Carla Harris: I want to hear from you, our listeners. Please visit www.morganstanley.com/carlapodcast to take our latest survey and share your thoughts! We will be selecting one survey respondent to listen in on a future podcast recording, so don’t miss out!
Reggie Van Lee: It's not about stepping out of your comfort zone. It's about redefining your comfort zone. And redefining with the data that convinces you that this is a good investment and, in some cases, a better investment. The statistics say with women led organizations, they do better than the average organization does. So, I'm telling people to get this stuff in our comfort zone. Redefine your comfort zone.
Carla Harris: On this special episode of Access and Opportunity, in honor of Women’s History Month, we want to welcome Edith Dorsen, founder and Managing Director of the Women’s Venture Capital Fund and Reginald Van Lee, Partner and Chief Transformation Officer of the Carlyle Group. Edith co-founded the Women’s VC Fund in 2011 to provide capital to women entrepreneurs seeking series A and B funding. The first fund closed in late 2013 and the second fund Women’s VC Fund II launched in late 2017 building upon that initial pioneering success. Helping Edith reach that goal is Reggie as he’s fondly known who sits on the Women’s VC Fund II’s advisory board and is a key figure in the fight to close the race and gender gap in Venture Capital. In fact, Reggie recently co-wrote an article published in the Harvard Business Review about institutional investors' crucial role in the future of the venture landscape.
In this episode Edith and Reggie take us through the motivation and the challenges of establishing the Fund, the inequities that women and People of Color face across corporate America and the new narrative they’re creating through greater transparency and accountability. Come on and join me for the ride!
So, Reggie and Edith, thank you so much for being here with me today. And it's a pleasure to have you both on the show. So Edith, I'm going to start with you, take us through your journey. You have a master's in public administration, an MBA -- both from Harvard -- and you spent some time in the Sudan before you were a banker. So let's walk through that, because I'm trying to get our listeners to understand how you got to the VC Fund.
Edith Dorsen: OK, well I'm a born and bred New Yorker. Ultimately I moved out to the West Coast, surprising all family and friends. And I think out on this coast somehow the vistas looked bigger, different. And it gave me an opportunity to look beyond, if you would. And as we were headed into a business school reunion, we stumbled on the data that showed the paucity of venture going to women entrepreneurs. And so we brought together a roundtable of women to talk about kind of what was the problem and moreover, was there something we could do about it?
And despite the fact that it was a very rainy early Saturday morning, twice as many women showed up as we had invited. So we had struck a nerve. And from there, the key question was, was there enough of a deal flow, enough pipeline to do this? And we went off and validated that, in fact, there was absolutely enough flow of venture worthy women entrepreneurs. And slowly began to fundraise and to form the first fund, Women's Venture Capital Fund.
Carla Harris: Outstanding. OK, so Reggie, now I've known you for a long time. How did you get to the Women's Venture Fund?
Reggie Van Lee: From my very beginning in corporate America, I recognized the disparities between those who were in the mix and those who were not. Whether it's in a business context, health care, anywhere you look, you see these disparities. So I was dedicated to finding ways for me to help close that gap. Wherever I could close that disparity gap, I wanted to do it. So when Edith came to me both as a friend from Harvard and wanting to bring women to the forefront and other minorities to the forefront in this investment space, I said, “Sign me up.” And so I signed up to Fund I. I'm in Fund II, as well and delighted to be a part of the Women's Venture Capital Fund.
Carla Harris: So can you talk to our listeners a little bit about because so often, especially early-stage entrepreneurs, let alone early stage investors are thinking to themselves, you know, what is my purpose? How can I make a difference? So can you talk a little bit about that aha moment and how you define that?
Reggie Van Lee: Yes, it's interesting because my favorite quote is a Mark Twain quote who said, “The two most important days of your life are the day you're born and the day you understand why.”. Always in search of that second day. Why am I here and what series of things did I do throughout my life so they would lead to this next thing, right? My purpose in life is to be that problem solver that is transformational in the things I do, to make something happen that perhaps wouldn't have happened without my involvement and my engagement and the skills I can bring to the table. So I'm always looking for that next thing that helps me to achieve my purpose in life.
Carla Harris: Well, I'll tell you, solving the inequity in the distribution of capital to women and people of color is a big one. So I think the marketplace will be grateful that you have decided to put your superpowers, as I like to call them, to this particular task. So let's get right in. I understand the driving mission, but let's talk about the challenge in raising the fund, because in 2011, there wasn't a lot of data. And what I like to say is that people who don't get the diversity conversation, they hug the data. So the fact that we did not have the data was a huge excuse for the marketplace. I would argue. So let's talk a little bit about the challenge, the argument in raising Fund I.
Edith Dorsen: Without a doubt, it was the hardest challenge that I confronted in my professional life. We knew looking around from observing that there were, there was a pipeline of women entrepreneurs and we were certainly starting to see a very significant pipeline in the seed or angel stage. But as you say, there was virtually no data that supported the value of diversity in senior leadership. So we met a tremendous amount of skepticism both, you know, what was the value of diversity? Was this just a nice thing, nice thing to do? Could women entrepreneurs really achieve the market rate returns that investors, all investors and certainly ours were seeking? And was there enough of a pipeline?
So I think we spent a lot of time those first couple of years validating that there really was a pipeline and that pipeline was growing and we were able to with lots of probably more anecdotes at that point than actual hard data. But to show that there were many venture, venture-worthy women, particularly our interest, Carla, from the start was not in pure startups. And I think this was a point of differentiation back all the way then continuing through the present. But rather we were looking at companies that had been around for a couple of years, had raised a few million in angel or seed capital, had developed their core technology, or product. And importantly, we're demonstrating market traction. And we kind of refer to this as a risk intelligent approach to venture capital. And frankly, that ultimately, I think, resonated and won the day for us.
Reggie Van Lee: As I observed, the difficulty in women and minority firms to get money, not so much in the very initial stage, but in that next stage, people will easily buy into an idea because ideas can be gender blind and race blind. When they then go into the next stage, they're buying into a team. They look at the team and the team doesn't look like them. They have serious discomfort with it. So in the early stages, in the absence of data, we found a few enlightened people who could sort of step out of their comfort zone and take a chance with what we were doing here.
Now we have the benefit of data that proves that this makes sense, the efficacy of these investments. But I also tell people it's not about stepping out of your comfort zone. It's about redefining your comfort zone. And redefining with the data that convinces you that this is a good investment and in some cases a better investment. The statistics say with women led organizations, they do better than the average organization does. So I'm telling people, forget this, step out of your comfort zone. Redefine your comfort zone.
Carla Harris: Yeah. So let me let me ask you this question, because so often VC funds could use the excuse that this is not what we do. And one of the things we found in our last white paper was that at least 20 percent of most VC funds are dedicated to something that we call expansion risk. So if you think back 10 years ago, that was investing in the Cloud, that was investing in driverless cars, 20 years ago, that was SAAS, right? And so you dedicated a portion to learn about these things, to trial balloon, these things. So why couldn't you put women and folks of color onto this expansion risk umbrella if you don't already know about it to try it?
Reggie Van Lee: I would say the data suggests that not only does that expansion make sense, but that becomes core eventually that which was so risky and so cutting edge becomes core and woe on you if you don't get into that space sooner. So while some of this is perhaps doing the right thing, a lot of this is doing the right business in the right way.
Carla Harris: I could not agree more. So let's talk about the commercial piece to this. I'd like to ask you both: One of the things that you try to accomplish as an investor is to go where other people have not been. Everybody's trying to seek alpha and alpha means finding something that no one else has found yet. So, you know, how did your potential investors think about this when you were saying, hey, you don't have anything else that looks like this, why don't you give us a shot? Why don't you invest in the Fund? Or what other argument did you try to use?
Edith Dorsen: Well, I think, again, they were very interested early on, half of the folks we approached had experience with venture angel investing and the other half didn't. So we had to do a lot of market education, if you would. And ultimately, the venture business comes down to finding overlooked and undervalued opportunities and being among the first to get there. And I will say the fundraising period for the first Fund went on longer than I'll ever admit.
Carla Harris: That's another point, Edy, I'd like you to pause there and have you both comment on the fact because you started that in 2011 and closed in 2013. And that's a playbook point, in my view, for a couple of reasons for people who want to go out and raise funds realizing it's not just making a few phone calls and you're done in 90 or 180 days. Let's talk about that. How did you keep it alive? Because the other issue that you hear from people is, “Oh, you've been out there a while. I don't know if I want to write that check.” So let's have our listeners, those who want to raise capital understand that and those who have capital to invest, what it looks like for somebody like you that takes that long.
Edith Dorsen: Yes. Well, it was initially painful but it's a skill. I mean I will tell you, Carla, like everything else, you get better at it. And having folks like Reggie and early investors who could speak for us, folks who knew us for some time had come to know us more recently in our career, counted for a lot, counted for a lot. We also did find, particularly for newer investors. It was often good to meet them in small groups because sometimes they're not sure the questions quite to ask or they're more comfortable in a group setting.
So that was something over time that we evolved into doing that I think was quite successful. But the more that we could show the pipeline, the more that we could show that we could get into some terrific deals before sort of others. And one of our earliest investments was a company called Invoice Pay, a B2B payments company. We were the first institutional investor. And within five years, I mean, they started to show real success. So that kind of getting those few first deals under our belt, explaining what our rationale was, showing the progress, you know, bit by bit, you climb up that that very tall tree.
Reggie Van Lee: It is a change management process, right? It's the notion of having your first wins and really communicating the wins, overcommunicating with the investors, moving them through the process, hearing their concerns and addressing them. Don't try to address them monolithically, very laser focused.
Edith Dorsen: So from the start, we dealt with our limited partners, investors, as if we were a $100 million fund. So we really, I think, put in place the right governance and communication that made them feel very comfortable. And they in turn could speak to their friends and colleagues and bring them in as a result.
Carla Harris: Let me summarize the playbook then. So the first thing was obviously going to somebody that you already knew and had a relationship with and having that person be willing, as Reggie did, to leverage all of their various networks and make the right introductions for you as you're raising your first fund.
The second is, if you're doing something that hasn't been done before, making sure, as I like to say, that you educate and sell at the same time. Because very few people have original thought is what I like to say. So if they haven't seen it before, they don't even know what context to put it in. So being able to educate at the same time that you're selling.
The third is that you can get data to support what you're doing. That says that it is a good investment thesis is another thing that could be helpful. And as you said Reggie, not thinking about it as a small fund, but thinking about it as if you are $100 million fund to your point Eddie, and dealing with all of your investors as they have their own individual issues and over communicate, over communicate and market every win, market every win to kind of reinforce with those who have taken the risk that they have in fact made a very good risk, because, as I like to say, there's nothing better than having your customer sell for you.
Edith Dorsen: Exactly. Well said, well said.
Carla Harris: All right. So now let's fast forward to Fund II, which was 2017. So how does Fund II differ from Fund I?
Edith Dorsen: Look, I think there are a fair number of lessons learned. I mean, one of our advisors early on said to me, women out of who had been successful VC said to me, “No matter where you come from or what you've done before this there's a lot of OTJ -- on the job learning here,” and that's certainly turned out to be true. I mean, we, I think, have developed better processes to screen and evaluate. I mean, we see hundreds of deals each year. And how do we make sure that we're spending our time and attention on those that are most promising? I think we also have honed our antennas in terms of both the management teams that we're investing in and the boards and institutional investors that we're investing alongside. So what do I mean by that? Look, most founders are very visionary by their very nature. They're passionate, they're hardworking and oftentimes even lovable. But the truth is that to be a successful founder and build a company of real size, you have to recruit, build, and retain a team around you and hire folks who are either smarter or certainly more experienced in areas and functions than you are.
And one of the big misperceptions that Silicon Valley propagates is that successful companies, it's all about the CEO. It's not -- no successful company is built on the back of the CEO alone. And so we really look at those, you know, can the CEO bring in the right people? What are the team dynamics within them? Because we also don't believe that you can switch out the CEO very readily, you know, we’re a very capital efficient venture capital fund. We don't have the luxury of time or money to be able to do that.
Carla Harris: Wow that's a very different view Edy, than conventional VC wisdom who think they can get a great idea and can boot the CEO.
Edith Dorsen: Yeah. And I will tell you, this is from hard experience. I mean, there were one or two times we sort of had to go along with it and it didn't work out, Carla. It didn't work out. We've got to have the right team, two or three people at the outset. Obviously, as these companies grow, they build a significantly larger management team. But important, I would also say, is while the CEO has to be dogged, they have to bring with them a certain humility to understand that they're going to learn a hell of a lot about the market over the next few years. And they've got to be listening really hard to customers, competition and advisors who are giving them good advice: hard to do, because they're often getting thrown a lot of advice. But they got to recognize that, you know, on the one hand, they are steering the ship; they're the captain of the plane. But there's a lot they don't know. So that's pretty critical. And then I would just add one final point is we pay more attention, Carla, to looking at who we invest with. Not only do we want investors with deep pockets for obvious reasons, but we're generalists for the most part. So we look to co-invest or to have board members that have very deep domain expertise and understand and have real experience working with management teams at early stage companies
Carla Harris: And Reggie, lessons learned looking back?
Reggie Van Lee: The uber message for me is the notion of conventional wisdom and sort of your natural intuition doesn’t always work here. We had to go through the fire and, in our own way, had to be humble and to learn the lessons and to pivot it and to see what we gathered from that. So I would argue that one has to go through the fire with that sort of mindset and not just think that you're going to lean on everything you knew before and it holds to the nth point. The other thing is, now, we find that to these institutional investors, the message is, you need to ask the question and track the numbers, ask the question to where you're investing, what is the penetration of senior women and people of color in the leadership? And ask the question of, “Let's monitor the diverse leadership going forward?” And just by asking the question, sometimes, people behave differently. Things happen. You didn't insist you didn’t set quotas, you didn't push anything. You just asked the question. So if you ask the intelligent question, I think that's important.
The other point I talked about before is this redefining your comfort zone. And to lean on this data that is coming out day in and day out about the efficacy of these investments. And for those who are doing great things, I would say that's necessary, but not sufficient. Whatever you're doing now, you need to do more of, because this is a big problem and it needs a lot of attention. And the more you do, the more benefit you'll get out of it.
Carla Harris: Yeah, that gets me to the white paper. You went right to some of the recommendations, Reggie, which I was just about to talk about. You and Ileen Lang authored this paper that was at the Harvard Business Review just a few months ago. And I thought you did an awesome job in calling out institutional investors and you just walked everybody through the recommendations that you made. What's been the feedback that you've gotten from some institutional investors and how have they responded to this?
Edith Dorsen: There's been some feedback, but not enough, not enough, Carla. What gets measured, gets done, what doesn't get measured, doesn't get done. So we think there is quite, quite a ways to go for institutions to realize they've got influence here that they're simply not exercising, 80 to 90 percent of the venture capital business, the capital that underlies the business in the United States comes from large institutions, comes from pension funds. It comes from family offices. On the other end of the spectrum, college endowments, other foundations. And for the most part there’s a good deal of, “Yes, we like this diversity and inclusion and we think it’s important,” but there hasn’t been much movement.
Reggie Van Lee: So they get it intellectually, but can't quite put the level of energy into it that it deserves, that they should. And that's why I think what they've done is necessary, but not sufficient. And I don't care what you've done, do more.
Carla Harris: Yes. What do you think about the argument that if your goal as an LP is to generate the highest amount of returns for your constituents, you're actually leaving money on the table?
Reggie Van Lee: Exactly.
Edith Dorsen: Absolutely.
Carla Harris: And I'm surprised that that argument is not resonating even more.
Edith Dorsen: A lot of this money gets allocated almost automatically, right? The fund gets established and three or four years later, the firm raises another fund. And assuming it meets basic performance criteria, the institutions sort of signs on to the second and third and fourth fund. The truth is, there's a lot of faith in here because it takes 8, 10, 12 years for a venture fund for the returns to be realized. Reggie, you want to talk about the climate action as a precedent here for institutional investors?
Carla Harris: That's a good example that you used in your, in your paper to say how fast the CEOs got behind that. Yeah.
Reggie Van Lee: If you can make it a cause celeb, as they did in that space and you get the right senior people, important people to sign onto it, and if you hold them accountable to monitoring and having to meet the ESG goals, et cetera, you find that you can make a real effort here. So our view has been we have to keep plowing at it. We have to keep building the advocates. The more senior advocates, the better and we will get there. And the more enlightened people get it. But even they will say, in retrospect, they just had to go for it, but they weren't quite sure, they were taking a risk and that sort of stuff. But to your earlier point, Carla, I think that which is an expansion approach will become core, otherwise you're leaving money on the table.
Carla Harris: So let me ask you, what words of encouragement do you have for underserved founders who are trying to secure financing, Reggie, because you are tapped a lot as an institutional investor, as a part of this fund, but you're also tapped as an individual investor. So what do you say to our community of entrepreneurs who are listening about what they might do to access some of this capital?
Reggie Van Lee: The first thing is, don't give up. And many times, like it or not, investors are testing you and they want to see, are you really dedicated to this or not? And they will put obstacles in front of you almost purposely. And when you then back off or blink or get weak, they say, “Ah see? They weren't really for it.” -- right? So to the winner go the spoils. I mean, I think my encouragement is, if you are really behind this, you didn't get where you got by believing the hype, by believing the haters, by letting them discourage you, so that which got you here. Keep pushing. Don't give up. You have to keep pushing because when you give up, you've proven them right. And as you know in my life, Carla, my whole goal in life is to prove the naysayers wrong.
Carla Harris: Yeah, I could not agree more. I call it negative motivation, and I'm certainly a disciple of that gospel for sure. Well, let me just turn my attention before we get towards the end towards not having enough people at the table, because that was something else that you commented on in your article was that was a recommendation -- get more diverse partners at the table in order to change the game, if you will. And so what recommendations, what each of you have to large institutional investors either at the LP level or asset allocators, because our survey found that only 59 percent of the VCs believe that investing in diverse entrepreneurs is a priority. So if they don't think that investing in diverse entrepreneurs is a priority, then you can imagine how they feel about actually having diverse partners at the table. So what would you say to that?
Reggie Van Lee: The words that my colleagues don't like to use in our times is you need to suspend your belief, plain and simple. You need to suspend disbelief because there are all these things that would tell you, Oh, I shouldn't do this. Oh, this is risky. That's B.S. and this notion of I can't find a pipeline, I can't find people out there. They're not in your network. Expand your networks. There are other networks out there. And those networks want to be engaged with. So suspend your disbelief.
Edith Dorsen: I believe Reggie is truly unique in the world. But I also do believe and we've had this conversation that there are Reggie Van Lee Jr.’s across all sorts of financial service firms and law firms and consulting firms. But you got to, you got to reach out, reach out to them. And, you know, the analogy I draw is until two weeks ago, gee whiz, you know, who would have thought we would have had a Secretary of Defense, a Treasury secretary, a Director of Intelligence and a Homeland Security Cabinet member, all coming from groups that until now have been totally underrepresented. So there's a huge cadre of talent out there, but you've got to go look for it and extend your networks for sure.
Carla Harris: So, let me ask you guys a question that's a real playbook point. Neither of you were born institutional investors. So if you had to say to the top VC funds, “I'm going to give you four bullet points or three bullet points of a profile of a person who could be successful in your space,” as you guys have been as VC investors. You know, what three things would you tell them to look for you, Reggie? What three things would you tell them to look for, Edy? -- So they can no longer use the excuse, “I can't find any.”
Edith Dorsen: Hungry, you know, ceaselessly, I mean, I think the most important thing is for those of I mean, committed to the end goal. And what you don't know, you figure out, you learn, you ask a lot of questions. And, you know, an inherent curiosity and commitment to the end goal is how I would sort of sum it up
Reggie Van Lee: There are a couple to three things I would say, and you've touched upon them Edith. The first is you want people who are not only smart, but who are intellectually curious. They're going to really do the homework, burn the midnight oil, whatever it is, to really drive to the right solution. Second is, you want a person with enough initiative and drive and stamina and stick-to-it-ness and doggedness and all of that sort of stuff to go through the tough times and really drive to this thing in the right sort of way. And then this is going to sound trite or I don't know. But this whole notion of core values, I think the core values are so important. In this country, we have this challenge around core values and we have this problem in business as well. And the successful businesses will be the ones around which the founders and the senior team have a set of core values that are consistent with your investment thesis. Those are the three things I think is important.
Carla Harris: Outstanding. And so Edy, what's next for the Women's Business Fund?
Edith Dorsen: Well, you know, we think we're just getting started. So our goal is to continue to work very closely with our portfolio companies and the management teams and boards to demonstrate more and more success, because the more successful examples will be inspiring to entrepreneurs, and it will also beget more capital. But we also see our role, candidly, in augmenting the ecosystem for women entrepreneurs. And we did a fabulous, several fabulous events over the last couple of years showcasing the most successful women entrepreneurs in Los Angeles, Seattle, Portland. So post-COVID, we want to do more of that because we think it's real value add. And we were told it's the lessons and information imparted there, entrepreneurs were not getting in other venues, but we would like to very much be part of helping to amass some more institutional capital for women and underrepresented minorities. This is absolutely the time to do it. And that means the CEOs, the chief investment officers, the board members and trustees of these institutions, if they care about diversity and inclusion, they need to act. They need to act.
Reggie Van Lee: And I'll go further to say if they care about their businesses performing and not leaving money on the table, they need to get serious about diversity and inclusion.
Carla Harris: I could not agree more. OK, we have a tradition on Access and Opportunity called the lightning round. And so it's a fun way for our listeners to get to know you as an individual, although I think we've had a great conversation here. Are you guys ready? First one, Twitter or Instagram. Edy?
Edith Dorsen: Instagram
Reggie Van Lee: Instagram.
Carla Harris: OK, what's your personal mantra, Edy?
Edith Dorsen: Let's do it!
Reggie Van Lee: Be courageous.
Carla Harris: Favorite piece of work, film, artwork, book, et cetera, et. Edy?
Edith Dorsen: Oh, jeez, that's tough. Well, one of the most fabulous books I've read in the last sort of during the pandemic was Sapiens, which is an awesome review of the history of man.
Reggie Van Lee: A good friend of mine, Susan Fales-Hill, wrote a book called Always Where Joy, Yes, Love The Joys, which combines my love for fashion and my general feeling about let's enjoy life.
Carla Harris: Amen. Alright, Eddie, city or countryside?
Edith Dorsen: Oh, jeez, countryside.
Carla Harris: Reggie.
Reggie Van Lee: Yes.
Carla Harris: City or countryside?
Reggie Van Lee: I want to say yes, both, but I have to say city.
Carla Harris: Okay, Edy, winter or summer?
Edith Dorsen: Oh, definitely. Summer.
Reggie Van Lee: Oh, summer.
Carla Harris: OK coffee or tea, Edy?
Edith Dorsen: Oh, french press coffee.
Reggie Van Lee: South African tea.
Carla Harris: All right, you'll love this one. If you had a talk show, Edy, Who would you want to be your first guest?
Edith Dorsen: That's pretty easy these days, Kamala.
Carla Harris: OK, all right. Reggie?
Reggie Van Lee: Carla Harris!
Carla Harris: I'll take that one all day! All righty. One word to describe your legacy, Eddie?
Edith Dorsen : Impactful.
Carla Harris: OK, Reggie.
Reggie Van Lee: Courageous.
Carla Harris: All righty, well, Edy and Reggie, thank you so much for taking the time to speak with us today. No question our listeners are going to learn a lot from you all. Thank you.
Reggie Van Lee: Thank you.
Edith Dorsen: Thank you, Carla. A pleasure. Thank you.
Carla Harris: “What did you learn today from Edith Dorsen and Reggie Van Lee? Send us your thoughts at email@example.com. We would love to hear from you. Subscribe to Access & Opportunity on Apple Podcasts or wherever you listen. Thanks for coming along!”