Jan. 17, 2022

Investing in Diverse Founders with Genius Guild’s Kathryn Finney

A market-based approach to combating racism in VC funding


In 2020, just 3% of the $147.6 billion invested in venture capital went to Black-founded companies, according to the U.S. Census [from Forbes]. Kathryn Finney, entrepreneur, investor and author chats with Nora and Scott about her latest project called Genius Guild, which combines an incubator, venture studio and fund that supports Black entrepreneurs. Check out Kathryn Finney’s podcast Build the Damn Thing.

Hosts: Nora Ali & Scott Rogowsky
Producer: Bella Hutchins
Production, Mixing & Sound Design: Daniel Markus
Music: Daniel Markus & Breakmaster Cylinder
Senior Producer: Katherine Milsop
Director of Audio: Alan Haburchak
VP, Head of Multimedia: Sarah Singer

Full transcript for this episode below. 

Transcript

Kathryn Finney: Our thesis is really simple. It's that Black entrepreneurs produce outside return for their investors, for the community, and themselves. It's really this concept of stakeholder capitalism, which is a dirty word, I guess, in America right now. Which just basically means as a company, as a business, as a venture fund, we're not just interested in maximizing returns for shareholders. We are interested in maximizing returns for everyone involved and that by doing that, we create a system that is more equitable. We create a system in which everybody truly wins, because everyone is truly winning. That is what we focus on.

Nora Ali: For Morning Brew, this is Business Casual. The podcast that gives you a front row seat to candid conversations with some of the biggest names in business, asking them the questions you wish you could ask. I'm your host, Nora Ali.

Scott Rogowsky: And I'm your other host, Scott Rogowsky. Nora and I are here for your ears, bringing you stories of how business shapes our lives today and into the future. Now let's get down to business. Nora, what are we talking about today?

Nora Ali: We're talking about a very important subject. I think probably one of yours and my favorite interviews thus far.

Scott Rogowsky: Mm-hmm (affirmative).

Nora Ali: If I may-

Scott Rogowsky: Yes, you may.

Nora Ali: ...posit that, yeah. We're talking about Genius Guild, which is a new venture studio that invests in Black-led and founded companies that serve Black communities. And I think we've had these philosophical conversations over the past many, many years of the lack of venture funding that goes to Black founders and entrepreneurs, especially Black women. But this convo was awesome because we got the data, the hard stats and actual action items, investment entities, resources that are helping to tackle the problem. You and I are very solutions-oriented, which is, I think, why we enjoyed this conversation.

Scott Rogowsky: I want action. A-C-T-I-O-N, action. What I love about Kathryn, this is a person who has been thinking about these things, going back to her own experience, especially at this incubator that she talks about, going back to 2009, her terrible experience there as the only Black woman amongst a majority white male field. And she's been very aware of the issues facing diverse founders, looking for ways to improve the lives for others that are coming after her and spreading her wealth around now. And she was doing this well before last year where yes, so many companies then of course came out with the proformas and we stand with Black founders and the Black community, and you can now all of a sudden shop Black-owned businesses and support Black-owned businesses. Well, Kathryn is not late to the game here. She has been on this, beating the drum, fighting this for many, many years. So, I like that she kind of speaks from personal experience and she knows the community, and she's connected to other people in the space. And she really is maybe one of the most brilliant people working in venture capital today.

Nora Ali: And she's an epidemiologist on top of all of that.

Scott Rogowsky: Not to mention.

Nora Ali: Not to mention, all right, let's get to it. Three-time entrepreneur and author, Kathryn Finney, Genius Guild founder and CEO, joins us today to break down the disparities in Black VC funding and discuss how she's taking a market-based approach to commit racism by investing in companies that address our society's current model of capitalism, which limits and excludes Black communities. Here's our convo with Kathryn.

Scott Rogowsky: Kathryn, I read that you grew up in Minneapolis, but not only that you went to elementary school, right near where George Floyd was murdered.

Kathryn Finney: I went to an elementary school called Lindell Elementary. So, when he was murdered last year, it was really like everything in my life came together at one point. And like most people, had to ask myself, what do I do? What do I go? How can I be a part of the solution? Because we need solutions right now.

Scott Rogowsky: Mm-hmm (affirmative).

Kathryn Finney: We got a lot of problems, but be a part of the solution.

Nora Ali: Well, you've got a whole host of solutions you're working on, that you've been working on. You have an incredible career. Before we talk about Genius Guild, let's start with your experiences earlier on in your career that led you here. So, you famously started this lifestyle blog called the Budget Fashionista. It was so successful by 2009. And by the way, you were making money on the internet before other people had figured out how to make money on the internet. And then you wanted to turn this into a bigger empire because you had 1.1 million weekly unique visitors to the blog. So you decided to join an incubator program in New York, but it was perhaps not what you had hoped the experience would be. So what was that like at that incubator?

Kathryn Finney: In 2009, I think there wasn't a lot of ways in which normal people were making money on the web. And like most women, I didn't realize what I had. I had an amazing, great business, but I was judging what I had in relation to the guys, right? And they tended to have more traditional tech related startups. At that time, social networks were very, very hot, so if you didn't have a social network you weren't anyone, even though I was making quite a significant amount of revenue. So my thought was, "Hey, I have this platform. I have this readership, let me create a product." So I went into an incubator program with this idea to create a box service for ethnic hair care. Black women purchase over 40% of all hair care items in the United States. We're a little bit less than 6% of the U.S. populations. It's a market that's defined, it's a market where the customers willingly spend thousands of dollars each year, testing new products, discovering new products. And I was super excited to head into this incubator. No one had really applied a tech lens to it at that point. And was met with the most absurd reaction while I was there. It was the first time in my life that I had experienced people having no expectations of me. I've had people who have low expectations, but I've never experienced people having no expectation. One of the tenets of the incubator program was that they would call on you randomly to do your pitch. You just have to stand up at any moment's notice and do your pitch. They never once called on me in 10 weeks. And later found out they didn't call on me because they were afraid that I was going to be embarrassed, that I was somehow not going to be prepared. Again, no expectations. So, I volunteered myself and I got up and I gave this pitch and it was like quiet. It was a room of about 150 mostly white tech dude, investors, VCs. The only other person of color was my husband. And here's this spunky Black woman with big hair and kooky glasses killing it. And they literally didn't know what to do with me it. It was like shock. And so after getting a lot of great comments from the mentors, they opened it up to the audience. And the first comments I got were some of the craziest things people have ever said to me in my entire life. And so one guy who happened to be the brother of this founder of the incubator program said to me, "I don't think you can relate to other Black women." And it was like, okay, I mean, do tell, maybe he grew up in Harlem or something, I don't know. Maybe he knows something I don't know. And he said, "Because you have an accountant and I don't think--

Nora Ali: What?

Kathryn Finney: ... very many black women will understand that. And I was like, "Yes, some of us do go to H&R Block. Some of us do our own taxes via TurboTax, but there's many of us who actually have accountants." And at that moment most people, when you're put in a position where someone is totally discounting you and discounting your intellect, you have to go through all these different calculations in your head. And they're often really quick. And particularly when you are a Black person, because the last thing you want people to do is think that you're an angry Black woman, right? That's always the trope, the stereotype that's put on us. So, I'm like, "Do I go off on this dude?" Because if I go off on him, then I become the angry Black woman. And then I look I'm in the wrong. But this is literally the most absurd thing anyone had said to me. I was also really angry because they put me on the spot in front of people who were not a part of my community to defend myself and my connectivity to my community. I'm like, "You don't know what's going on in my community. So you wouldn't know if I relate to Black women or not." And he said it with such confidence, which is what got me like... It was as if it was fact.

Nora Ali: He's the authority on this apparently.

Kathryn Finney: He was the authority on this. And so later, I went to the office hours of his brother, who had an office in a typical startup-y space. He had the whiteboard wall and I'm sitting there and I'm explaining to him my challenges and my idea, and he's listening really intently and he says, "Forgive me, I'm going to be really honest with you. I don't don't know of any Black woman who have ever received venture capital before. And I don't think you'll be the first." And he said it again with great deal of authority as if it was fact, and kind of like dismissed me from this office. I later left that program and focused on the business that I did have and later sold it for quite a bit of money and then went to go work for a woman-led startup. But that experience stuck with me because the way I was dismissed was with such confidence.

Nora Ali: Mm-hmm (affirmative).

Kathryn Finney: And fast forward 10, 11 years later, I am literally disproving what he said to me. I am a Black woman VC investing and have invested in a number of Black woman-led startups.

Nora Ali: Yes, I love that you are now passing this on to relatively new founders, especially in the Black and Latinx communities through Digital Undivided. And for our listeners this is the social startup that works to catalyze economic growth in Black and Latinx communities through startup funding, incubators, moresort of 360-degree community in a way. And what I think is super interesting is this demographic study that you all started publishing through this called ProjectDiane, started in 2016. There wasn't a lot of data at the time around the lack of funding for certain groups of people, certain demographics. So how does having the data allow us as a society to confront the actual problem versus it just being this sort of philosophical discussion?

Kathryn Finney: We started Digital Undivided as a conference and then grew to an incubator program and while we were looking at doing our very first program, went to go look for data. Particularly, we were talking to partners and try to sell them on it. And they would say, "Okay, well, tell us about Black women-led startups. How much are they raising? Who are they? Where are they located?" And I realized, I couldn't tell them that because no one had counted. And one of the ways to dismiss a problem is to ignore it. And it's very easy to ignore it when you don't count it, right? And so I did it. It was myself and maybe 10 Ukrainian outsource data collectors. We did a very simple, basic demographic study where we counted all the Black women-led startups, went to every VC firm that we knew at that time, and said, "Tell us all the Black women-led startups you know." What was really interesting about that, they would all tell us the same, like two companies. Over and over and over again.

Nora Ali: Wow.

Kathryn Finney: And so we put out the first ProjectDiane Report in 2016. It started originally as an internal report for ourselves. But the data was so bananas that we were like, "This has to be released." At the time 0.006% of all venture funding had gone to Black women. That was all years prior to 2015, when the study ended had gone to Black women, even though Black women are about 7% of the U.S. population. It was basically zero. There were only 11 Black women at that time who had raised over a million dollars in venture funding. There is only about five venture funds out of the thousands of venture and private equity funds that were consistently investing in Black women founders. I mean, it was just so ridiculously absurd that we spent month challenging ourselves because we're like, "This can't be true, this is too bad." And so, we took that information and we released it. And at the time I had no idea that it was going to do what it did, but it created this discussion within the venture capital space, I mean an investment community in general about who's getting an investment and why? And what is the biases that we see in venture capital that's creating this system in which people are being completely overlooked? And more importantly, what type of money are we leaving on the table as a result of us overlooking these markets? And the organization released the third ProjectDiane Report last year. And things have gotten a little bit better. I mean, now there's over a hundred Black women who've received over a million dollars in venture. A lot of that's due to the work that I did and others at Digital Undivided. I don't think that would've happened if we hadn't done ProjectDiane. And you see a number of emerging managers now, who are leading their own venture funds like myself, who we are consistently producing that of our portfolio. Every Black woman we've invested in has raised over a million dollars. So, and we've been a vital part of that and have led some of the rounds that have gotten them to that point.

Nora Ali: All right, let's take a very quick break and more with Kathryn when we come back. Kathryn, you mentioned that a lot of money is being left on the table by overlooking some of these groups, these types of founders. Can you give us some context as to what investors, what our society is missing out on by overlooking these founders?

Kathryn Finney: Yeah, I mean, I think most of us would say that African American culture, Black culture in the U.S., have really driven a lot of the things that we're seeing right now from fashion, to music, to content, to even how we interact on platforms like Instagram and things like that. And so by not figuring out how to work with those markets and how to access those markets, you are literally leaving millions, billions, trillions of dollars in the table.

Scott Rogowsky: Citigroup released a study last year that said the U.S. economy has lost $16 trillion over the last 20 years because of discrimination, because Black Americans have not been catered to by banks and lent money to and invested in. Can you give us some concrete examples of how money is actually being lost? This is like a substantial amount of money and this is your driving thesis, right? Investment needs to be made in Black America because it's better for all of us. It's better for all of America.

Kathryn Finney: We all lost that money. Imagine what we could have done with $16 trillion that was in our economy. How that would've helped everyone, not just the Black community. And I think it's always important to note that because I think sometimes when we talk about the lack of investment in Black communities and the role that anti-Black racism has play in that lack of investment, it almost seems like altruistic like, oh, we should do it for a moral reason. We should also do it because we're all losing money. And I would like to have that $16 trillion invested in other ways. I think we could have done some amazing things with that. I think an example of an industry that didn't receive a lot of initial support that has come to really define America in many ways, and an industry that came out of the Black community is hip-hop. And for many, many, many, many years, there was no investment in hip-hop. I mean, in fact, many record companies wouldn't even touch it. Fashion companies didn't want to be associated with hip-, rappers. I remember watching a documentary on Dapper Dan, who is a very famous fashion designer. Came out of Harlem who had a shop that was sort of repurposing these logos of like Louis Vuitton and Gucci, and how Louis Vuitton and Gucci were super angry in the Eighties when he was doing that. Fast forward 30, 40 years later, he's completely revolutionizing Gucci. And I think that's a perfect example of if we think of the impact hip-hop has had on American culture, if we think of the amount of revenue and income that has been generated as a result of hip-hop culture and how this has uniquely come from two marginalized groups, I think that the idea of why investing in Black-led companies, it becomes very crystal clear of what the benefit it can be. Because hip-hop is one of our greatest exports of the U.S. right now.

Nora Ali: And it's pretty clear that the systems and structures in our society right now are not built to support Black founders, Black entrepreneurs who have been underrepresented and excluded. So, I do want to get more into Genius Guild, which is a platform that you founded that you launched, trying to tackle racism from a market-based approach. So can you tell us a little bit more about the mission of Genius Guild?

Kathryn Finney: Yeah. So, Genius Guild is the venture studio that I founded in June of 2020. Coming out of COVID when I was at Digital Undivided, I had authorized an amount of money at the beginning of COVID to go to some of our portfolio companies there. And the reason why I authorized it is that it was very difficult, some would say, damn near impossible, for Black women founders to get the PPP loans. And most of us couldn't get them because you really had to have, particularly at the beginning stages of the PPP loans, a private banker to push it through. And very few people of all races have private bankers. So, we authorize this quick amount of payment and the impact was significant. People called me crying and thanking me because it was allowing them to be able to pay for the rent, be able to carry staff for a bit. And I was so influenced by that, that I had money that was refunded to me from a cruise that was never going to happen. My family was set to go on a cruise to Alaska, leaving from Seattle at the beginning of April of last year. And took that money and started The Doonie Fund, which is a 501(c)(3) nonprofit that does micro-investments in Black women. And the whole idea was I was going to take this money and just quickly give these small investments to Black women entrepreneurs. A, to help them hopefully do something that's going to maybe help their businesses. And B, to really just encourage them and know that somebody understood what they were going through at that time. And so what started off as a initiative to only do a hundred, we ended up being the initiative that gave out over 1600 micro-investments last year in a six-week time period. And it was probably one of the greatest things I've ever did in my life. It had a profound impact on me and just even the way I viewed money was really, really interesting. When I did it, there was a lot of pushback. People were concerned that people were going to misuse the money. And I remember one person saying to me, "Well, what if they used the money to get their nails done?" These are Black women entrepreneurs who are struggling in the middle of COVID. And I said to them if in April, 2020, where we can't even go to the grocery store, you can find someone to come to your house and do your nails, and if doing said nails gives you the power, the strength you need to go through the 14 hours of Zoom calls that you're now on, then get all your nails done. Get as many nails as you can possibly get done during that time period. But I say all this to say is that The Doonie Fund and what happened with that, and the power and the ability to disseminate capital that quickly to amazing Black women entrepreneurs who needed it, and to be able to do it without asking permission had a huge impact on me. And changed the way I saw capital. And it also let me know that this was an opportunity that out of these crises that we were experiencing from COVID to the murder of George Floyd, that this was an opportunity. And maybe at this point in U.S. history, that we could rethink things so that other Black women don't go through what I went through at that incubator program 10 years before and started Genius Guild from that. Our thesis is really simple. It's that Black entrepreneurs produce outsized return for their investors, for the community, and themselves. It's really this concept of stakeholder capitalism, which is a dirty word, I guess, in America right now, which just basically means as a company, as a business, as a venture fund, we're not just interested in maximizing returns for shareholders. We are interested in maximizing returns for everyone involved and that by doing that, we create a system that is more equitable. We create a system in which everybody truly wins because everyone is truly winning. That is what we focus on. And so started building it in June. We had received a significant amount of investment from Pivotal Ventures, which is Melinda Gates's investment arm. And then started raising the fund. And we were able to raise a significant portion of the fund rather quickly from folks like Barbara Clarke at Impact Seat, from the Lorenzi Foundation. Folks at Facebook, one of our LPs is Andrew Bosworth, he was the CTO of Facebook. And so, incredible people came on and were able to see the vision. And so we've made approximately five investments and we're on track to make three more by the end of this year. And it's amazing. I mean, we have our first markup within the first three months of Genius Fund.

Nora Ali: Congrats, wow.

Kathryn Finney: I mean, our portfolio companies are having features in Bloomberg. So it's been pretty amazing. And we're proving out this thesis, and really proving that we all truly can win.

Scott Rogowsky: Well, we're going dig deeper into the genius of Genius Guild with Kathryn Finney when we return from this break. This Genius Guild that you've started here, it's a different platform. It's a different type of model here. You have the fund and you have your own incubator, your own lab, it sounds like. How are you running this lab differently from your experience with your own incubator that you told us about in 2009?

Kathryn Finney: Before we even started really hiring people, before we did anything, we spent several months on our core values and really mapping it out before hiring, before doing any investments like, "Who are we? What do we believe in? How do we see the world? What is the world we want to see?" Oftentimes in the startup world, in the investing world, it's like, "Let me just get to capital and start investing. And then I'll think about who I am, and what my morals are, and my guideposts later." And you often see people get in deep trouble because of that. But for us, we actually flipped it. And so by starting from that point, it's helped us enormously. It's helped us to grow quite rapidly because we're able to identify people, things that don't fit into who we are. Also as a CEO, being able to really clearly communicate who we are and what we're about. And who I am and what I'm about has been enormously helpful. We've had in the first six months of our fund, over 300 people have submitted pitches via a pitch form, which is incredible.

Nora Ali: I actually clicked through your pitch form just to see what it was like. It's so quick and easy. It's just 19 questions. It's very unintimidating. Was the ease of that, just removing this initial barrier, was that intentional and making it super attainable? And then what happens after that, after you submit your own form?

Kathryn Finney: We were very intentional in creating the form. And in fact, we're very intentional in everything we do. I like to think a lot, some people might say, I think too much, but everything we do is very intentional. And so, what I wanted was for our community who we serve and who we invest in, which is the Black community, to not self select out of pitching. I say to people, "Don't you say no, let me say no, because you don't actually know what I may be looking for." And so after someone submits, it's reviewed and we can quickly tell if a pitch is going to fit into one of our core categories. And so we review it, we have two amazing VCs and residents who work with us. We start to do it a little bit deeper dive. We have conversations, usually several with the founder. If those conversations are fruitful and amazing, then we do a pitch. It's an hour pitch. First 15 minutes is you telling us about you. And then the rest is conversation. And we encourage founders to ask us questions. It is a two-way street. I think a lot of founders maybe don't realize, particularly diverse founders, that your VC who invests with you is a long-term relationship. You are married to that investor until whatever event, whether it's positive or negative happens with your company. So you should interview them, much like they're interviewing you, to make sure that this is somebody you want to work with for years. Then we go into deeper due diligence. And I often warn people. My background is as an epidemiologist, like I'm a Yale-trained researcher. I will find it, so tell me it, don't hide it. If there's anything to be found, we will find it.

Scott Rogowsky: You're getting Googled.

Kathryn Finney: You're getting beyond Google. We're going LexisNexis, deep databases, right? And so I say to founders, don't be afraid of the due diligence process. Embrace it because that means that this investor is really bought into you and they're going to be a ride-or-die because they're very clear on what they're getting into. And so don't be afraid of that.

Scott Rogowsky: You look at the ProjectDiane stats and you're seeing the number of Black founders and Black women founders increasing year to year. And I think a lot of that is due to your work, frankly, and this Guild is certainly going to help, just expand that even more. Are you able to reach all of these entrepreneurs that you've identified? Is that the issue about access to firms like yours or is it a bigger issue about just getting more diverse founders into the mix? Getting more people to think about, "I could do this."

Kathryn Finney: I would say if you talked to pretty much any diverse general partner, particularly Black general partner, they would tell you deal flow is not our challenge. We have too much deal flow. There is massive amounts of entrepreneurship in the Black community, there always have been. Some informal and some more formal, so that's not a challenge. I think the challenge to be really honest is that capital has been tied in other areas and has not flowed to investing in our community. I mean, I think that's really what it is. And even as a diverse general partner, you can see some limited partners, some other investors still struggling with how to invest in Black entrepreneurs. And so I often as wonder if there's a deeper question there, it has nothing to do with entrepreneurship. It has everything to do with really starting to talk more about the value of Black businesses and the contributions of Black businesses to the overall U.S. market, to talk about the opportunity. Really, to generate wealth for everyone. So not extractive, like taking the ideas out of the community and the community doesn't benefit, but there is a way for investors to make quite a bit of money, but also the community make money as well. But I see a lot of folks still struggling with that. I think what's going to be helpful is seeing the success of people like myself and others. Having successful folks like Jay-Z, even Beyonce and how successful she's been with Ivy Park and her other ventures, Oprah of course. Having these continuous examples of Black success and Black businesses that have scaled to really enormous heights. I think that coupled with people starting to ask themselves and figure out how to move capital is going to lead to change, but it really is flowing more capital in and not being afraid to take a risk on a population that you maybe have never thought of before. And in dipping your toe in just a little bit to see how it goes. I think I encourage more general partners of funds to figure out how to partner and invest in Black founders, and encourage more limited partners. Or people who are just high net worth, people who want to figure out how to get more involved, to invest in funds like Genius Guild, it's not hard. And there's a lot of founders who are on platforms like Republic AngelList, you name it. Angel funds that you can join to start to invest in Black entrepreneurs. And you can start as small as some are like small as a thousand dollars, $5,000. So we're not talking about like massive amounts of money that you can deploy to get started, but I encourage everyone to get started somewhere and start to take the risk and start to learn. And then also encourage others as well.

Nora Ali: Yeah, I've joined some of those groups recently where it's a collective of overlooked investors. You might not have a huge amount of capital, but as a team, as diverse investors, you can actually collectively make a difference. So I love that. Well, Kathryn, we can talk to you for forever, but let's end things there. Kathryn Finney is Genius Guild's founder and CEO and doer of all the things and all-around badass. Thanks, Kathryn, for your time.

Kathryn Finney: Thank you both so much. That was a great fun.

Scott Rogowsky: Thank you. And now, BC listeners, we want to hear from you. Send us an email at businesscasual@morningbrew.com or DM us on Twitter @BizCasualPod. That's B-I-Z Casual Pod. With your thoughts.

Nora Ali: You can also leave us a voice memo on our website, businesscasual.fm, or give us a ring and leave us an old-fashioned voicemail. Our number is 862-295-1135. As Business Casual grows, we are excited to get to know our listeners old and new. Drop us a line and forget to leave your name and where you're calling or writing from so we can hear from you in a future episode.

Scott Rogowsky: Business Casual is produced by Katherine Milsop and Bella Hutchins. Additional production sound design and mixing by Daniel Markus. Alan Haburchak is the director of audio at Morning Brew. Sarah Singer's our VP of multimedia, and Jessica Coen is our chief content officer. Music in this episode from Daniel Markus and the Mysterious Breakmaster Cylinder. If you like what you heard, please follow Business Casual on Spotify, Apple Podcasts, or wherever you go shopping for ear candy. And we'd love it if you would give us a great rating and a review.

Nora Ali: Thanks for listening to Business Casual. I'm Nora Ali.

Scott Rogowsky: And I'm Scott Rogowsky.

Nora Ali: Keep it business.

Scott Rogowsky: And keep it casual.