Portfolio CEO Diversity is the Result of our Thesis-Driven Process

In venture capital, we know there is a problem with gender diversity. According to Crunchbase, just 2.8% of funding went to women-led startups in 2019 before falling to 2.3% in 2020. And that 2.8% figure was an all-time high.

Some back of the napkin math shines a light on what this really looks like.

According to PitchBook and the National Venture Capital Association, venture investors put $156.2 billion into U.S.-based startups last year, or about $428 million per day. Women-led startups got just $3.5 billion of that.

There are a lot of reasons for this gap — the fact that most decision makers at VC funds are men, the industry’s reliance on referral networks that reinforce the status quo, etc — and there are a lot of solutions being tossed around to address the shortfall in funding, from women-focused funds to quotas across the industry.

But, at iSelect, we see this issue differently. Our investment process is unique, robust and fair, which leads to better return for our investors. It also means that we have more diverse founders and CEOs because we simply look for the best people with the best ideas.

According to our internal findings, of the 57 companies we have invested in since fund inception, 19.3% of them have women CEOs, as do 27.5% of the 40 companies we have added since 2017. Between 2018 and 2020 we invested in 29 companies, 31% of which had women CEOs. We are outperforming both the general market (number of women-led startups was 20% in 2019 according to Crunchbase) as well as the VC funded universe (2.3% women-led startups).

How did we get here? What is iSelect doing differently than its peers? It all comes down to our process.

We don’t focus on founder diversity in our investment process and remain thesis-driven in the companies we choose to invest in. For us, the thesis comes first — our long-term mission to improve health and wellness through better, more nutritious food — and then we seek out the best companies that are working on those solutions. Our process is based on this goal alone, not on other factors.

We are proud that this diversity is a result of our unique, robust, thesis driven approach. By building the right processes, focusing on the right thesis and taking an objective approach to our investments we’ve landed on a solution to venture’s long-running diversity problem that looks very different from some of the answers being tossed around by other funds.

Here’s what we’ve learned:

Thesis first, thesis only: Of the four stages of the venture investing process (deal sourcing, pitching, due diligence, deal closing), sourcing and pitching are where bias is most likely to come into play. That’s why we don’t operate on the basis of our referral network, instead seeking out the best companies that fit our thesis. It turns out that many of those companies are led by women.
Objective, structured process: Structured pitch sessions that include standardized questions of founders (only deviating to ask company specific questions) and predetermined evaluation criteria take a lot of the guesswork and potential for bias out of the process. Blind evaluations of pitch decks help too. Taking founders’ demographic information out of the equation can prevent unnecessary gender biases from impacting funding decisions.
Diversity of opinions: In the absence of structured processes, VC firms make talent management decisions informally, which renders them highly susceptible to biases like pattern-matching (availability bias) and overconfidence. By bringing other voices into the process, funds are better able to sort through these challenges and open up their selection process to more potential opportunities. (SXSW does a nice job of this with its Panel Picker — every year attendees get to vote for which presentations they want to see at the conference, bringing thousands of different voices to the table instead of just focus on the opinion of the internal team.)

When you have a deep process, a broad range of skilled professionals vetting the opportunities, and clearly defined investment criteria you get the most talented founders and operators, and you get the most diversity.

Consideration

With 2021 well underway and with public markets still strong, we think it is an important time to highlight some of the key private market, venture investment themes that iSelect fund has identified for the year. We believe technologies transforming the Agriculture, Food and Wellness markets will flourish, with a focus on four areas: technologies that enable better food choices to drive better health outcomes, technologies that drive better, more profitable farm operations, technologies that drive the Consumerization of Healthcare, and biome-based treatment technologies. At iSelect, we invest for impact AND performance. We offer qualified investors access to emerging growth companies through our national venture capital strategy. Our unique structure allows our investors to continue to invest in these companies as they develop.

Timing

Why is now the right time for venture? The answer is that now is not explicitly the right time. Venture is something we need in our economy at all times. Now is not better than any other particular time. The question is, why ever stop? When we look at the challenges we’re facing in food and healthcare the reality is there is someone, somewhere who has an insight about how to build a product that will solve those problems. And if they put the right resources to it, they will succeed. As long as we need new technology to make life better or make our lives more enjoyable, we need venture capital to help fuel those entrepreneurs.

What is iSelect as a product?

iSelect is a very unique product, but when you break it into its parts it’s fairly easy to understand. On the front end we’re a traditional venture capital fund. We have a diligence process. We have an investment process. We have categories of industries where we have focus and real expertise, and we invest in companies in those areas that meet requirements for the fund. On the back end we’re unique in that we don’t raise a large amount of capital at one time and deploy it over the life of our fund. Each deal that we bring onto the fund, our investors have to prove and determine to invest in that deal. We have to constantly prove our diligence standards. It’s accessible, transparent and easy for investors to come in and see our comprehensive process.

What is the ideal iSelect company?

We are looking for founders that are passionate and we want the problem they’re trying to solve to be big, real, and painful. We want the solution to be revolutionary and we want our capital to be able to help them solve that problem. We want to know that they have customers involved and that the solution they’ve come up with actually meets those customers’ and market needs. And we want the team to be capital efficient with the money they’re spending.

What does the ideal iSelect company look like?

We’re looking for a company that has an opportunity to have a 10x return to our investment or greater in a period of three to seven years. What excites us at iSelect are companies that are solving big problems. We want companies that are going to be the Monsantos of the future. Not just in the size and the scope, but the impact they have on people’s lives. We want to create positive impacts on people’s lives, so we invest in areas like agricultural production and areas like producing healthy foods for our kids. They are problems that impact real people’s lives on a daily basis. That’s what we’re trying to do at iSelect. We’re trying to solve the big problems out there. Find ways to bring capital to the entrepreneurs who are the real heroes out there getting up every morning, beating away at these things that are problems that you and me and everyone else faces in their everyday lives.

What is iSelect?

iSelect is a venture capital firm. What that means is we look at hundreds and hundreds of different companies and we apply tough diligence standards to each of them, looking at whether the team has a good plan for growing the business, whether the team is qualified and credible, and more. We do that to resolve the few who provide the best opportunities for investors. And then iSelect takes that smaller set of investments and goes to investors who are interested in venture capital and provides a way for them to invest in these companies, either individually or all at once. We co-invest alongside other venture capitalists. We source transactions through to an exit where the company would become public or get bought. And we manage that whole investment process on behalf of our investors.

Portfolio Company CEO Diversity is the Result of our Thesis-Driven Process

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