FUND STARTUPS AS A BLACK VC w/ LO TONEY

of the value they want to purchase. So to become a valuable company, how do you attract the kind of talent that can first build something great and second become a marketable asset in and of itself. The first step was kind of leveling up my understanding of what I would need. So it's hard to reclude people if you don't even know what she needs. UM. So I needed to figure out, Okay, who are the people that are building this type of technology, what is their skill set?

What languages do they know? Um? And once I figured that out, then I went to those meetups and went to those events so I can meet those people. And a lot of it had to do with being able to craft a story that was interesting to them. So I was really trying to refine the folks that I was looking for, and then when I got in front of them, being able to tell my story about, you know, just the same thing I told you about my grandfather had this problem. I'm an expert in this industry. I

mean expert. I've worked at the company for her a year at that point, but you know, expert ish, and I wanted them to realize that I'm I'm really serious about this. I'm trying to build a great company, great technology. Don't want you on board. And it worked surprisingly. I mean at this time you're talking about I was twenty three four years old, so a lot of what I did was I just didn't know any better, and I was just kind of fearlessness. Yeah. Yeah, So I really

was just like, this is a great idea. I know it's gonna work because I can see it every single day in my job, you know. I think the story was compelling to folks, and they were interested, even so much so that one of the first kind of breaks I got was I competed that tech Crunch disrupt and people saw that video and reached out to me and we're like, Hey, I'm really interested in this problem that you're trying to solve. I don't think you've raised any money yet, but I just want to work with you.

And so I was able to get free labor that way because people were just interested in the problem and hadn't seen a solution. It was folks who were kind of tinkers who were like, I need this, so I want to help you build it because I need it. I'm Will Lucas and this is black tech me money. I'm gonna answer to some of the biggest names, some of the brightest minds and brilliant ideas. If you're black in building, are simply using tech to secure your back,

this podcast is for you. Low Tony is the founding and managing partner at Plexo Capital, which is an institutional effect Smith firm He incubated and spun out of g V Google Vengeance. Vcs need to go outs of funds just like startups to raise the capital they can deploy the other startups, and I don't think we talk about that enough. They do the same thing they pitched. They execute on ideas or a thesis. If I may, when raising a fund, what is similar about the function of

being a VC and operating a startup. At afro tech World one, I as low Tony the best person on the planet to provide a worthy inc. There are a lot of similarities. That's a good observation. We think about it all the time, both in terms of how we operate and communicate the message of Plexo capital, but also what we look for in other early stage firms and

general partnerships that we want to invest into. So if I were to think about my job as an investor into companies, then there are certain things that we would look for. We look for the market size, we look for the problem being solved. We take a look at the solution and how it fits with in the overall competitive landscape, and most importantly, especially at the early stage,

we look at the team as well. And then in combination of all those things, kind of one of the things that should surface is what is it that makes this company really unique? What's their competitive advantage? And I think that applies to the world of investing as a limited partner when we look at gps that we're interested in backing. GPS are the general partners that lead venture firms. If we're looking at a new fund that we'd like to consider, we think about the opportunity that is going after.

Is it thesis driven and is it taking a certain approach around let's say enterprise software and the opportunities within that market, or is it taking a geographic approach kind of what's the positioning of the firm in terms of how it's going to deploy the capital. And then we look at the gps. What's their track record, what's their experience, what are the entrepreneurs have to say about working with them, what other gps have to say about working with them,

what do their LPs have to say it? We take all of that and then we think about, Okay, what's the unique advantage that these gps will have that will allow them to win the best deals. So there are a lot of similarities between investing as a general partner into an entrepreneur, as there are as investing as a limited partner into general partnerships. What what is wildly different versus investing directly into a company versus investing it into a fund. Yeah, here's the thing that I think is

wildly different. When investing into a company, the risk is isolated into two kind of one point of fault, right there is the company itself, the the entrepreneur of the team, the market they're going after. But basically the risk is

isolated into that one investment. Investing as a limited partner, it's a little bit different because what I'm doing is as a limited partner, I'm basically investing into the bank account of a general partner and they've got a blank checkbook, and so I really don't know the investments that they're going to go and make. Right, they'll tell me a story.

I can look at their track record, I can look at past investments they've made, but at the end of the day, the risk is a little broader, So you know, it definitely takes a little bit longer in the diligence process investing as a limited partner as opposed to investing as a as a general partner. So you're specifically focused

on helping minorities get into this space. As a byproduct to that, we're like, we're not all coming from Silicon Valley or Stanford, you know, and in many cases, you know, you have to do more to cultivate that crop of vcs. And if I understand correctly, so is there a strong pipeline of black and black female vcs too, to be able to come to LOW and say, hey, we got

the right stuff. Absolutely. We track about thirteen to fourteen hundred firms globally and we've had a touch point with close to five dred of those folks, and there's a strong mix of black general partners within that set. They have the capabilities, the qualifications, it's really often just a matter of getting the opportunity, kind of getting that first entity or person to believe in them, to back them

to go out and invest. What we've learned is that is important also to have a little bit of a different approach in terms of evaluating a general partner, especially when it comes to track record. So I think we're fairly flexible. Obviously, if someone is on a Fund two or Fund three, we can look at fund one or

fund two performance. If someone is coming out of a shop that allows attribution, they're leaving a larger firm to go start their own venture firm, hang their own shingle, we can look at their track record from that firm, if the prior firm allows attribution, or we can help the GP piece together what their track record was at that firm. And what their role was in the deals. Did they help the source the deal due diligence, did they lead the investment, did they take the board seat.

We'll even look at prolific angel track records or folks that spin up SPVs. You know, I think all of those components allow us to be a little more flexible when it comes to track record. Again, going back to

your open incoment and observation. At the end of the day, this is a people business, and so we spend a lot of time getting to know the people and understanding not only their acuity of being able to identify high performing venture scale startups, but then also how they're how those gps are ultimately going to work with entrepreneurs and you know, what's the value that they provide after the check and what's their reputation going to be built upon. Yeah,

I love that you talked about value. I was I was talking to Ida Epoto from Gingerbread Capital about this and um and we were talking about how, you know, it's hard enough for black women to see in rows into renewal andle career success getting better in some ways, but it's still difficult and it's another thing to tell them that they can be the investors you know, into a lot of the companies that they that they come

into contact with. We talk about value, you know, I love talking to vcs about you know, what is the unique value that you know your thing like, what's your unique opportunity was? What are you uniquely situated to do? What unique value do women bring? Black women particularly bring to investing. What we look for in general partnerships and general partners is some unique access to be able to

to source amazing deal flow. And the insight that we had at g V formally Google Ventures where Plexo Capital was really born, was that women and people of color. In fact, we started with black GPS. We did five commitments at g V into uh seed stage venture funds led by black GPS, and the insight was kind of this indirect path in the venture allows for access to some unique networks to get differentiated deal flow. But there's

another piece as well. I think it's the lens that a black GP or a woman or a person of color can use to evaluate market opportunities, especially at the early stage before there's a lot of data, so it takes some familiarity with markets and then also having that lens be able to evaluate an entrepreneur differently, because not every entrepreneur that's successful has to look like a Mark Zuckerberg.

And so I think, what what black women in particular bring again kind of going back to these networks, you know, we always have to whether it's you know, black women or black men, we have to to work, you know, twice as hard to get half as far, and it's going to take us twice as long. And I would say that, you know, if we think realistically about the challenges that that black people have, but in particular black women, I mean, they're probably in many cases working three times

as hard. And so I think without question, there they're the ability to kind of have that drive, and I think we've seen that anecdotally. But then I think, also going back to that lens, I think the ability to kind of have the recognition around a certain set of problems that might be unique to their experiences and being able to see that there are venture scale opportunities in those at the early stages, I think is really an

advantage for black women now. So the challenges are it's often a little more difficult for them to be able to to raise the capital to go out and start

to make those investments. But I would say or often some of the target markets they might look at, people might not believe their venture scale opportunities within those And I think what we are starting to see at least is a group of you know, millennial and gen z black females that are out doing some some great things, you know Maya and Aggressive Capital or Monique at Cake Ventures Um, I mean Maria, you know, and the work that she's doing. There's a lot of success points that

we will have to monitor and observe looking forward. And they're out there doing some great things, so you know, tip of the hat and applaud them, and we want to back as many of them as possible. There's different levels of involvement that a VC you know, may have when they're investing seed capital directly into a startup. Some are you know, just board, They just on the board, they come to the meet and they show up after they want to check. Some are very involved, you know,

in the operations of the organization. When you're investing in the funds. What would be the norm I guess I should say on your involvement into that fund that you invested in for us at Plexo Capital, when we think about making an LP commitment, we want to be a

value add limited partner. So if I think about the models that influence us the most or provide inspiration for us, I think back to my days at g V Google Ventures and the operating partner model that g V to the table Andrees and Horowitz does the same thing, providing more than just capital and a partner to lead diligence, make an investment, take a board seat, but also bringing these other skills to the table, you know, whether that

be business developments of helping companies, helping some of the portfolio companies identify customers, or whether it's talent so having staff on hand to be able to help companies recruit talent. So I think all of those things are what has guided our model. So when we think about how we add value at Plexo Capital, it's goes beyond just kind

of providing an LP commitment. We also look to do things such as have our portfolio manager of a shall help a general partner with their portfolio construction models and how they should think about both the modeling of what they're going to do with the capital, but also how to communicate that. We also have a person Kate, who has done a great job for us in terms of helping us punch way above our weight class in social

media and marketing. So Kate will sit down with our GPS and help them think about how to leverage social media to build their brand or even thinking about marketing

and other PR efforts. And then, finally, and probably most importantly, Cougie, who leads investor relations for Plexo Capital, really works hard with the GPS two work with them on a go to market strategy for fundraising because at the end of the day, let's be realized, if there's no fund raise, then none of this other stuff matters, right, So this fundraising pieces often the most important component and can be the most challenging for a fund one or a fund

to general partners. So could you will work with them to put together a robust go to market strategy that allows them to the GP to understand how to communicate their value proposition. He'll help. Could you will help put together a bespoke list of perspec active LPs and then give some guidance on how to work with those prospective LPs in terms of getting the meeting scheduled. What should the cadence look like how should the follow ups be handled?

And then finally, we have one of our advisors, George An Perkins, who spent twenty three years selecting GPS for private equity and venture capital for the Stanford University Endowment. And Georgian works both with our Plexo Capital GP network as well as with GPS from our new program gp X. Georgian will do office hours with them to give them what it's like to actually present to an institutional investor, and she'll hear their pitch and then provide them with coaching.

So I like to think that Plexo Capital does. We are aspiration is to be the most value at LP possible. I think that you talked about like the social media marketing and building your brand, UM, that that is important to getting deal flow. Um. And for the sake of those frustrated founders out there who there, Michael Cybel was here at AFRO Tech. I want to say this was maybeen and he said something that was striking for him

to if somebody in his seat to say. He said, Um, there's this myth that you come in Silicon Valley and people just want to write you a check to help you make your dream happen. Right, And what ultimately what he was saying was that it is not as easy as it sounds to come to Silicon Valley with an

idea and people just started throwing money at you. And so, yeah, and I want to get your take on this, because there are a lot of people who see the marketing that comes from Vincia capitalists like, hey, we want to hear your thing. Hey, we wanna, you know, invest in the best black startups. We all believe we have the best black startup and then we run into these brick walls.

So you ask some perspective to the marketing of venture capital and specifically Silicon Valley and the for the frustrated entrepreneur who's running into no afternoon. Well, there's a there's a lot to unpack there. I think let's just start with Michael's observation. And I've heard him say this before. Look, it's hard to raise money as an entrepreneur or as

as a GP, no matter what gender or ethnicity. Someone is right, it's it's hard, especially you know, seed stage, startup, first time entrepreneur, fund one for a g P. All of those things are hard. You know, you've got nine problems and if if you're black, you've got a hundred. If you're a black female, if you have a hundred one, and you know that hundred and hundred one, those are really big relative to the other nine. But look, it's

just to say that it's just hard. In general. I think what ends up happening for a lot of the entrepreneurs, what we've heard within the last eighteen months, you know, in the aftermath of the unfortunate killings of Brianna Taylor, George Floyd, the countless others before and after, is a willingness and an openness to want to for venture capitalists to want to be at least perceived as embracing new deal flow. And I think that's that's a good thing.

There's a lot of sincerity by some, you know, I've talked to some and I believe they are sincere, and we've actually seen some some you know, companies founded by black entrepreneurs received funding. But look, let's let's you know, be honest that a lot of it is also just just talk as well. And so you know, I think what we need to do is we need to keep track of, you know, who we're saying these things and

hold them accountable. We also need to move beyond this this notion of hey, you know, I'm happy to have office hours to mentor people. I mean, there's there's been more than enough mentoring. Like we're we have oversupply on mentor and we're undersupply on the ability to actually have folks writing checks. That's that's really where the demand is. There not really a whole lot of demand at this point for mentorship. There's there's demand for you know, write

a check from my from my startup. But you know, we we have to again recognize that this is this is a journey. It's a hard process for entrepreneurs, and you know, let's be honest. You know a lot of companies are going to fail. But I think what's most important is people want to feel like they were given a shot, that is a level playing field, and they're given the same opportunity as a Mark Zuckerberg want to be.

That also walks through the door. I think as long as we feel like it was a fair process, we actually had an opportunity, I think that that's the most important thing, because then it saw on us to be able to perform. I love that. Um speaking of you know, the myn Taylor's. I'm sorry. The mod Arebreys. The Brianna Taylor is George Floyd's. There was an article you wrote

about a year ago. Now, Um, I'm a VC but still a black men in America, and there was a line in it I thought I found fully interesting and you talked about and I'm gonna paraphrase a little bit because it makes more sense for me this way as a politician. It is now time to create legislation that will undo the damage of the past centuries to black to the black community, or resign or be voted out

so those politicians that are capable can make the changes necessary. Um, how has legislation kept particularly would be black founders and vcs from having opportunities to build wealth, you know, generating enterprises. You know, it's why that's that's a great question, because I think when we think historically about you know, we can go all the way back and just look at legislation that prevented black you know, um families from being

able to own real estate. You know, the federal government actually worked with state and local governments to to put processes in place. You know, redlining is the one that comes to mind. But you know, it was more than just redlining. It was also the the affordable loans that were done after the New Deal to be able to ensure that people could have a smaller down payment and a longer timeline, you know, twenty years, to be able to make smaller payments, to allow people to actually afford

to buy homes. The g I Bill, when you know, folks returned from World War Two, the ability for really with almost no down payment to allow g I s to be able to purchase homes. And when we look at, you know, how many black folks were actually able to participate in those programs, you know, the numbers were very small. The government actually stepped in at the federal level for the programs put in place after the New Deal to

actually that's how redlining started. You know. They basically said, you know, if there were any black folks living in those districts, then the you know, the area wasn't eligible

for a loan. And what did that do. Well, it prompted legislation at the local level to be able to say, you know, through homeowners associations and through city, um, you can you know, you can't sell to a black person, right, And so those have had damaging effects that you know that are going to haunt us for you know, at least another I think another hundred years at a minimum. So you know that that's the damage that that legislations

that have. You know, what's what's really interesting right now? And you know, I know that we're in a position where we're looking at both and you know, an infrastructure package of at least one and a half trillion, up to some of the other proposals to be able to provide education, child care and universal health care that are up to three and a half trillion dollars. You know, one of the things that's being looked at is that the cary as well, that is the profits that venture

firms make and how that's treated on on taxes. And you know, I think it's kind of a little bit of of and listen, I am one where I really believe that we should have everyone should have health care,

we need to address the situation with child care. I believe in all these things, you know, but it's just unfortunate that now it seems like, you know, right when the point where we're just starting to see some in rows made by black folks, now the tax folks come you know, and so it's those are some of the things that are a little frustrating. I often think, you know,

what are ways that we can kind of help. I mean, sure, we can talk about reparations, but what are some of the other ways that we could use legislation to be able to help with entrepreneurship? I would say both, you know, the private sector obviously there are things that can be done and have been done, but you know, what can we do on the federal level as well to be able to to help you know, black folks open more businesses, get the funding and start to generate wealth for ourselves.

When you think about limited partnership, limited partners I'm sorry, like large institutional ones that could be pension funds, could be universities and the like. They're investing the capital of quite off in like hourly workers, middle class workers and janitors, teachers, et cetera, many of brown folks, black and brown folks,

right and um. At the same time, those dollars that often get invested don't go into black and brown companies, and so that money leaves the community in so many ways because as you know, I mean, you invest in a hundred startups hoping one makes it right. And so how important are mandates to where institutions say, look, we're gonna invest in Plexo, and Plexo is going to invest in a number of companies. Are we want to make sure that some of those are you know, black and

brown folks. How important are those mandates and what effect do you hope that they have so that you know, some of those resources can you know, benefit the communities of the people who generated those dollars. That's again a lot to pack and dig into, but this is an important topic. I think when we look at some of the pen funds in particular, you know, think Caliper's Calisters.

I mean, these are multibillion dollar assets under management, and when one looks at the population that they serve, as you pointed out, the folks look a lot like us. They're black and brown folks. But when we look at the at the asset managers that are managing those funds, you know, they typically don't look like us. And you know, we can also take this and apply it to two foundations.

We can apply it to endowments, right, college endowments, And at the end of the day, I think it's important for the markets themselves to recognize and understand the opportunity and realize there's going to be money left on the table by not being inclusive with both who's doing the investing and who's receiving those dollars from the investors. However, what I also know is that that's not going to work on his own right. We we've seen it and

we and it moves too slow. So I believe that we do need to have some type of mandate now that can manifest itself in many different ways. That can come from, you know, a top down from the federal approach, or like we've seen most recently California mandating that companies that are are listed on one of the stock exchanges that are based in California need to have diversity on their boards. You know, they need to have black, brown, um female um So that's that's a good mandate, right

that will have that will affect change. So we can see the benefit of having legislation from the top down. I would also say, what's interesting looking at the population of some of these um entities that are managing money on behalf of someone else. If we're talking Calpur's cow stairs,

a lot of black and brown workers. Well, you know what change could be affected by organizing those folks to put pressure on the Smith Committee on board to say, hey, we want to see our dollars, because in essence, they are the dollars of those people going to managers that look like us, that are investing into companies led by folks that look like us. So I think there's there's

a couple of ways that that it can happen. But as much as I like just letting the market play out, this is the case where it's just not going to happen or it's just not going to happen fast enough if we just leave it our hands off and allow the markets to just have it. Um. Correct, course, there's so much more I want to talk to you about. To be sensitive to your time, I do one more, um. You know, there's much better of a flurry of activity happening now with black investors at the angel level of

the sea level. Um. But when it comes to A rounds even less B rounds is c there's a lot less people who look like you and I, right, And how do we get more war institutional investors war black vcs. At later stage, later stages of the game, when one thinks about how to put together a strategy for a venture fund. The thing that immediately becomes a parent is that the strategy is often dictated by the fund size, you know, and to put it simpler, your fund size

is your strategy. So what we've observed is that there are a number of talented investors at multi stage firms or later stage firms, and what ends up happening is if those folks decide to leave that multi stage or

late stage firm and hang their own shingle. The constraint is often how much capital can be raised with that initial fund, to the point where if one GP, even with multi stage experience, can only raise you know, thirty to fifty million dollars, well, then all of a sudden, that's an early stage firm, even though the GP may

have late stage experience. So that's one of the challenges that we face is that often the folks that have the talent and the drive to go and take that leap of faith on their own and hang their shingle, they're limited in terms of how much capital they can raise now over time fund one fund to prove some success. They can raise more over time than they can move

to invest at some of those later stages. But I would say that's a very student observation in terms of one of the constraints that we have downstream for black and brown entrepreneurs is that there's not enough capital at those later stages. Now that said, I suspect that mentally, it's more of elite for investors that are not black and brown to actually invest at the earlier stages of entrepreneurs led by of firms led by black and brown entrepreneurs,

because there's not a lot of data. Right at least at the later stage, you tend to cross a point where there's enough data from what the company's performances that it's you know, that kind of barrier um is lowered a bit, not to say is completely eliminated in terms of entrepreneurs that are black and brown being able to go to late stage capital that is not led by

black and brown gps. But nonetheless, at least there's some data, there's some performance that can be shown that allows the entrepreneur black or brown to be able to better compete in the market. But that said, you know, I do believe that we need to see more large scale firms, multi stage firms, later stage growth firms, led by Black and Brown GPS to be able to to better address that capital gap. No, Tony, thank you so much to

spend time, appreciate it. Thanks for having me on. Black Tech Green Money is the production to Blackty Afro Tech on the Black Effect Podcast Network and I Hired Media and it's produced by Morgan Dubon and me Well Lucas, with additional production support by Sarah Ergan and Rose mc lucas. Special thank you to mikeel Davis and Vanessa Serrano. Learn more about out guests, other tech constructors and innovatives at afro tech dot com. Join your Black Tech Green Money,

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