The first blog post will be about the gender 10%

The funds I work closely with all follow one rule, if I am involved enough to be in the general partnership and want to contribute to the thesis and perhaps get engaged with a company or two. Here is the rule: We have a 10% bias for women led companies. Female CEO’s after all the due diligence is done, get 10 extra points on a 100 point scale. Boys step back 10%, as a group.

 

The reasons are clear; female CEO’s are outperforming male run teams by 15% (revenues and full time equivalents six months after leaving an accelerator) but are 40% less likely to get investment. So we bet against our own unconscious prejudices and make more money, across the portfolio by betting on an under represented group that is, collectively, out performing. Male CEO’s have to out perform by 10% on a 100% due diligence scale to get the same score and chance of getting an investment. This is justice that can hide under the protection of fiduciary responsibility; we will make our investors more money doing it that way.

 

Many people are fine with the standard messages: it would be better if there were more of a role for women in their own livelihoods and if they had some access to resources. Things would work better. I said, “Hey, look, right there, we can make more money by investing in women. Let’s do that. “

 

All if means is we have to realize we have innate biases we can’t get over right now that makes the selection process, any, even the most holistic due diligence process, skewed. As a group, impact investors are not picking women led teams at a level commensurate with their ability to perform.

 

So, in order to enact their fiduciary duty, the funds we invest in have to go where the data says to go, not where our cultural biases and things do not allow us to reach. You can see the truth is different than you believe, so act the way you know is true, even if it feels weird and like you are doing something rash, cutting off some people to put other people ahead of them. But in this case, that means you can push women to the front of the line and make more money doing it. So if they want financial returns we will do something that makes no sense, because our sense making apparatus is flawed. Big data lets you leapfrog your own evolution.

 

 

We consulted with insiders, to see how it would play. Some jaded insiders thought our plan was naive or ill formed. They have been thinking that about every new thing I think up for years, until they become my customers or investors. Others loved the idea and think it has a role to play.

 

I had to tell fund managers that if I do not get this condition I will not be involved in a fund. One fund that has adopted the concept is Reinventure Capital, Shaun Paul’s fund with Ed Dugger. This is the fund I really love; the intersection of biodiversity and inclusion. But some are still not getting it; they are stuck in that \ mealy mouthed, things would be better if we did x, with no clear economic incentive, fiduciary responsibility to cause you take action frame. Whining not doing. So act despite the way you feel like you should act, act different from the way you think you think and make more money.

 

It’s hard for liberals, or progressives, or impact investors, to admit their unconscious biases. That’s one thing I learned moving to California, after 20 years doing business in Mississippi. The nicest way to say is that Mississippi racists don’t lie. It’s the same with liberals on investment committees. The bias is unconscious, but according to the numbers, clearly there. So you overcome your bias with a bit of evolving Neanderthal arbitrage. Bet on where the market will evolve to be, but get in early. That kind of thing. Move to where you the market and the arc of history moving toward justice suggest is the way to move. Make more money faster now.

 

We have something that can make it better right now that they can not stop. I have a fiduciary responsibility to manage their money that way. I am spinning the system on them to enact justice. It’s a pretty good move, I think.

You can make it happen and you can make more money, by simply ignoring what’s wrong with the way you think and choose investees. If they are actually 40% less likely to get investment and we are just increasing the odds by 10 % when they outperform by 15%, maybe we need to do another pass at the math. But for now, it’s 10% and it beats up the perceptions of even the most “enlightened” to be told, no the way you think is wrong. We are going to way things 10% more than makes sense because something is structurally wrong with our perception tools. So we will do a little bit of arbitrage on the reality we will eventually evolve to, and make more money in the interim, until the competing fund managers who can’t get over being told “no, the way you are thinking is wrong,” get on board.

 

It’s a bit of eventual enlightenment arbitrage that will enhance financial performance across a portfolio. It will make more money than competing funds which do not adopt this mechanism. We are willing to measure our performance, financially, against people who do not use this tool.

 

And then of course the market will have created justice and we can measure the impact of that, too, women getting a fair shake, etc. and its attendant consequences. In the mean time, we make more money by enacting justice today, the way we know it will go once people start factoring us in as a baseline. Everybody will be watching us .We are telling them we can beat them with this tactic. Anne French, a long time friend, leads our marketing.

 

We can draw a mark in the sand and say to our competitors, the other funds, any other impact fund, we will make more money and enact more justice doing what we do compared to what you are doing. I want a race to return and to justice. We will win, make more money, and do more good than all those people just talking about this.

 

 

 

 

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