with good intentions and a dream. We believed in backing the optimists building a future we want to share; we believed in meritocracy; we believed that because our intentions were good, our investment decisions would be as fair as our outlook was rosy.
Fast forward to 2020: our portfolio founders were 89% male and 86% white. Our good intentions were not translating into equitable outcomes — and we refused to accept it.
In this memo, we want to share the learning curve our team has been on in terms of weaving diversity, equity and inclusion into the fabric of BACKED. We hope it might be useful to others hoping to do the same.
We had a headcount of three when our People Ops lead Rachel Grahame joined in 2018. Our tiny size and early stage offered her the opportunity to be intentional in designing our organisation with operational excellence and radical fairness in mind.
Since then — amongst other things — under her auspices we have built, tweaked and rolled out a hiring strategy that’s optimised for fairness and inclusion. Now, every major touchpoint of our candidate experience is intentional and structured: from interview process and candidate ratings to referencing calls and onboarding, we’ve built frameworks and documented best practice along the way. We continue to iterate on these as we learn more. You should read Rachel’s thoughts on how to build DE&I into your People Operations here.
We had zero deliberate measures in place to promote DE&I in our investment process.
Pleased with the ground we’d gained on the People Ops side of things, we turned our attention to the bulky elephant in the room. We exist, as a firm, to allocate capital to exceptional founders and their businesses. But while all this intentional, structural work was going on within our own team, we had zero deliberate measures in place to promote DE&I in our investment process.
Towards the end of 2019 we invited founder & CEO of Hustle Crew Abadesi Osunsade into our office to deliver an intensive day-long workshop on Unconscious Bias. Knowing how these things can often go, we were keen to avoid treating this as a performative, one-and-done measure (“Look! We ran the bias training and now we’ve no bias left!”). We wanted our learnings to effect real change.
DE&I are not about intentions, but structural change.
Knowing this, Abadesi worked with us to ensure we were trained not only in what kinds of bias and privilege we all ought to be aware of; but also ways to implement measurable changes to counter the inherent biases within BACKED’s processes. This workshop consolidated our learnings to date: that DE&I are not about intentions, but structural change. And we came away with an action plan.
So what did we do?
Under the leadership of our Head of Networks, Daisy Onubogu, we began collecting and reviewing data concerning who was being referred to us, and by whom, breaking this down by observed race/ethnicity and observed gender. This was simply the easiest and most practicable place to start, but (we admit) we didn’t have a clear understanding of how to capture less ‘observable’ data sets. We also didn’t want to succumb to overwhelm and end up doing nothing — so we started there.
It was a mammoth undertaking. We recommend that all funds do it.
It became clear that our main deal flow sources — counterpart funds, professional angels and incubator leads, who were predominantly white and male — were overwhelmingly sending us white and male opportunities. No spoilers there. The notable exception was the fraction of deals coming from our scout network (now known simply as the BACKED Venture Community). That made sense: the community was curated with membership diversity as a goal. Indisputable proof of a fact long understood by Diversity VC, YSYS and others, and obvious in hindsight: to diversify our deal flow, we needed to diversify our deal sourcing.
We needed to understand where else exclusion and bias might be baked into our system
But to maximise the impact of our data collation exercise, we needed to audit our whole deal process. We needed to understand where else exclusion and bias might be baked into our system. Without doing this we couldn’t have identified the pitfalls we found throughout our deal life cycle. Since then, we’ve tested a series of interventions to improve the process in terms of Equity, the oft-forgotten middle child of DE&I.
Our upgrades touched on three main areas:
To source more deliberately, we’ve cultivated relationships with funds and investors linked to communities of underrepresented founders, including Ada Ventures, Nicole Crentsil, Deepali Nangia, Cornerstone Partners, GoodSoil VC and Impact X. All of these have supported and advocated for early-stage businesses with Black and other underrepresented founders for some time, and they’ve been instrumental in exposing us to types of deals we likely wouldn’t have otherwise seen.
Absolutely anybody can get their deck under our noses — they don’t have to have met our best mates.
Implementing a consistent system for reviewing cold inbound dealflow, which might previously have died in our info@ inbox due to resource constraints, has also ensured that absolutely anybody can get their deck under our noses. They don’t have to have met our best mates. This is still a work in progress, with the main bottleneck being our investment team’s own bandwidth, but it’s a priority to improve this as we get more hands on deck. (No pun intended).
Our data exercise showed us that even when we were seeing diverse deal flow, there was a notable drop-off between deck review and first meeting. Our understanding of privilege deepened. We recognised, now, that the signals that help convince investors (including us) to take meetings — signals such as education history, or angels and advisors on board — most often attach to the default category of founders. To mitigate against this, we’ve introduced the ‘benefit of the doubt’ principle. By this rule, every seed stage-ready deal with a non-white or non-male founder automatically goes to first meeting.
The signals that help convince investors (including us) to take meetings more often attach to the default category of founders.
We’ve always been vocal about our human-centric approach, how we invest in and support extraordinary founders even over their extraordinary businesses. To evaluate founders for desirable traits we now ask every founding team the same questions at meeting stage.
Our IC spends substantially more time in deal review meetings these days. In these, we’ve introduced a requirement to articulate precisely why we’re passing on any deal we don’t progress. We log that rationale in our CRM. If our justification bears a bias-y aroma, we call each other out. This is actively encouraged.
Our commitment to extraordinary founders doesn’t only cover the ones we invest in. We’ve only got so much AUM and can realistically make between 10–15 investments per year. But we still want to serve as a force multiplier to those founders we don’t fund. Because of this we now commit to referring all our ‘passes’ onwards, making intros to investors who we think will find them interesting — in the hopes of being whatever the opposite of a gatekeeper is.
It didn’t occur to us that there could be exciting, growing markets we were overlooking simply because of who we were
We’ve realised, too, that we need to understand and correct for our blind spots. In all our years of going deep educating ourselves on biotech, machine learning and crypto, it didn’t occur to us that there could be exciting, growing markets we were overlooking simply because of who we are and the worlds we therefore don’t experience. We saw that this had led to us misunderstanding and potentially dismissing ideas that could have turned out to be great investments.
In other words, it isn’t enough to protect against negative associations. We need to actively form new, positive associations, too. This will be a lifelong learning process, but the initial steps we’ve recently taken into new markets such as Black beauty (Afrocenchix) and Black haircare (RUKA) are already reaping rewards.
BLM and Beyond
We wanted to write this without mentioning George Floyd and the outpouring of support for BLM of summer 2020 and beyond. We didn’t want to look like bandwagon-jumpers — but then again, does that matter? We may have started our work before last summer’s spark of consciousness, but we were late to the party by any measure, and the reckoning that followed that tragedy did absolutely impact our journey. Urgent, overdue conversations were happening well beyond the sphere of ‘law enforcement’. People were joining the dots between the racism of disproportionate police violence and the racism that excludes Black people from virtually all spheres of socioeconomic opportunity.
Lived experience and anecdata meant we already knew that the problem went well beyond us and how we choose to manage our own affairs. The conversations that took place throughout those weeks and months prompted us to go deeper, looking at the journeys of default category vs underrepresented founders across the wider venture ecosystem.
Black founders have disproportionately smaller friends and family rounds, and struggle to access angel and incubator networks that were not built with them in mind.
It became clear that there is a dearth of capital at earlier stages to support Black founders in growing their ventures, so they make it to seed stage and can show the kinds of metrics venture funds (like us!) need to see. Black founders have disproportionately smaller friends and family rounds, and struggle to access angel and incubator networks that were not built with them in mind.
We’re piloting a small investment vehicle dedicated to Black Founders at pre-seed.
Hoping to make a dent in the early stage inequities we mention above, we’re piloting a small investment vehicle dedicated to Black Founders at pre-seed. This currently sits at £250k (for 5x£50k cheques). We’ve already completed one investment, with one further commitment and several other exciting prospects in the pipeline for the remainder. More than just capital, these pre-seed founders have access to our full Founder Experience suite, from finance & HR audits to fundraising assistance and pitch training.
We want to be held accountable
We knew we’d fucked up in not doing any of this sooner, and that just going slightly above hygiene level with our debiasing measures didn’t make us particularly great allies. We had heated conversations about whether we should publish this at all (because RIP our mentions!). Ultimately, though, we want to be held accountable: we’re under no illusions and there’s a long road ahead. But we’re proud of the improvements we’ve made. So, incidentally, are Diversity VC, who’ve awarded us their Level One Standard — as well as making Daisy their new COO.
If more European funds take more practical measures towards equity, we will see unprecedented change.
Finally, we hope this might help other funds shape their own strategies and join us in taking meaningful action. If more European funds take more practical measures, we will see unprecedented change. We’ll see a more equitable ecosystem, engaged in building a world everyone can use. In short order, Black, brown and female founded unicorns will not even be newsworthy.
It’s hard not to want that. Don’t you want that?