What You Should Know About Fundraising and Privilege

Earlier this month my founding partner, Matt Penneycard, and I announced the close of Ada Ventures fund one, a $34 million fund to invest in overlooked people and markets. It took nearly 18 months to raise the fund and it was one of the hardest things I’ve ever done.

The mission of the fund is to open access to venture capital funding for people building businesses serving customers who are underserved by venture-backed companies, products and services. These ‘overlooked’ people include women and founders who are black, Asian, or from other minority ethnic groups in the UK. It also includes people over 50, people in LGBTQ+ communities, parents, people who don’t live in London, founders from lower socio-economic backgrounds, and people who are neurodiverse or have disabilities.

During the fundraise we were told things like “women can’t make money" and that "this fund will never be commercially viable." We were also told that “European tech doesn’t have a diversity problem" and that it's a “meritocracy where the best people get funded.” At times it felt impossible.

Today, I’m proud of Ada Ventures’ mission and I’m excited about the impact the fund will have in enabling access to entrepreneurship from underrepresented groups. I’m also hugely grateful that I’ve had the opportunity to do all of this.

I am sharply aware, however, that many other more talented people won’t have that opportunity, purely by virtue of where they were born and into what circumstances.

It makes me angry when people ignore the unearned advantages they were given or imply that they “just worked hard” to get to their current position.. The reality, which is starkly visible if you spend any time as a VC (and as evidenced by the Diversity VC study that we published in July), is that venture capital is one of the most elite industries, and the majority of people in it are economically privileged, white, cisgender, straight, have been to private school, or have an MBA.

Unless we talk about this reality and take steps to address it, I don’t believe anything will change.

Some of the key drivers behind venture capital’s lack of accessibility involves the money needed to have a seat at the table or start a VC fund in the first place. These roles are preserved for the very few.

In the interest of openness, I wanted to share how my own layers of privilege ultimately enabled me to raise a $34 million fund. I’m sharing this because I think it’s important to be radically candid and honest about the whole story, not just the headlines in TechCrunch. It is only through fronting up to the inequalities that are deeply rooted in society that we can hope to take steps to address them.

Let’s start with private education. I went to St Paul’s Girls’ School, a private school which sent around 50 percent of each graduating class to Oxford and Cambridge. Going to St Paul’s was a major advantage in getting into Cambridge, but one that I was only able to access because my parents could afford the school fees. Going to Cambridge then helped me establish credibility and connections with potential investors. I also come from a middle class family where this route (private school, then Oxbridge) was not just normal, but was expected. I’m aware of how rare that is and how fortunate that makes me.

Secondly, and in part thanks to the above, I have an extensive personal network. Some of the investors in this fund are personal connections to me and my business partner Matt — they’re people we’ve worked with before who are backing us because they know us. I imagine that their investment risk was also mitigated (on some level) because we look and sound “the part.” We are both cisgender, white, straight, went to private school, attended top universities and we’re non-disabled. In other words, we are normative and therefore familiar or ‘derisked.'

Thirdly, I had a start in the VC industry thanks to a personal connection. Before you can even think about raising a fund, you need a track record, and in order to get a track record, someone needs to hire you in a VC fund (or you need your own money). Getting this start is simply not possible for many people who either don’t have personal connections or come from a small group of universities. Then there’s the actual money. Raising a fund is incredibly expensive. Matt and I have spent around £100,000 (or £50,000 each) on FCA fees, travel to pitch LPs and legal fees. I was also able to survive for 12–18 months earning limited income by consulting for various companies, many of which we secured through personal connections (as above). The only way that I was able to make this work was because my parents run a company that I was able to do some work for as well as stop paying rent for six months.

There’s also the General Partner commitment, which is an essential feature of any fund. Effectively, the fund manager has to invest (at a minimum) one percent of the fund with their own money. On a £30m fund, that is £150,000 each.

In order to prove our ability to find and pick the investments that fit our strategy and tell a convincing story to the Limited Partners (investors in VC funds), we also made investments while fundraising. This cost a further £10,000 (£1,000 being the minimum investment we could make).

In total that is £260,000 just to get started. It's a staggering amount of money.

On top of the money, I also had a financial safety net as my parents live in London. I had the opportunity to move back home while still doing my job. This is not an option available to the vast majority of people. This financial safety net was crucial in allowing me to take the risk to raise the fund.

All of these factors compound, leading to a massive overall unfair advantage in being in the position to raise a fund like Ada Ventures.

Until the playing field is level for the people raising and allocating the capital, it will not be level for the founders pitching and receiving that capital.

So what am I doing about it?

The mission of Ada Ventures, besides generating best-in-class financial returns, is to find and fund founders that come from anywhere and who are building companies serving overlooked customers facing some of the biggest global challenges. Part of this mission is about breaking down the barriers to entrepreneurship and venture capital that people currently face. We’ve started doing this by building a diverse scouting network in order to create an on-ramp for new angel investors and fund managers, removing the need for the warm introduction, and assessing founding teams based on their leadership qualities rather than where they went to school or where they work. But we have a long way to go.

One area we’re focused on is our team. We will be looking to hire in 2020 and strongly encourage candidates to apply who don’t have backgrounds in venture capital, finance or come from positions of privilege.

We will also be participating for the second year in the Diversity VC Future VC program which means we’ll be taking on at least one intern from that program for a two month paid internship in the summer of 2020. Details of the program and applications can be found here.

And this is just the start. There are so many inequities in so many parts of society that, in some ways, it feels arbitrary to focus on venture capital. However, entrepreneurship is a powerful force for social change and the financial system that drives entrepreneurship is as good a place to start as any.