a16z Podcast | Investing in Communities

welcome to the a 16z podcast i'm tahni Olguin and today we have with us Keisha cash who's the founding partner of impact America fund welcome Thank You Tommy so I think today we wanted to talk about a few things we wanted to talk about the early stage investing landscape how that's changed obviously it's the costs of starting a company are so much lower so that means there are more companies emerging very early there's a lot of wealth now that's being circulated and in the investing space in venture capital there's a lot of interest a lot of people who are maybe new to tech don't know much about technology but they're interested in kind of getting into this so you're seeing a lot of new angels and a lot of people flooding angel list forming syndicates so you know how do you interpret that especially taking a focus with impact America fund on looking at the early-stage companies ideally with a social impact tell us more about what that means to you yeah we actually you know our investment thesis were investing sort of pre or post seed stage pre series a and then participating series ain't going forward and because of our mission you know we're investing in underserved companies that impact underserved communities in America the types of companies and opportunities that are particularly interesting to us are oftentimes very unfamiliar to those folks who you're talking about that have money to invest their new angels etc so we spend quite a bit of time educating individuals on what this means in terms of investing in companies to impact underserved communities in America and interesting enough there recently JPMorgan and the global impact investment network Jin released their annual survey of impact investors so the survey says they in the they interviewed or surveyed 146 impact Fester's around the globe and these impact investors account for about sixty billion dollars of assets under management ten billion dollars was invested last year and these are larger investors foundations pension funds etc and I read through some of the report I need to read the rest of the report but something that stuck out at me was that over 91% of that capital was invested into later stage companies so there's a clear gap of seed capital venture capital early stage capital that's available for new innovations and impact investing so everyone talks about you know there's sort of a lack of capital at the on the risky side and people are trying to convince you know the foundations and others to play in that area so for us you know we are you know we think that there's capital out there and there may be capital out there that's unfamiliar with opportunities that are several above and beyond kind of traditional tech place right right so Keisha can you just help us understand what is impact investing there are a lot of different terms and meanings for impact investing depending on where you sit on the spectrum I will you know give you kind of the the global impact investment Network definition of impact investing that I tend to follow and many others do but it really you know if you're an impact investor you are investing in a company or an organization to generate not only financial returns but also social environmental and environmental returns so that means actually a lot of different things to a lot of different people and there's a spectrum of how to invest that capital some folks are okay with below market rate returns others are shooting for like our fund impact America fund we're shooting for a market rate or above returns and then there's a spectrum of you know of people in the middle and then from an impact standpoint you know people there there are groups of people individuals who are diehards and care about the environment and they want to invest all their money into environmental issues that are others that are concerned about the food system and food justice there are others who are concerned about education and so within the sort of larger context of impact investing there the sub sort of cultures or subnetworks of people who are particularly interested in different social or environmental issues gotcha I find it fascinating to think about striking the balance between you know you men should you're more on the side of the scale where you're focused on you know financial returns as much as you know the social impact right so how do you measure these things and and how is social impact measured when you're serving investment opportunities there's an organization called gear and they are an impact measurement organization it's a non-profit and we are impacting America fund as a geared certified fund our portfolio companies will complete an annual survey each year based on certain metrics that are relevant to that company and it basically says here's a baseline of where you at from an impact standpoint there are other organizations that are working on you know different ways of measurement internally for ourselves because we care about the impact other underserved low and moderate income communities in America we're creating our own benchmarks and metrics internally to say hey look what's important to us is job creation what's important to us is that your value chain whether those are your employees your suppliers your end-users that there's some value there there's impact there there's an organization transform finance and they you know tend to be a bit more progressive where they are you know you got to look at this we want to make sure that there's more value in put it that's being input then then we're extracting and so you have various ways of thinking about impact measurement and the valuation of that impact gotcha you mentioned underserved communities help us understand in your mind and what you're looking at what are these underserved communities that you're that you're targeting yeah we are you know I guess taking a step back I grew up low-income I grew up low-income fortunately I grew up low-income in Orange County California so while you know my family we use food stamps at the grocery store we were on section 8 housing I had the benefit of a great public education my father whom I you know he's in South Carolina my mother left my father didn't brought us from

South Carolina a very low-income area to Orange County California my father doesn't read or write and so for me being first-generation college student having the benefit of a great public education going on to work in you know Wall Street and in various other activities I recognized because of how I grew up as a low-income individual the opportunities that exists really in low-income communities and so for us the way that we define sort of underserved communities our markets with with untapped potential these are markets that are you know these are markets where there is high potential in these the human beings in those markets are assets and they're doing great work and they need a little bit more support in terms of you know technology solutions in terms of business infrastructure in terms of creative ways to think about how to better manage their businesses or how to better manage you know if you're a teacher your data in schools and so for us it's you know looking at underserved communities particularly interested in low and moderate-income communities believing that there are inefficiencies looking at ways to cut those inefficiencies to generate more income and more outcomes for that community so what do you think the role of impact investing should be for the kind of traditional venture capital community how you know if do you have a greater message and how do you think about working with larger firms you know like ours or others in the community educating them on this space and introducing them to the kind of companies that are leveraging technology in a way that's serving you know under utilize our untapped markets and underserved communities like you're mentioning mm-hmm yeah we I mean we are truly we stand you know one foot on one side and one foot on the other in terms of impact the way that we think about our investments in the way a traditional venture capitalists would think about their and their investments we believe that there are a billion dollar market opportunities in underserved communities there are people that are making you know plenty of money on underserved communities whether it's financial services whether it's health and wellness whether it's education and unfortunately in our opinions these markets there are there are plenty of also market failures where low income people tend to spend more on basic essentials and yet the quality of those basic essentials and basic needs is poor and so we believe you know by working with traditional technologists and traditional technology investors we have a lot to learn and believe that there are tools that can enable and essentially undercut these traditional markets that have taken advantage for many years of vulnerable populations who haven't had options otherwise so they are stuck paying high fees they are essentially being penalized for being poor or penalized for not having a lot of money and we you don't have a lot of money you typically don't have a lot of time and so you're late and your fees are high when your late night you know I saw my mother go through this when I was younger I mean it's just not fair and so we wonder why there's no upward mobility in communities the extra income that they have they're spending on ridiculous amounts of fees and prices of services and products that are poor quality and aren't actually helping them advance how do you dispel and I don't know if this is a disbelief that impact investing comes across as charity you know how do you make that differentiation and and what lesson can we learn from that ya know it's you know it's it's interesting because we are even as an impact investment fund and we have investors in our fund you know we're you know have thought carefully about how we present our fund and that we want to generate returns for our investors and we also believe an impact right and most folks are still of the notion that you have to choose one or the other and because impact it's not new it's been around for many years but because it's sort of a new mainstream concept it's still people tend to feel like it's something less than what you know a traditional venture firm would invest in or traditional market would have an appetite for so for us it's less you know about I think the best way for us are our approach to dispelling the myth is to prove it out there are folks there are impact investors who are ok with below market rate returns we think that there hasn't yet been a really I guess interesting approach to investing in underserved communities in America and typically the people who have been investing in those communities don't look like the people in those communities so I think with the structure of our team and who I am being from the community that we have it you can unique positioning where we can identify real opportunities in the community that again people we aren't making up a new business model people are spending money on these businesses already and for us it's identifying the inefficiencies identifying the cost savings identifying where people within the value chain can to get more value out of their participation I'm in these economies and for us we think if we can create a win-win for the community and investors then everyone walks away happy so you said impact investing is not new

so who has done it and and how has it worked in the past yeah great question and so just thinking about over a hundred years ago when I think about madam CJ Walker and as a businesswoman and an African American businesswoman the type of business she built and why she built that business and she was you know the creator of hair products and manufactured her own hair line haircare products and the interesting thing about our model is she built a national network of agents of women who she trained who trained other women and you know we applaud her for becoming one of the first female millionaires in this country but but really when you look at the Corps that business model it was about empowering women I mean the majority of those women in her case were African American women and so you look at the context of her providing a product to an underserved market who you know has a complex a hair texture and you know some days it's straight some days it's currently and figuring out a product that work for that market but in addition to simply selling a product that worked she created this national network to empower other women to make money off of selling that product and so when you think about you know if madam CJ Walker was an entrepreneur today starting her business for us that would be an impact investment given that she's empowering these women she's created this national network she's providing them an opportunity to generate income mm-hmm so I know that in your portfolio there's actually a company that now is catering towards women female stylist in in the african-american community it seems to be enough role kind of progression from from the story that you just mentioned tell us more about that company yeah maven is an e-commerce platform and led by a brilliant founder Deshawn and a co-founder who's just as brilliant but essentially what the company does is hairstylist at least in african-american communities in particular for many years have been free sales reps in their communities and the majority of african-american hairstylist they don't inventory they don't hold or manage inventory right and most of them I'd say probably can't afford to do that or may not you know just have the understanding of how to do that and so what's happened for many many years in the community is that me as a hair stylist if you're my you know client tiny and you want you know a hair extensions and I will install those hair extensions for you prior to that appointment I'll recommend you to buy your hair extensions either at the corning beauty supply store or you'd make a decision about where to buy those extensions but nine times out of ten I'm going to recommend a corner beauty supply store the problem with that is that the majority of those corner Beauty Supply stores aren't owned by the majority of the people in that community and the stylists being a free sales rep doesn't make a commission off of referring her clients to that corner beauty supply store so what maven is doing is disrupting a piece of this supply chain really by building his own supply chain of the company's supply chain and now instead of me as a stylist recommending my client to the corner beauty supply store or in some cases in many cases you know my client and me as a hairstylist we are located in areas where there's not a corner beauty supply store right and so then I have to dry it I have to drive an hour two hours to get what I need in order to then get the service that I need from my hair stylist so maven saying hey look we're gonna leverage technology we're not inventing you know the next rocket to go to the moon but we're gonna leverage technology to say hey hair stylist now you have an online portal on maven and send your clients there and for every product that they buy on maven through your web through your portal you get a commission check and then the part that I love the most about this model right it's it's a big market opportunity black women over index in hair spending we've heard the stats I think a lot of folks are talking about in the mainstream but what I enjoy most about this model and why we invested in this company sort of pre-series a is because the founder used the hair stylist as an asset and he knows that that hair stylist is a key driver to the revenue growth of the business model and so for hairstyle who on average in America makes $24,000 a year and oftentimes are working additional jobs to support their family receiving in an additional $100 200 $300 check each we have significant is significant yeah and the costs of maintaining purchasing inventory upfront you're alleviating all of that right so they don't have to worry about where they can money what are they gonna store all this inventory introducing them to technology it feels like there's some really broad sweeping network effects by just implementing this ecommerce platform for this entire community how do you guys think about what comes next and how you know this is just the beginning and how what are the network effects from there ya know that's what that's a great observation in that really you know maven is meeting the stylist where they're at and it's sort of impact investing Landers you know some folks have some great ideals about how communities will advance and uplift our approach to impact investing and while we're you know greatly deeply appreciate the Maven model is that he's meeting that stylist where they're at and once he is loyal to that stylist and you know that stylist doesn't have to do anything else other than what they're doing and what they love doing stylist our artisans they've been artisans right and so they have a skill they have a talent and so to the extent that he can help that individual further their skill and their talent and make more money doing it and maybe not take that second job or you know work less or you know whatever whatever the situation is he creates a loyal customer base and then that loyal customer base there that I think the sky's the limit in regards to then distributing other products and services that are well that will benefit the community taani we had an early discussion about Mavis and Andreessen led the series a round why you know for you this is a company that you understand mission and you appreciate impact but you all are a serious traditional technology investor did you all consider you know the impact piece or why did they ask this round I think that's really interesting so with my particular focus being on early stage you know we we invest across all sectors all stages so we're still investing at the seed stage but we have to be very careful where we do invest so a big part of my effort is finding untapped areas not relying on

the traditional expected companies to come to us for those fundraising opportunities but instead kind of being more proactive in seeking out new spaces this is a perfect example when you and I you know first met the the companies that we talked about that you had already discovered and invested in there were great opportunities for us to leverage the support system the operational you know infrastructure that we have here as a firm introduce them to you know the more traditional route and and show them ways that we can be of value not with the expectation necessarily that you know we are definitely going to invest or looking for an investment but as it turned out you know dushawn is a very very compelling founder and his mission and his connection to the concept that he that he's really building a business around I think is what has compelled us all and is really inspiring and empowering and we do see that huge market potential you know and on top of that has a serious impact on an underserved community and I think we do think about the network effects and what this could possibly mean for you know introducing technology leveraging technology in these spaces you know software eating the world this is just part of that this is just the beginning of that so there's a meme around mission driven founders versus mercenaries and what does that mean to you and why is that an important debate yeah I've heard the debate I've heard that two terms sort of tossed around you know it's for us honestly the companies that we currently have currently invested in under sort of the old umbrella I worked on I worked under the companies we invested in then none of the companies to be honest I self-identified as mission driven investors so for our mission driven entrepreneurs and so for us you know we are sort of putting that label on the types of companies we invest in as mission driven entrepreneurs but they did not come to us saying hey look I'm in a mentioned driven entrepreneur I'm seeking impact capital while we were able to find them as we sought them out right they're not in our impact investment networks they're not at the impact investing conferences the entrepreneurs that we've invested in understood a pain point based on their own experiences and we're building great solid companies around that pain point and it happened to overlap with our thesis that there are large market opportunities in underserved communities so while I understand there's a debate out there and I understand the debate of an entrepreneur you know going out seeking purely financial returns or you know a mission driven entrepreneur who wants to do good by the world I don't know what you call the types of entrepreneurs we invest in you know for lack of better words we call the mission driven but these are solid business savvy entrepreneurs that can stand up against any other entrepreneur traditional or not who care deeply about you know generating a social or environment environmental return as well as a financial return so it's you know hopefully you know my my hope in my prayer is that this becomes a mainstream phenomenon that it's not okay to just build a business for business sake but there's a purpose and a real true purpose for that readiness to exist beyond generating purely financial returns and yeah that doing good can be good business right dispelling that that myth mm-hmm in Silicon Valley we tend to see companies emerge that are trying to solve problems that we face as people in Silicon Valley you know so how do you in terms of seeing impact investing really manifesting what does that start to look like you know I I kind of start to envision it as as seeing more companies that are catering to people outside of this space right so when you envision this you know manifesting becoming the norm the mainstream how does that look to you yeah there are a few different sort of visions of what that looks like so a when you know I've said before investors talk about investing in

best-in-class I was like oh that's really tough to do when the full class isn't there right and so when we get outside of a traditional entrepreneur looks like or outside of what a traditional entrepreneur has access to and you begin to reach diverse communities and that diversity can mean a whole host of things right it could mean I live in a region you know like a live you know a rural white region as well as you know an urban inner city that's majority black so when we get outside of kind of that traditional framework I think we start to see new and creative innovations and what we've seen the work that I did with my previous I worked with a family office and sort of a radical progressive angel investor josh metalman and our initial investment thesis was we're going to invest in entrepreneurs of color and we want to invest in mission driven entrepreneurs of color he invest capital he managed capital for a very hot net worth individual female that remains anonymous but that was our thesis how do we get more capital in the hands of entrepreneurs of color and so after doing that for three years what emerged as really the thesis for impact America fund the dedicated fund that I now manage was that investing in diverse entrepreneurs is important but the theme that emerged out of that for me was nine times out of ten if I met an entrepreneur of color they were addressing a pain point in an underserved community in that unfortunately still in America low-income communities look like you know their majority black and brown people so I think it's fair to say as well as you know what you know right and if you're unfamiliar with the market and our job is to bring more familiarly to market that you may not know about if you're you know a white man and you grew up in Silicon Valley I don't expect you to know what's going on in you know necessarily in Detroit or what that community actually needs I think what we do expect as this new economy emerges that people are willing to work together and so what we'll see when this works and that people begin to create solutions for real true pain points and what people need we're going to hopefully see a radical change in the way that black and brown folks fare on the health indices the way that black and brown folks fare in education the way that black and brown folks fare in income and the racial wealth gap and so for us this is much bigger than finding the next homerun we want to prove this out because if we can prove this out there's more capital that will be injected towards these needs so yeah I want to create the next gold rush to underserved communities if we do that and stay true to the mission of impacting these communities we're gonna see a radically different hopefully way of being for underserved communities in providing a real clear trajectory or clearer path to upward mobility well I just want to thank you so much Keisha for joining us for our podcast today and it's great talking you again thank you Tony it's wonderful to be here