Latest / Let's Talk Small Biz Finance with CIC Tucson / Impact Investing for a More Inclusive Economy | A Conversation with Alicia Robb and Danny Knee
Transcript
- CIC Tucson: So Robb is here with us today. She's an economist. ⁓ She's favorite economist, as it turns out, if having a favorite economist is a thing. ⁓ She's an investor who studies how capital actually flows through the startup economy. Her work shines a light on disparities in venture funding and explores how making investment more equitable isn't just fair, it's good for the economy. So to me she is to venture capital the venture capital gender gap what Bob Ross was to happy little trees calm precise and quietly changing the landscape So thanks so much for being with us today Alicia. Thanks for having me glad to be here Yeah, so you're gonna be the keynote speaker on Wednesday March 25th at the 10 West Impact Festival And I think one of the best things about 10 West is that it's a place where the community can come together to talk about and solve problems. So what problem are you trying to solve? And what do you think the number one misconception of that problem is? Well, one of the things I've been really focused on in the last 10 or 15 years is the gender gap and racial gap in venture capital and angel capital. So very few women and minorities get angel and venture capital. And we want to change that in my research. showed that one of the reasons, one of the many reasons why women and minorities get less capital is because most investors are white men. And there's this thing called homophily where you like to hang out with people like you and are friends with people like you and you like to invest in people like you. So if most of the investors are white men, then they tend to invest in white men. so white men get most of the financial capital. So research I had been doing when I was at the Kauffman Foundation ⁓ led me to ⁓ try to get more women and minorities on the investor side of the equation. Because if you get more investors that are diverse, you're going to get more diverse entrepreneurs funded. So that's kind of what I've been working on the last 10 years. That's awesome. I am a big fan of your work, as you know. So it's really a pleasure to be able to have you come and speak in Tucson. ⁓ So a lot of the advice focuses, I think, on preparing women founders to pitch better. But as you suggested, the bigger issue may be who the investors are. ⁓ in a concrete way, investors have power, they have money. ⁓ And so what are ways that do you think that we can change this system, especially if there are investors who don't want it to change necessarily? Well, I think the one really big ⁓ avenue to getting more capital to women and minorities is just getting more women and minorities as investors. But also, I think just showing ⁓ white men that women and minorities can be a great investment and can provide great returns. And so the more examples we have of that, ⁓ the more they're going to get on board because what investors want to do is obviously make money with their money. So if you can show investors can make money by investing in diverse founders, they're more likely to do it. It has been an interesting thing to me because I've definitely read the research that shows that there is higher ROI from diverse founding teams and also higher ROI from more diverse investing teams. And I've had the conversations with people who do invest and they always like, we don't care what somebody looks like or what gender or race and those things are. We just care whether they're a good business. And yet you have these outcomes which seem to speak a little bit differently than ⁓ than that ⁓ and so is there something about ⁓ you know ⁓ homophily ⁓ is is one i love the word it sounds like there should be a children's book ⁓ with a character named matt ⁓ but i mean is there a way ⁓ to sort of address this bias or ⁓ to is there something that you've seen i know you're an investor yourself but you've seen that is ⁓ compelling to, somebody, ⁓ who, know, may not understand there is a bias there. And I think actually articulating and showing folks about their biases is, is one way to address the problem as well. There's been studies, ⁓ over the last 10 or 15 years about, ⁓ just like in pitch competitions and, and, and pitches in general, women are asked different kinds of questions than men as they pitch and. A lot of people aren't just not realizing that they're biased and are asking these different kinds of questions to women versus men and actually just highlighting that and showing where their biases are coming out is one way to raise awareness about the issue. I also, think you're one of the best examples I've seen of an economist and researcher sort of eschewing the ivory tower. to bring real world solutions to bear on the problems that you have studied. So I know in the 20 teens, you helped launch a pilot investing program called Rising Tide and then your co-founder of NextWave Impact. You are clearly a doer. So what are the most important or most surprising lessons you learned from your experience in the space of executing solutions rather than just sort of studying the problems and suggesting them? Well, I think one thing I learned from Rising Tide was that I didn't want to just invest in women-led companies. I actually wanted to invest in impact companies that were led by women. So, you know, we built a portfolio of 10 companies in our first in that pilot fund. But, ⁓ you know, I wasn't like super passionate or excited about what most of these companies were doing. And so when I when I launched Next Wave Impact, it was really with the focus of investing in companies that are making the world a better place. We have 15 companies in that portfolio, all of them women or minority led. And then, you what you do next in Venture Capital is you go on and you raise your next fund. But when I was reflecting on NextWave, one of the things I learned from that was that the venture capital model is broken and it's not really benefiting ⁓ many people at all. I didn't want to just do a newer, bigger fund. I wanted to do something different. so I researched everything that was going on in the US and what were some of the innovative models. And I found a couple that were just heads and tails, just different and innovative than other things I was seeing. And one was Mission Driven Finance in San Diego, and the other was Kachua Impact Fund in Colorado. And for various reasons, I ended up joining Kachua. ⁓ as ⁓ vice president as one of the investment committee members there. So rather than doing a new fund, I just joined an existing fund and it's just a really new, innovative fund. It's a public benefit corporation. It's a cooperative. It's impact first, which means it's patient capital. It's also an evergreen fund, which means it doesn't have that 10 year lifespan of a normal venture capital fund. And so it really is. ⁓ you know, evergreen for in perpetuity. ⁓ And so where it allows us to be more patient than a typical venture capital fund could be. And it also does impact commercial real estate in addition to impact companies. So it's really a diverse portfolio that offers ⁓ investees a patient, ⁓ supportive investor, and it offers our members and investors, you know, dividends rather than those. pesky K1s that investors get every year. So it's ⁓ just something I'm really excited about. And yeah, we're really trying to find new models that bring capital in ways that are good for society and entrepreneurs. That's great. so CIC, we work at probably a little bit different part of the sort of capital stack, the capital ladder. But I think a lot of what we do ⁓ is actually ⁓ complimentary or, and so how do you see sort of we work with a lot of mom and pop or and access to capital in a, I think in a similar way, but maybe a different problem. How do you see those things tied? The work that you do with somebody like us who works more at the, I think the beginning of the entrepreneurial funnel. So we, so of our, impact company portfolio, only a quarter of them are startups. So we actually invest in a lot of existing businesses that just have capital needs. And so some of your companies as they ⁓ go on and grow could be companies that we fund. We're not necessarily looking for those startups that are going to have an IPO or get acquired in a few years. We're really more open to a diversified portfolio. But I think we need everything in very very few companies actually get any angel or venture capital financing. know it makes all the news and headlines and all of that, but in reality, the businesses, most businesses, 95 plus percent of businesses are getting capital like the kind you provide or that, you know, banks or, you know, credit unions provide, you know, debt financing. ⁓ There's a new, not so new anymore, but revenue based financing is another source of capital for companies that don't fit, you know, a typical the typical mold. That's great. We actually started our own ⁓ RBF ⁓ ourselves because we see the value of it. And I agree with you. ⁓ Some of the arrogance taken out of the room, I feel like I must have an inferiority complex about ⁓ the rock star CEOs and things like that. And yet so much work is being done outside of angel and venture capital. So last question for you. So short of founding their own impact investing fund or joining as a vice president, what can the local audience hear, do? Somebody who comes to 10 West, comes in, hears you speak, sees some of what we're gonna be talking about, access to capital. Is there a way that you can, you see, and obviously people have different financial means, different ways that you see people concretely getting involved in solving this problem. Yeah, so in terms of on the investor side is what you're asking about. Yeah, absolutely. Yeah. Yeah. So, yeah, one of the things about venture capital is a lot of venture capital funds have like a minimum of like $250,000. And so most people are not going to have that kind of capital to allocate to this asset class. you know, one thing I suggest to new investors is look at different kinds of crowdfunding platforms like Wefunder. or Republic. Those have very low minimums you can invest just small amounts of money to kind of try it out. I will, I do have the caveat that I have yet to see any return from any of my online crowdfunding and I started I think in 2014. So it's been a while, but you know, couple of them have raised series, you know, subsequent financing up to like series C. So they, you know, I could get a return eventually, but it's not for the, it's not for people who are making, looking to make a quick buck quickly. One thing I like about Cotua is that we are ⁓ very committed to offering non-accredited investors. So typically for angel investing and venture capital investing, you have to be an accredited investor, which means you have to meet certain thresholds, either by income or wealth. And, ⁓ We're allowed to have up to 35 non-accredited investors each year because we do an annual raise since we're an evergreen fund and our minimum is $5,000. So it really opens up the opportunity to everyday investors that want to have a ⁓ try at this asset class. And it's obviously a diversified portfolio. So, ⁓ you know, that's one of the attractions that I saw from Cotua that it really was trying to level the playing field and let other you know, everyday people get access to this asset class. But otherwise, there's not many funds like that that do that. But crowdfunding is one way for people to get in at very low minimums. That's awesome. And we are starting Kiva Hub here. We're actually taking that over. And that's another way as little as $25. It's debt, you know, debt capital to help people start. So I'm with you on the crowdfunding. I have been a Kiva investor since I don't know how long, as long as they've been around. And actually one of our portfolio companies just raised a $400,000 round on Kiva and just closed it this week. So Kiva is another great opportunity. Obviously it doesn't offer a return. It's a 0 % debt ⁓ investment, but it is another way to ⁓ get access to this space and help entrepreneurs grow their companies. Yeah, and I always say, I joke like, you know, you can go to a coffee shop and buy their coffee. And that's great. But there are other ways to help businesses, which is giving them access to affordable capital. All right. I know you spent a little time in Tucson. what's favorite Mexican restaurant? Like, what's your what's your go to spot when you? My favorite clothes, Charo Vida on Oracle. ⁓ So I guess I'd have to say to America to Marico now. But Charavita was my favorite, but unfortunately they closed. The owner of Tumerico is awesome. So that's fantastic. Well, thank you so much for spending the time. I was thinking of all these different comparisons. And now I think you're the Indiana Jones of venture capital, except you're not afraid of snakes. I had a whole bunch of them in there, but really do appreciate your time today, Alicia. And we are so excited for you coming in 10 West. Again, that's Wednesday. ⁓ March the 25th, I believe you're speaking in afternoon, but there's a full day of sessions that are going to be about access to capital, both for founders and for investors to learn more. Also partnering with The Jane Project, who I think does work that's also sort of in line with some of the work that you've done. ⁓ yeah, it's an exciting program. I'm super excited to get there and I can't believe it's less than two weeks away. So very, very happy to be returning to Tucson and super excited about the program. very honored to participate. thank you for inviting me. Absolutely. Thanks so much.