Lessons from a Diverse Venture Capital Portfolio

Brooklyn Bridge Ventures, the pre-seed and seed stage VC fund I run in NYC, has invested in 64 companies in the last six and a half years.

Twenty-five of them have at least one female co-founder.

Fifteen had co-founders over 40.

Five have LGBTQ+ founders.

Three teams have African-American founders.

Three of the founding teams are married couples.

All were backed based on the sole criteria that they had the potential to make my limited partners a lot of money. The diversity is the direct result of our mission—to build the most accessible venture capital fund in NY. I don’t require warm intros. I will back a wide variety of types of companies—everything from The Wing to Imagen.

Surrounding yourself with diverse teams means being exposed to a lot of different perspectives and creates learning opportunities not possible when everyone you deal with professionally looks and acts like you do.

Here are just a few things I’ve been exposed to that I think if you’re not surrounding yourself with diversity in your professional world, that you’re missing out on:

  1. There is a difference between intention and effect—and if I care about others, effect is what should count. Just because you didn’t intend for something to get taken a certain way doesn’t mean the conversation stops there. People are different—and your conversational and language norms, particularly when you are in a privileged group, aren’t the “norm”. Anyone who doesn’t want to hear how their words and actions were received lacks empathy.

  2. My individual interactions are part of a series of lived experiences for others. I was reminded of this from one of my founders of non-white descent. He mentioned what it felt like to have someone ask you where you were from. The person asking experiences it once, but when it happens everyday across multiple people, it’s a pattern making the receiver feel like an outsider and an other. This happens in lots of other situations. It brought to mind industry interactions that lacked clarity in their intent. I know I had previously given very little thought to the emotional drain it causes when conversations turn social all the time for women in the industry—when one-off asks or comments form a constant stream of experiences to be on guard against. When you back women and you’re trying to encourage the expansion of their network and the building of their personal brand, you cannot help but review all of your own actions after listening to the compounding emotional effects of their professional experiences.

  3. Different groups communicate differently—and it’s important to find objective common ground around language, goals, and risks. If everyone gets measured based on one set of shared norms around pitching, professional reviews, and updates—the language of straight white men—you’re going to wind up with a lot of mismeasurement of what’s actually happening and likely to happen in these companies. Groups that lack privilege tend to be more measured in their commentary—because they are subject to more scrutiny. When you conflate hyperbole for ambition and realism for lack of aggressiveness, you will ultimately wind up shutting out a lot of groups from the game of risk seeking capital and opportunity.

  4. Trust is the first thing you have to establish in every professional relationship for it to be successful. When groups are homogeneous, trust is often assumed. When you look, talk and act alike, you can assume others are on the same page. You feel like these people will have your back—and this is a form of privilege when the group dominates your industry. As an investor, it’s easy to come into a board meeting asking probing questions, demanding information, and sharing your opinion without first having built up a base of trust. That comes from a shared understanding of why you’re there, your goals and objectives, and understanding how a founder thinks you can be most helpful to their company.

  5. There is strength and support in numbers. When you can introduce diverse founders to a diverse network of professionals, it makes their professional experience orders of magnitude better. Everyone needs peers, mentors, and champions and it’s helpful when those people come from a shared perspective. Creating this community doesn’t only mean backing diverse founders, but also surrounding yourself with a community of other diverse professionals to help your portfolio.

I feel incredibly lucky to be surrounded by a diverse community of founders, in the most diverse tech and startup city in the world. It allows me to learn more, be better, and checks my comfort level and privilege in unexpected, but positive ways.

The Potential for Fraud Caused by the Unnecessary Mystery of the Family Office World

About a year ago, I received a LinkedIn connection from Richard Briggs—a Brooklyn Law Grad who spend 25 successful years at Lehman and was operating his own family office. He knew a bunch of other VCs in NYC and seemed like a great potential Limited Partner connection.

There was only one problem. Richard Briggs didn’t exist.

No Richard Briggs ever attended Brooklyn Law and none of our mutual connections had ever met him or interacted with him. He was a completely invented person—and no one connected to him on LinkedIn ever bothered to check.

I guess it’s pretty easy to get VCs to think that you’re a rich person interested in investing in their fund.

Just the other day, I got the following note:

Dear Mr. O'Donnell,

I am writing to you on behalf of Mr. SM Karabel (Chairman) of “Karabel Family office” which is a large Palm Beach based single Family Office with $1.9 billion under management plus real estate in NYC/Cal and 5 operating companies. Mr. Karabel would be delighted to meet with you for breakfast/lunch or drinks at The University Club in NYC during his upcoming visit to (NYC/CT Feb 26 - March 1st) or in south Florida (Palm Beach/Boca/Miami) area.

The office will shortly sell one of its large operating companies and plans to allocate all of the proceeds to investments. The Family Office has 20 employees does all of its allocations in house. I kindly await your feedback and look forward to hearing from you.

It’s possible that this is legitimate—that there’s some guy down in Florida who made over a billion dollars completely under the radar who wants to allocate all his new cash to “investments”. But, what are the chances that he also shares the same name and schools as a person in the same geographic area who lives in this lovely but somewhat understated house for a billionaire:

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Anything is possible.

It’s also really possible that the person who reached out to me is, in fact, a stock photography model whose LinkedIn photo also appears in this ad for gut bacteria improvement:

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Putting her name into Google, one of these ID landing page sites like Spokeo or Zoominfo ties her to the Family Office Club—an event company catering to ultra high net worth individuals located above a liquor store in a Florida strip mall.

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It’s certainly a very nice strip mall—but is it really the epicenter of investment activity for billions of dollars of family office wealth? Anyone who has ever attended any of these “family office” conferences will tell you probably not.

And trust me, I can tell the difference between a real family office and a fake one. I have an investor from a huge multi-generational Bolivian shipping family and they’d never attend anything like this.

Actually, I’m completely making that up. (Of course I am—Bolivia is a landlocked country.)

But how would you know?

How would you know if I showed up to an investor conference, took meetings with startups, and acted serious about putting money to work in venture on behalf of a family office whether I was telling the truth?

For the most part, you’d have no idea. Real family offices are pretty shrouded in mystery. They’re not setup to take inbound, so they don’t put up websites or participate much on social media—so it’s nearly impossible to tell who from the family office world is legitimate.

You know this leads to a lot of fraud. Some of it is probably pretty harmless—people getting into conferences, taking some free lunches, etc., but undoubtedly there’s some real harm being done by people who are telling people they work for family offices that actually aren’t. Most times, investors don’t actually invest in any given deal—so it’s not like someone is automatically a fraud if you don’t know anyone they invested in. You could ask 500 founders in NYC whether I’ve invested in them and still not hit any of the 60 that I have written a check to.

On the other side, trying to invest in venture capital funds on behalf of a family office must be a bit like being a legitimate Nigerian businessman trying to cold e-mail people. You probably spend half your time trying to convince people you’re for real. Plus, anyone that does actually find your e-mail is probably spamming you with deals that aren’t in your sweet spot, because you don’t put any criteria out there.

In the VC world, it’s hard to fake a job. Venture funds put up websites with bios of their professionals. They list portfolio companies—companies whose investors you can see listed on Crunchbase and other sites. I couldn’t go around telling people I work for Accel or that I’ve invested in Mulesoft, because it’s pretty easily diligenced.

Until family offices do the same thing—and transparency becomes the norm—you’re going to get lots of grifters and schemers, at best, ripping off people’s time and conference ticket money, and worse perpetrating actual fraud. It’s a simple industry fix—one that would save everyone else, including legitimate family offices, a ton of time. It would be in their best interest to be transparent about whose money they’re managing, what kind of investments they’re looking for (and not looking for) and who actually works for them. They’d cut down on spam and force the frauds to give up their game—because anyone without a easily referenced connection to real money would just go away.

Its possible that Mr. Karabel really does want to meet me—despite his employee not even mentioning anything specific about my fund or about venture capital, and perhaps I blew a big opportunity here.

But can you blame me for being skeptical as to whether it would be worth putting on a jacket and ditching my jeans to meet a complete stranger who doesn’t seem to have any specific interest in what I’m up to or knowledge of me?

I guess it doesn’t matter, because the person who sent this to me told me that “white trash does not get past security at the University Club” when I questioned the legitimacy of the cold e-mail she sent to info@brooklynbridge.vc—an e-mail address that truth be told I didn’t even realize I had.

I have a feeling that even if there’s a real billionaire here that I missed, these aren’t the kinds of folks I want to work with anyway.

Sevens Don't Get Funded

Ask any VC how excited on a scale of one to ten they are about their latest deal, and they’ll tell you eleven out of ten. Veterans will probably be a little more cautious and tell you they’re at a ten out of ten—but despite knowing all the risks, a VC simply isn’t going to get over the line unless they’re pretty blown away by an idea.

That’s because of the simple math of competition. I get 2000 things passing through my inbox in any given year, and I make about ten investments per year.

How excited do you think I am if I’m only picking the top 10 out of 2000? Do you think any of those handful of deals are seven out of ten? I see TONS of sevens—and they’re often the hardest ones to pass on. They’re nothing necessarily wrong with them. The team is good. The idea is good. It’s just—good. Nothing particularly striking that makes you think about it days and nights after the meeting.

I’m sure it’s incredibly frustrating for a founder to know that you have something workable and to not get any particular negative feedback, but not to get any traction in fundraising. You’re probably left scratching your head as to why.

It might be that your company is a seven—a perfectly acceptable, but not particularly exciting seven.

If you’re trying to be one of the best ten things I see in a year—that I’m willing to risk my investors money on knowing how hard it is to build a company, then a seven just isn’t going to make it.

That’s where the fundraising strategy comes in where you need to decide what you can do to really put your company over the top early. Maybe it means giving extra equity to a standout hire that really takes your team to the next level. Perhaps it means getting a bunch of customer LOIs even before you have the product ready—leaving VCs to wonder how you even got a meeting having so little built.

Think about asking investors what would make your pitch a ten—what crazy accomplishment that they could imagine would be gamechanging for your pitch, especially if you’re feeling like you’re not getting negative feedback. If you’re not getting negative feedback, but you’re not getting a check, you need to find out what you’re missing to move from a seven to a ten.

Reminder—this week I’m hosting another charity pitch workshop session. If you want me to go really in depth on fixing your story and presentation, while supporting some good causes, check out Fix Your Pitch for Good.

Preparing to Start a Company

It’s that time of year again—the season of people quitting their jobs soon to start a company. I don’t know whether it’s New Years resolutions or end of year bonuses, but I feel like there’s a bit of a peak in people wrapping up previous things looking to start something new.

If you’re going that route—here are a couple of things I would suggest:

  1. Have at least six months of personal expenses in the bank—and that’s only if you know you can at least get some angel capital based around your connections to investors, friends, family, etc. It should take you at least that long from having an idea before the idea is fully vetted in order for it to be worth investing in. Sometimes it’s shorter, but you always want to be conservative in this case.

  2. Understand where similar companies have struggled and tackle that part first. If enterprise sales is the hard part of what you’re doing, figure out how you can de-risk that first—maybe by trying to pitch some vaporware to buyers or perhaps getting them to pay you to build it on a consulting basis. Think about what investors are going to ask to see that you’ve done when you pitch, and how early you can pull proof of being able to do that into the present.

  3. Build a following around what you’re doing. Whatever you’re working on, it’s easier to do if you’re a leader in that space—so for the next six months, how can you visibly be a leader? Write a newsletter. Host events. Start a podcast. Build up the parade of people who will get behind you—because it will be easier to find customers, investors and hires as an insider than as someone trying to break in.

  4. Get out of the house. Too often, “working on an idea” means alone at your computer. Talking directly to customers and the people most familiar with a problem firsthand, because they worked at or started something similar, should be your first priority.

  5. Be deliberate in terms of what you want to get out of investors. Investors are better for pointing you in the direction of people in their network with expertise and letting you know how they think about your pitch—but not necessarily about the quality of the idea. Too often, an entrepreneur asks me what I think of something, when what I really want to know is what they think. You shouldn’t have to ask me if an idea is good—it’s your responsibility to know that it is, because you’re taking other people’s money to risk on it.

That being said, there is a lot of variability in terms of how an idea can be presented—whether it is well understood, etc. I’m working on two things that should help founders get early feedback:

First, I’m continuing my "Fix Your Pitch” series—where founders can get their idea workshopped in exchange for a charity donation. This way, founders who are far too early, or perhaps not getting the investor uptake they’re hoping for, can just skip to the front of the line while contributing to some good causes. I’m raising for Code Nation, the Brooklyn Bridge Park Boathouse, the Challenged Athletes Foundation and the Red Hook Initiative.

Second, I’m working on a new stealth project that enables founders to get feedback from investors in a fast and easy way. If you’re interested in testing out a way to understand if the investor market is keen on your idea, fill out this form to get in on the early beta:

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Startups Need to Diversify Away from Paying Facebook

Over the last five years ago, a disproportionate amount of venture capital funded paid acquisition on Facebook.  Some very large consumer facing businesses were built, but that gravy train won’t last forever—and signs are that it is seriously slowing down.  Companies are reporting that acquisition costs are trending up, and optimization is increasingly feeling like squeezing blood from a stone. 

Having 90% of your marketing dollars go not only to one channel, but to use just one company’s platform is always a risky strategy—but now, in particular, it feels like Facebook is at a serious crossroads.  Not since it’s pre-IPO days has the company looked so vulnerable. I’d even argue that the company’s continued attention dominance has more to do with the ineptitude of Google and Apple to build compelling consumer facing software than the quality of what Facebook is doing.  The core Facebook offering is declining in usage and engagement—and if it wasn’t for the acquisitions of Instagram and WhatsApp, more alarms would be ringing.

I’m not saying Facebook is going away—but the chance of a major shift in either the platform itself or the way consumers use it is increasing.  If you lived easy on a fancy waterfront property full time, and the chance of flooding went up for 0.1% to 5%, wouldn’t you give serious thought to buying a second home somewhere?   That’s what startup companies need to do with their marketing.

What I would argue is that companies should think more about building their own communities—and that, while easier, the mantra of meet the people where they are may have, to quote Batman Begins, “sacrificed sure footing for a killing stroke”.  Because companies never had to gather communities on their own, their ability to do so withered.  

It’s time to start the long and hard work of rebuilding that competency. 

Consider a thought experiment.  What if you got to keep the same marketing budget but couldn’t spend any of it on Facebook ads—or perhaps even Google for that matter.  You can post all the content you want to these platforms, but you just can’t goose it with ad spend.  Would you be able to, at some point, hit all your acquisition targets at the same cost?  How would you spend it?

Much of this spend would undoubtedly go to content creation, which will tie to SEO, experiential marketing, influencer strategies, referral and ambassador campaigns, events, etc.  You’d be forced to make sure that every bit of marketing you created would be worthy of engagement—attendance, sharing, etc. 

Shouldn’t it be anyway?  Did paying your way to a lot of shares and likes lower the quality of the marketing you produced? The content you create should all hit the bar of “If this is the only thing people saw of us, people would make time to consume it, they would understand what we were about, and they’d subscribe to more of it.” 

The only reason to rethink your marketing is that when you consider what it takes to get that next round of financing, investors are going to want to see you stand out in the ways that value in your business will be created. In the consumer category, the ability to stand out and acquire customers is paramount—and if you’re just mindlessly doing what everyone else is, you’re going to be harder and harder pressed to get a VC excited enough to fund future growth.