Combatting Tech Bro Culture: Understanding Obstacles to Investments in Diverse-Owned Fintechs (June 30, 2022)
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Transcript of the virtual hearing Combatting Tech Bro Culture: Understanding Obstacles to Investments in Diverse-Owned Fintechs, before the Task Force on Financial Technology of the Committee on Financial Services, U.S. House of Representatives, on June 30, 2022 (Serial No. 117–92). Hon. Stephen F. Lynch, chairman of the task force, presided via Cisco Webex. The contents list witnesses from Esusu, Rethink Impact, Venture Forward, Ellevest and Black Founders Matter, with each witness's prepared statement in the appendix. Material submitted for the record includes a written statement of Affirm Inc., a letter dated July 5, 2022 whose signature block names Katherine Adkins, Chief Legal Officer.
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“Combatting Tech Bro Culture: Understanding Obstacles to Investments in Diverse-Owned Fintechs (June 30, 2022).”
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COMBATTING TECH BRO CULTURE:
UNDERSTANDING OBSTACLES
TO INVESTMENTS IN
DIVERSE-OWNED FINTECHS
VIRTUAL HEARING
BEFORE THE
TASK FORCE ON FINANCIAL TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
JUNE 30, 2022
Printed for the use of the Committee on Financial Services
Serial No. 117–92
(
U.S. GOVERNMENT PUBLISHING OFFICE
48–336 PDF WASHINGTON : 2022
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK MCHENRY, North Carolina,
NYDIA M. VELÁZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
RITCHIE TORRES, New York BRYAN STEIL, Wisconsin
STEPHEN F. LYNCH, Massachusetts LANCE GOODEN, Texas
ALMA ADAMS, North Carolina WILLIAM TIMMONS, South Carolina
RASHIDA TLAIB, Michigan VAN TAYLOR, Texas
MADELEINE DEAN, Pennsylvania PETE SESSIONS, Texas
ALEXANDRIA OCASIO-CORTEZ, New York RALPH NORMAN, South Carolina
JESÚS ‘‘CHUY’’ GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
CHARLA OUERTATANI, Staff Director
(II)
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TASK FORCE ON FINANCIAL TECHNOLOGY
STEPHEN F. LYNCH, Massachusetts, Chairman
JIM A. HIMES, Connecticut WARREN DAVIDSON, Ohio, Ranking
JOSH GOTTHEIMER, New Jersey Member
AL LAWSON, Florida PETE SESSIONS, Texas
MICHAEL SAN NICOLAS, Guam BLAINE LUETKEMEYER, Missouri
RITCHIE TORRES, New York TOM EMMER, Minnesota
NIKEMA WILLIAMS, Georgia BRYAN STEIL, Wisconsin
(III)
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CONTENTS
Page
Hearing held on:
June 30, 2022 .................................................................................................... 1
Appendix:
June 30, 2022 .................................................................................................... 23
WITNESSES
THURSDAY, JUNE 30, 2022
Abbey, Wemimo, Co-Founder and Co-CEO, Esusu ............................................... 7
Abramson, Jenny, Founder and Managing Partner, Rethink Impact ................. 10
Haque, Maryam, Executive Director, Venture Forward ....................................... 12
Krawcheck, Sallie, CEO and Co-Founder, Ellevest .............................................. 5
Michel, Marceau, Founder, Black Founders Matter ............................................. 8
APPENDIX
Prepared statements:
Abbey, Wemimo ................................................................................................ 24
Abramson, Jenny .............................................................................................. 27
Haque, Maryam ................................................................................................ 32
Krawcheck, Sallie ............................................................................................. 42
Michel, Marceau ............................................................................................... 46
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
Lynch, Hon. Stephen F.:
Written statement of Affirm Inc. .................................................................... 48
(V)
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COMBATTING TECH BRO CULTURE:
UNDERSTANDING OBSTACLES
TO INVESTMENTS IN
DIVERSE-OWNED FINTECHS
Thursday, June 30, 2022
U.S. HOUSE OF REPRESENTATIVES,
TASK FORCE ON FINANCIAL TECHNOLOGY,
COMMITTEE ON FINANCIAL SERVICES,
Washington, D.C.
The task force met, pursuant to notice, at 12:03 p.m., via Cisco
Webex, Hon. Stephen F. Lynch [chairman of the task force] pre-
siding.
Members present: Representatives Lynch, Himes, Lawson, Wil-
liams of Georgia; Davidson, Emmer, and Steil.
Ex officio present: Representative Waters.
Chairman LYNCH. Good morning. The Task Force on Financial
Technology will now come to order.
Without objection, the Chair is authorized to declare a recess of
the task force at any time. Also, without objection, members of the
full Financial Services Committee who are not members of the task
force are authorized to participate in today’s hearing.
Welcome. Today’s hearing is entitled, ‘‘Combatting Tech Bro Cul-
ture: Understanding Obstacles to Investments in Diverse-Owned
Fintechs.’’
I now recognize myself for 4 minutes to give an opening state-
ment.
The explosion of fintech in the fintech space in the last decade
has been made possible because of massive amounts of venture
capital (VC) investments that have been made to startup compa-
nies. Fintech companies rely on capital to turn their innovative vi-
sions into reality. The largest players in this space, including
Andreessen Horowitz, Sequoia Capital, and Y Combinator, are re-
sponsible for the growth of many of the large fintech players that
we know today. Venture capital firms invest in hundreds of compa-
nies each year, hoping that just one of those investments will pay
off.
In 2021, venture capital firms invested $35 billion in fintech
startups, up from $18 billion in 2020. When we look at the found-
ers of companies that received this investment funding, there is an
obvious trend toward White males. While lack of diversity is a
trend in almost every industry that venture capitalists invest in, it
is particularly troubling in the fintech space, where a significant
number of fintechs specifically target underserved communities,
(1)
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2
which we know are disproportionately made up of women and peo-
ple of color.
The largest fintechs, including digital banks, payment processors,
and cryptocurrency providers, actually market their products to
women and people of color. Yet, when we look at the founders and
the leadership teams, they clearly do not reflect the communities
that they claim to serve. Only 2 percent of all venture capital fund-
ing goes to women founders, 1 percent goes to Black founders, and
less than 2 percent goes to Latinx founders. These numbers may
also be reflective of the lack of diversity generally in the venture
capital firms themselves because research does indicate that inves-
tors are more likely to invest in founders that they relate to, who
look like them.
While it may be easy to assume that there is simply a lack of
founders who are women and people of color, our witnesses today
will demonstrate that there is no shortage of diverse founders with
thoughtful and innovative, substantive ideas. Additionally, women-
and people-of-color-owned startups have repeatedly outperformed
White-male-owned startups. Measurement and data have shown
that companies with diverse founders earn 30 percent higher mul-
tiples on invested capital, and almost 70 percent of top performing
U.S. funds included women in decision-making roles. Venture cap-
ital firms continue to gamble on poor investments such as
cryptocurrency companies like Celsius, which recently froze all cus-
tomer deposits, while on the other hand, women and founders of
color with well-thought-out, substantive business plans remain in
the waiting room.
Funds like Black Founders Matter and Rethink Impact are spe-
cifically working to address the diversity gaps, but it shouldn’t sole-
ly be on these funds to pick up the slack. Large venture capital
firms need to diversify their investments and their workforces to
reflect this country which consumer fintech companies claim to
serve. Additionally, investment into diverse fintech founders should
not be limited to impact investing or performative diversity efforts
when it simply makes financial sense to diversify.
In the past, when faced with pressure to diversify, industry advo-
cates have argued for looser regulatory requirements, claiming ac-
credited investor requirements are the barrier to diversity. Quite
frankly, the entrance of retail investors is not the answer. And I
welcome policy approaches, such as reporting requirements or an
SEC scorecard, that would push venture capital to abandon the
sort of old boys club culture, the exclusive culture to determine
where and in whom they invest.
As we approach the prospect of a slowdown in economic growth
right now, and venture capital funds seem to be drying up in some
spaces, how will we ensure that women and founders of color are
not further left out of the fintech space? I worry about that. I do
thank each of our witnesses, whom I know from their experience
and their work care deeply about this issue, for their willingness
to share their perspectives.
I now recognize my friend, the ranking member of the task force,
Mr. Davidson, for 5 minutes for his opening statement. Thank you.
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Mr. DAVIDSON. Thank you, Chairman Lynch, and I would also
like to welcome all of our witnesses today. We appreciate your time
and your testimony.
The ability to raise capital is the cornerstone of any growing
economy. America, home to less than 5 percent of the world’s popu-
lation, holds roughly 50 percent of the world’s invested capital, but
I am highly concerned that America is losing the edge that gives
us nearly 25 percent of global GDP. It has given us the best mar-
kets for goods, services, capital, intellectual property, and more.
America has dominated the agricultural and industrial revolutions,
automobiles, aviation, aerospace, computing, the internet, and
more. But now as we look at fintech, we see inaction by Congress
and over-action by the SEC, in particular, driving capital formation
offshore. In fact, 75 percent to 90 percent of the liquidity in this
space is offshore.
So, we really need to look at, how do we get more of that capital
here in the United States of America? Even though a lot of the
founders are either Americans or operating companies from Amer-
ica, we are seeing that kind of drive off. This hearing is certainly
timely. We must do all we can to ensure that that talent is paired
with capital here in the United States, to avoid having it migrate
elsewhere.
The fintech sector, broadly speaking, is attracting some of the
most brilliant and talented people in this generation. In the last
decade, we have seen this industry improve efficiency, decrease
cost, increase financial access for underserved communities, and
more. For that reason, venture capital firms are seeing it, and we
know fintech was the leading sector for venture capital firms to in-
vest in last year. However, despite being a popular investment,
there remains a lack of diverse founders within the fintech indus-
try.
The numbers speak for themselves, and it is important to note
that there remains a lack of diversity in venture capital firms as
well, not just in terms of race or ethnicity, but geographic diversity.
A lot of it is concentrated on the coasts. And I don’t think sitting
here and criticizing the investors does much to enhance or improve
capital formation within the economy, but I do think that we will
have a great discussion today.
It is vital to ask ourselves why fintech founders must be depend-
ent on venture capital firms. As we will discuss today, I think we
can agree that this has had negative consequences. The fact that
three-quarters of venture capital goes to founders in just three
States—California, Massachusetts, and New York—likely contrib-
utes to the lack of diverse founders that receive funding due to this
geographic concentration, and also kind of the existing networks.
So, what are the downstream effects? We see that founders outside
these traditional VC locales struggle to raise Series A capital, usu-
ally $3 million to $10 million, propelling them to more easily secure
Series B funding from investors focused on growth and scale. This
only compounds the lack of diversity in the long run.
Committee Republicans have introduced various bills that would
enhance capital formation so that more minority- and women-
owned startups can get off the ground. Some of these ideas include:
first, the Improving Capital Allocation for Newcomers (ICAN) Act
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4
from Mr. Timmons. This bill codifies the recommendation from the
SEC Small Business Capital Formation Advisory Committee and
would increase the cap and number of investors to help funds in-
vest in more entrepreneurs in their own communities, many of
whom are women and minorities.
Second, the Developing and Encouraging our Aspiring Leaders
(DEAL) Act by Mr. Hollingsworth would expand the scope of quali-
fying investments, allowing large VC funds to deploy more capital
to smaller funds.
Third, the Small Entrepreneurs’ Empowerment and Development
(SEED) Act by Ranking Member McHenry would create a new
micro offering exemption to allow broader access to capital for
emerging entrepreneurs and small businesses.
And Congressman French Hill and I both have bills to deal with
the accredited investor rule, which basically says that you can’t
make investments in these companies unless you have already
made a lot of money.
People are barred, because we know that people with money do
skew with less diversity as you see more accumulation of wealth.
Giving retail investors more options would be one of many rem-
edies we could supply. Importantly, I would like to note that one
of the most important things we can do in this accredited investor
space remains undone, and is unfortunately a partisan issue in
Congress, where it is not in the founder community.
I look forward to hearing from our witnesses today, and I ap-
plaud those on the panel who have worked incredibly hard to build
successful businesses. With that, I yield back.
Chairman LYNCH. The gentleman yields back.
At this time, I would like to recognize the Chair of the Full Fi-
nancial Services Committee, the gentlewoman from California,
Chairwoman Waters, who has been a longtime advocate and cham-
pion for both racial and gender equality during her time in Con-
gress.
Chairwoman WATERS. Thank you so very much, Chairman
Lynch. This is a very important hearing that we are having here
today, and I thank you so much for your leadership.
Research shows that companies led by diverse senior leadership
outperform those that are led primarily by White male leaders, and
yet venture capital funding for new fintech companies goes over-
whelmingly to those funded by White men. In fact, only 2 percent
of venture capital funding went to women founders, only 1 percent
to Black founders, and only 1.8 percent to Latinx founders. Venture
capital can mean the difference between success and failure for
new fintechs, and we can all benefit from promoting diversity in
our future fintech industry leaders. And so, I look forward to hear-
ing from our panel about the challenges that exist in promoting di-
versity in venture capital funding, and I yield back. Thank you
very much.
Chairman LYNCH. Thank you, Madam Chairwoman.
Today, we welcome a panel of distinguished witnesses, and we
are thankful for their presence: Sallie Krawcheck, the CEO and co-
founder of Ellevest; Wemimo Abbey, the co-founder and co-CEO of
Esusu; Marceau Michel, the founder of Black Founders Matter;
Jenny Abramson, the founder and managing partner of Rethink
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5
Impact; and Maryam Haque, the executive director of Venture For-
ward.
Witnesses are reminded that their oral testimony will be limited
to 5 minutes. You should be able to see a timer that will indicate
how much time you have left, and I would ask that you be mindful
of the timer so that we can be respectful of the witnesses’ and the
Members’ time.
And without objection, your written statements will be made a
part of the record.
Ms. Krawcheck, you are now recognized for 5 minutes to give an
oral presentation of your testimony. Thank you.
STATEMENT OF SALLIE KRAWCHECK, CEO AND CO-FOUNDER,
ELLEVEST
Ms. KRAWCHECK. Thank you. Chairwoman Waters, Chairman
Lynch, Ranking Member Davidson, and members of the task force,
thank you for the opportunity to testify today. I am Sallie
Krawcheck. Having spent my career on Wall Street as CFO of Citi,
and CEO of Merrill Lynch and Smith Barney, I am today the CEO
of Ellevest.
Ellevest is the investing and financial planning platform for
women with a mission to get more money in the hands of women.
We are a diverse company. In an industry in which leadership
teams are 23 percent women, we are 84 percent, and in an industry
in which the leadership teams are 11 percent people of color, we
are 50 percent, with a similarly diverse board. We proudly count
among our investors Rethink Impact, which is represented here
today, Melinda Gates’ Pivotal Ventures, Penny Pritzker’s PSP Cap-
ital, Sarah Kunst’s Cleo Capital, as well as women-run angel in-
vesting groups like Astia Angels.
Ellevest has just completed a $53 million Series B capital raise,
making us the very rare women-run fintech to reach this milestone.
You have gone over the numbers, but they are actually sort of
worse than you say, because women raise just 1 percent of Series
B dollars across industries and just 1 percent of fintech dollars
across all stages. That math means you can count the number of
women-run fintechs who got this far on your fingers, literally on
your fingers.
The good news is there has been an influx of capital from women
investors into early-stage funding, some specifically targeted to
underrepresented founders. The bad news is this hasn’t translated
into later-stage funding in fintech, and this matters because fintech
can be capital-intensive.
In my experience, it is because few women investors are enrolled
today to write bigger checks, and also because, and this is actually
pretty gutting, raising early-stage capital from women investors
can sometimes make it harder for women CEOs to get the next
round of funding. The research indicates this is pure bias, on the
assumption that you weren’t good enough to get funding from the
guys. This despite the research you have indicated that women-run
businesses provide as good or better results than all male teams on
less capital. The implication is significant given that financial serv-
ices is our economy’s lifeblood.
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First, though, I will just give you a thought experiment. Do you
think it is a coincidence that with 98 percent of mutual fund assets
managed by men and 86 percent of financial advisors being men,
that women report they are not well-served by the industry, or that
when I was running Merrill Lynch, men trusted their financial ad-
visor more than their doctor, but women closed their accounts after
their spouse’s death? Low product market fit there.
Is it a coincidence, do you think, that Ellevest is the only wealth
tech app with most of its downloads by women, at about 95 per-
cent, versus in the 20 percents and 30 percents for the others? And,
no, this isn’t because women aren’t good at math or they do not
like to invest or they are risk-averse. There is zero evidence of that.
It is simply a story we tell ourselves to explain why women aren’t
engaging.
The real issue is that few fintechs center on women’s needs, and
as a direct result, women entrepreneurs are starved of funding. As
a result your, women constituents invest less of their money than
men do, losing out on historic market returns and costing them
hundreds of thousands, and for some women, millions of dollars
over the course of their lives. And it is one reason why the gender
wealth gap is at $0.32 to a White man, and $1.01 for Black women,
and it has been widening.
It means some of your women constituents are caught in toxic re-
lationships that they can’t leave or dead-end jobs that they can’t
quit. They are not starting their dream businesses because they
simply don’t have the money. I don’t think that any of us here
want that for our daughters. It also means lost economic growth in-
calculable in size, the dollars not spent with small businesses in
your hometown, the non-profit contributions not made, the political
contributions not made.
Now, let’s be clear: The solution is not for women entrepreneurs
to work harder. If we raise 20 percent, 2 percent of venture dollars,
that means 50 times more investor meetings, 50 times more earn-
ings models sent out, and 50 times more time away from the busi-
ness. At Ellevest, we got here by doubling and tripling down on
women, raising some of our round from accredited women investors
investing together through special purpose vehicles, often spon-
sored by existing women investors. They got access to a later-stage
deal in a strongly-performing fintech they wouldn’t otherwise have,
and we furthered our mission, a win-win even more so because 70-
percent-plus of our new investors are from underrepresented
groups, probably unheard of at our stage. And we at Ellevest live
to fight another day working to get more money in the hands of
women.
Thank you.
[The prepared statement of Ms. Krawcheck can be found on page
42 of the appendix.]
Chairman LYNCH. Thank you. That was exactly 5 minutes.
Mr. Abbey, you are now recognized for 5 minutes to give an oral
presentation of your testimony. Welcome.
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7
STATEMENT OF WEMIMO ABBEY, CO-FOUNDER AND CO-CEO,
ESUSU
Mr. ABBEY. Thank you so much. Chairwoman Waters, Chairman
Lynch, Ranking Member Davidson, and members of the task force,
thank you for this opportunity to appear before you today. I also
want to express my deepest gratitude to the staff for your tireless
efforts. My name is Wemimo Abbey. I am the co-founder and co-
CEO of a Harlem-based fintech unicorn called Esusu Financial.
Esusu was founded in 2018 and is one of the few Black-owned
fintech startups in the world to be valued at a billion dollars, rais-
ing a total of $144 million in financing.
But my story started in the slums of Lagos, Nigeria. I lost my
father at the age of 2, and my mother and my 2 sisters raised me.
In 2009, I immigrated from 80-degree weather in Lagos, Nigeria,
to negative 22 degrees in Minnesota. Seeking a way to pay for col-
lege, my mother and I were turned away from major banks because
we did not have a credit score. My mother pawned my father’s wed-
ding ring, took out a 400-percent predatory loan, and borrowed
money from church members to afford my first year of college. In-
spired by these experiences, I co-founded Esusu on three core
premises: where you come from, the color of your skin, and your
financial identity should never determine where you end up in the
wealthiest nation the world has ever seen.
You see, credit is fundamental to financial stability and upward
mobility, but financial exclusion makes the American Dream unat-
tainable for millions. Data released by the Consumer Financial
Protection Bureau (CFPB) in 2015 confirmed that approximately 45
million Americans are credit invisible and unscorable. Every
month, over 109 million Americans spend, on average, $1,100 in
rent. That is over $1.44 trillion annually, which is often their larg-
est monthly household expense. Over 90 percent of renters do not
get credit for paying rent on time, leading to financial exclusion.
Esusu helps bridge this gap by reporting on-time rental payments
to the three credit bureaus, thereby helping renters across the na-
tion establish and improve their credit scores, which will help them
unlock quality financial products. When renters encounter financial
hardship and can’t afford to pay rent, we also pay them with zero-
interest microloans to help keep them and their families in their
homes.
Today, we are here to discuss the obstacles to investment in di-
verse-owned fintechs. According to Forbes, U.S. fintech billionaires
are worth a combined $162 billion. More than a dozen fintech bil-
lionaires were created over the past year. None of these multi-bil-
lionaires are Black or people of color. In 2021, venture capital in-
vestments reached $35 billion. White-male-led startups receive over
70 percent of investments compared to 1 percent for Black founders
in fintech. These staggering facts shine a light on the realities of
investments in the fintech landscape, and it points to another rea-
son why the racial wealth gap persists and is growing today.
I offer three thoughts on why obstacles persist in diverse-owned
fintechs. First, investors tend to co-invest in people they know and
with whom they are comfortable . For example, over 75 percent of
Esusu investors are women or Black venture capitalists. They un-
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8
derstand Esusu’s mission and also generate outsized unrealized re-
turn from being with us since day one.
Second, due to the implicit or unconscious bias, many seasoned
investors do not consider people of color to be successful entre-
preneurs. Personally, my co-founder and I had to speak to 326 in-
vestors before we got one to bet on us.
Third, investors may struggle to relate to the problems that en-
trepreneurs of color, immigrants seek to solve. For instance, a well-
paid venture capitalist may not have personal experience being
credit invisible or underbanked, so a startup that seeks to address
these problems is likely to be of less interest to them.
With that, I would recommend asking institutions under the pur-
view of this committee to implement three solutions: first, create
tax incentives to establish banks and main credit bureaus to work
with and adopt technologies developed by minority-owned fintech
startups; second, create tax incentives established by venture cap-
italists to place more investment bets in minority and immigrants’
fintech startups; and third, instruct agencies tasked with regu-
lating the financial services sector to engage proactively in minor-
ity-owned fintech startups so that founders can share their per-
spective on challenges.
In closing, I fundamentally believe investing in minority fintech
companies can generate outsized returns and have a profound im-
pact in the lives of many. Esusu is a perfect case study. A company
founded by the sons of immigrants is now valued at a billion dol-
lars, and is working tirelessly to keep families in their homes. Our
story is only possible in America. There is an African saying, ‘‘If
you want to go fast, you go alone, but if you want to go far, you
fundamentally go together.’’ True change will take both sides of the
aisle working together to make this union more perfect. So, let’s be
caught trying. Thank you.
[The prepared statement of Mr. Abbey can be found on page 24
of the appendix.]
Chairman LYNCH. Thank you, Mr. Abbey. You have a remarkable
story.
Mr. Michel, you are now recognized for 5 minutes to give an oral
presentation of your testimony. Welcome.
STATEMENT OF MARCEAU MICHEL, FOUNDER, BLACK
FOUNDERS MATTER
Mr. MICHEL. Thank you Chairman Lynch, Ranking Member Da-
vidson, Chairwoman Waters, and Ranking Member McHenry. My
name is Marceau Michel, and I am the founder of the Black Found-
ers Matter fund. I am a passionate advocate for the underrep-
resented founders and fund managers, and it is my honor to share
my thoughts and observations on this very timely matter.
Much like the legal end of slavery, racial integration and affirma-
tive action, our society needs measurable and accountable methods
to facilitate positive change. And even though we have seen the
change, even though we have seen how those—excuse me, I am
nervous, it is really nerve-wracking to talk in front of all of you—
even though we have seen these put into place in our society, they
haven’t created parity for all of us. However, it has pushed social
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progress forward. We need measurable intentionality to be able to
do that.
So, what I am asking that you consider is holding the venture
investment industry accountable to finally integrate in a meaning-
ful way. We haven’t seen integration in this space. There have been
many empty valves to improve the abysmal statistics that we see
in diverse investment. However, there has been no significant
movement where they have truly brought women and Black, Indig-
enous, and people of color (BIPOC) founders into their portfolios.
This is unacceptable.
In this month, June of 2022, I decided to take action. I launched
the 25 by 25 Pledge for venture funds to make a real and measur-
able commitment to change. This pledge entails investing 25 per-
cent of their current fund in startups led by BIPOC women, and
to hire within their fund 25 percent BIPOC women as well, because
what we need in order to see significant change in this space is
representation both in the portfolio, but also within the firms them-
selves. This was done with the clear objective for all funds to work
toward. Without this measurable intentionality, we won’t see any
change.
The classist tech bro culture has weakened our economy and lim-
ited the solutions that diverse founders are creating. And the im-
portance connected to that is really there are lived experiences that
diverse founders have that they are able to bring to the companies
that they create, and they are able to have their communities spe-
cifically in focus when creating such products and services.
I know in my experience running my own fund, I have learned
the importance of why you have to be intentional. After making the
first five investments from my fund, we realized that we had only
made investments in Black men. And so, we made a specific effort
to only see deals by Black women, and this led to some of the big-
gest deals that we were able to get into. We were able to invest
in Olympic legend, Allyson Felix, and other incredible women, we
have been able to invest alongside Serena Williams, and this all
came from making a concerted effort to focus on female founders.
Our communities have very little choice in the financial institu-
tions and companies that serve us. Fintechs that claim to serve and
target our communities without any level of representation or con-
nection to our communities really is a form of financial manipula-
tion, and without any accountability, will continue to occur. We
have repeatedly seen BIPOC founders be more capital-efficient and
yield higher returns. This should increase interest in such ven-
tures. However, working with set founders exists outside of the
comfort zone for venture capital (VC) funds because VC funds
benchmark based on what they already know, based on what al-
ready exists. So, when you bring in diverse founders who are ap-
proaching problem solving from an entirely different direction, it
really doesn’t benchmark for them.
Much like when cities and municipalities want to revitalize dis-
tricts and neighborhoods, they provide incentives to attract invest-
ment. And I agree with the previous speaker about creating incen-
tives in order to bring more investments specifically to founders of
color and also to emerging fund managers that are working to solve
this gap specifically. In recent years, we have seen there are more
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emerging funds that have the specific focus on the immense oppor-
tunity zone that has underrepresented founders. These funds need
more capital, more investors, and incentives to bring them all to-
gether. So, are there ways to incentivize funds who are focusing on
this gap? Is there funding that can be created for emerging funds
that are investing in BIPOC women? I believe that it takes mul-
tiple approaches to tackle this disparity.
I know this committee of esteemed leaders has the ability to put
forward policies that will transform not only what can happen now,
but for generations to come. By creating metrics for VC funds to
meet, funding for emerging funds that are focused on this space
and incentivizing investment in these funds will push the needle
forward. What makes our country remarkable is our ability to push
forward and continue to grow. I yield back.
[The prepared statement of Mr. Michel can be found on page 46
of the appendix.]
Chairman LYNCH. Thank you, Mr. Michel.
Ms. Abramson you are now recognized for 5 minutes to give an
oral presentation of your testimony. Welcome.
STATEMENT OF JENNY ABRAMSON, FOUNDER AND MANAGING
PARTNER, RETHINK IMPACT
Ms. ABRAMSON. Thank you. Good afternoon, Chairwoman
Waters, Chairman Lynch, and esteemed members of the Task
Force on Financial Technology. As the founder and managing part-
ner of Rethink Impact, the largest venture capital fund in the U.S.
investing in female and non-binary CEOs, many of whom are in
fintech, I am honored to be here with you today.
To give you brief context, before I became a venture capitalist in
2015, I was a tech CEO, and often the only woman in a given room
or on a given stage. As a data nerd from Stanford, I researched the
numbers and learned that only 2.3 percent of venture dollars went
to female-founded teams that year. What shocked me about this
was that my own mother ran the first venture capital fund invest-
ing in female leaders 25 years ago, and the percentage of dollars
going to female founders has actually gone down since then. I de-
cided the best way to change this pattern was to start a fund that
could drives institutional-scale dollars to female tech CEOs. And
my partner, Heidi Patel, and I were fortunate to get the backing
of major banks like UBS Investment Bank, as well as foundations,
university endowments, and prominent individuals.
With that context in mind, I will address three key areas of my
testimony today. First, why is there a lack of investment in diverse
fintech companies? Second, what is the missed financial and soci-
etal opportunity from this deficit? And third, how can we reverse
these trends?
On the first, people often assume this lack of investment is a
pipeline issue. This is not the case. We experience diversity of flow
firsthand at Rethink Impact. Our firm reviews 600 to 1,000
startups each year, and we, like many funds, only need to invest
in a handful. The real reason that diverse fintech CEOs don’t get
these dollars relates to the fact that women and diverse leaders
control a very small percentage of the $330 billion venture capital
dollars spent just last year. Broadly speaking, 86 percent of invest-
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ment decision-makers are men. Given that venture capital is very
much a pattern-matching business, investors often back companies
and people who are most like themselves. COVID has only exacer-
bated this problem. Diverse founders already had a challenging
time breaking into longstanding funding networks, but shutting
down live events and in-person meetings made this worse.
During COVID, despite an increase in venture capital funding,
investments in female-founded companies went to the lowest levels
since 2016, and the current economic downturn is already being
disproportionately felt by diverse founders. In quarter one of this
year, VC funding dropped 26 percent across-the-board, but invest-
ment in female-founded companies dropped by 34 percent. What is
the missed financial and societal opportunity from this deficit?
Estimates indicate venture capital opportunity costs from with-
holding investment to diverse founders may be as high as $4 tril-
lion. Venture-backed teams of diverse founders, both in terms of
gender and ethnicity, have better financial outcomes, including 30-
percent higher multiples on invested capital when companies are
acquired or go public. And when you couple that with the fact that
women drive 70 to 80 percent of all consumer purchasing decisions,
and that both women and men and people of color disproportion-
ately experience the inequalities that many fintech businesses are
tackling, not including these groups in leading fintechs is just a
missed opportunity.
So, how can we reverse these trends? First, sharing the data in
forums like these is key, given that many are unaware of this in-
formation.
Second, we must share individual success stories that bring this
data to life. Four fintech examples in our portfolio include: Can-
didly, led by Laurel Taylor, which is tackling the $1.7 trillion stu-
dent debt crisis through a financial wellness platform; Icon, led by
Laurie Rowley, which is innovating on the outdated model of
401(k)s for working Americans; Morty, led by Nora Apsel, which is
democratizing access to home mortgages; and Ellevest, led by Sallie
Krawcheck, whom you heard from today.
Finally, we need to diversify who controls investment dollars. Fe-
male venture partners invest in twice as many female entre-
preneurs as male ones. We must, therefore, find ways to enable a
more diverse set of leaders to make investment decisions. Limited
partners, the money behind funds, have the power to change this,
since Cambridge Associates data shows that new and developing
fund managers, who often are more diverse, rank as some of the
best performers.
In conclusion, getting more dollars in the hands of diverse fintech
owners is great for consumers, and for investors in our economy.
I started this testimony by sharing my mom’s experience 25 years
ago, and while the numbers have not improved on many fronts, I
would like to believe that, together, the people in this room can en-
sure that my own daughters are not sitting here in 25 years re-
peating this testimony. Thank you.
[The prepared statement of Ms. Abramson can be found on page
27 of the appendix.]
Chairman LYNCH. Thank you, Ms. Abramson.
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Ms. Haque, you are now recognized for a 5-minute presentation
of your oral testimony. Thank you.
STATEMENT OF MARYAM HAQUE, EXECUTIVE DIRECTOR,
VENTURE FORWARD
Ms. HAQUE. Chairman Lynch, Chairwoman Waters, Ranking
Member Davidson, and Ranking Member McHenry, thank you for
the opportunity to testify today on the important topic of diversity,
equity, and inclusion (DE&I) in the U.S. venture capital ecosystem.
My name is Maryam Haque, and I am the founding executive di-
rector of Venture Forward, where we focus on diversifying, edu-
cating, and empowering the VC investor class to help the industry
to reach its full potential.
I want to start by taking stock of where the industry is today
with respect to DE&I. The VC industry historically has not been
diverse, equitable, or inclusive, and this is evident from a growing
body of data. To hit on a few stats, females constituted 16 percent
of investment partners in 2020, up from 11 percent in 2016. How-
ever, there has been little progress in the equitable representation
of Black professionals, who represented just 3 percent of invest-
ment partners, or Hispanic professionals, who represented just 4
percent. This data also highlights the importance of
intersectionality and why Venture Forward approaches DE&I
through this lens. While the percentage of investment partners who
are women has steadily increased, the percentage of investment
partners who are women of color has not. These statistics are col-
lected in a biannual survey that Venture Forward has conducted
since 2016 to track and measure the industry’s DE&I progress. VC
has also lacked geographic diversity. Three States—California,
Massachusetts, and New York—account for 84 percent of where VC
assets under management are based.
So, how did we get here? VC is a risky, long-term investment,
and the likelihood of success is low. As you know, VC investors pro-
vide risk capital for high-growth, innovative startups. VC is ac-
tively engaged with the founder to grow their businesses, but these
equity investments are essentially illiquid until a company reaches
a liquidity event, like an IPO or acquisition, which can happen a
decade after the first investment.
VC investors raise funds from limited partners such as pensions,
foundations, or endowments, and the VC also has to commit a por-
tion of their personal capital. For someone without financial secu-
rity or personal wealth, like connections to wealth or to limited
partners, the barrier to entry for someone starting their own fund
can be high when the upside is risky, and it can take years to real-
ize. Existing firms tend to be small, and there is low turnover. This
means there are also few available opportunities for new entrants.
Other challenges to DE&I progress include limited access to edu-
cation on VC, and investors relying on existing networks or rela-
tionships.
What is Venture Forward doing about this? As we see from the
data, women and people-of-color investors and founders based out-
side of a few geographies are underrepresented. Venture Forward’s
mission is to change that. We focus on the investor base because
investors control where and how capital is deployed to founders.
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The data shows that more diversity amongst check-writers leads to
a more diverse set of founders raising capital.
To hit on a few of our initiatives and impact, we co-lead VC Uni-
versity, which has educated 2,200 aspiring investors. We have pro-
vided more than 360 VC University full scholarships to aspiring in-
vestors from underrepresented backgrounds to help democratize ac-
cess to quality education on VC. We have matched more than 190
scholarship recipients with investors in a mentorship program, and
we have facilitated more than 500 meetings for 175 underrep-
resented fund managers to meet with limited partners, inexperi-
enced VCs through LP office hours.
Despite these stark stats, there are some reasons for optimism.
The demographic composition of junior investment professionals re-
flects greater diversity, which suggests a more diverse pipeline for
tomorrow’s senior investment partners. There has also been a
wider adoption of firm DE&I strategies, and we have collected this
data through the survey I mentioned. This intentionality translates
to improved diversity outcomes. Firms with dedicated DE&I strate-
gies achieve greater gender and racial diversity amongst invest-
ment partners. Prioritizing DE&I has the potential to unlock more
innovation, unlock opportunities for greater economic impact and
unlock better financial performance and returns for the industry.
Thank you again for your time and attention on this important
topic. As you can see from the data, there is still much more work
to be done, and Venture Forward remains committed to its leader-
ship role on this issue. I am happy to answer any questions you
may have. Thank you.
[The prepared statement of Ms. Haque can be found on page 32
of the appendix.]
Chairman LYNCH. Thank you very much, Ms. Haque. And I want
to thank all of the witnesses for your wonderful testimony.
There is a real dichotomy here that it is ironic that in an indus-
try and in an area where we see so much, the velocity of change
in fintech, it is unmatched. You see the enormous change, the inno-
vation that is going on in that space, but that is on the technical
side, right? You look at the social side, and we are at a veritable
standstill, as both Ms. Haque and Mr. Michel have pointed out,
with exceedingly small numbers of women and people of color actu-
ally working at high levels.
I have been on this committee now for over 20 years, and we had
a grave problem in the mortgage and banking area, and one of our
solutions, and it was only a partial solution, but it seemed to work
in some regard is, with the banks, we adopted a protocol under the
Community Reinvestment Act. And what we did in part was we
gathered data on the banks, we looked at the investments they
were making in minority areas, and then we graded them publicly
and held them accountable so that their depositors and their inves-
tors would know how they were doing with progress in investing
in areas that were previously redlined.
And that exposure did a lot, I think. It didn’t fix everything, but
it certainly moved the needle. It made banks more socially aware
of their actions and their investments, and I think it caused the
general public and, like I say, the investors and depositors to get
on those banks and judge banks based on how they were graded
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in that regard. Is there a role for that? Would it help? And I am
thinking specifically of legislation that we would proffer to the SEC
to say, can we build a scorecard, a report card on these venture
capital firms and grade them on how they are meeting that goal,
those social goals that we would like to see those firms attain? How
many people of color? How many LGBTQ founders? How many
women are now the object of their support?
And I am also disappointed in some regards where there is so lit-
tle information at the very beginning of some of these startups,
where it is simply a White Paper. The substance is very thin on
some of these ventures. And yet, those are getting funding, maybe
because of relationships with fintech, while Black founders, people-
of-color founders, women founders, and LGBTQ founders are sit-
ting in the waiting room or going to 30 different meetings to try
to get the same level of support. So, I am just wondering if we if
we make that scorecard, is that something that might help? I
know, Ms. Krawcheck, you have had some experience in this area.
I wonder how you would feel about that?
Ms. KRAWCHECK. Yes, I think more information and more sun-
shine is always a positive thing, and people can choose what to do
with the information once they receive it. But I do know, in part
of this raise, I did try to go to original sources of capital such as
endowments, foundations, et cetera. And they seem to truly believe
in the power of diversity, but they tend to put their funds in man-
aged vehicles. And if we were able to do this, we could then give
then that information for some of whom it is still opaque that could
help them direct their capital in the direction that they want to.
Chairman LYNCH. Thank you. Mr. Abbey, any thoughts?
Mr. ABBEY. Yes, sure. Chairman Lynch, I think you bring up a
very important point from a disclosure standpoint. I think when it
comes to measuring impact—on Wall Street, we measure how our
stock markets perform on a quarterly basis. We look at what is
going on in the Dow. We look at what is going on in the NASDAQ
and the S&P 500. If we start implementing metrics, and holding
these investors accountable, and saying diversity matters, but take
it a step further and saying not only having diversity in your jani-
torial staff, but looking at your board members, looking at your ex-
ecutive team, that is when we start having change. And if they can
report back to the SEC, I think we are going to have a profound
impact, and we are going to be closing the gap from an investment
perspective.
Ms. ABRAMSON. Mr. Chairman, may I add one quick point to
that?
Chairman LYNCH. Sure. Please do.
Ms. ABRAMSON. I think data is a powerful thing, and I really like
your idea of doing this at the fund level. I think one other idea to
supplement that would be to do it at the limited partner level, the
institutions that are investing in funds, and to do a scorecard, espe-
cially for large pensions and other significant institutions, to see
where their dollars are going in terms of the diversity of the fund
managers they are backing, given how much that diversity at the
fund level impacts who gets the dollars at the fintech level.
Chairman LYNCH. Okay. Thank you very, very much. I now yield
to the ranking member of the task force, my friend and colleague,
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the gentleman from Ohio, Mr. Davidson, for 5 minutes for his ques-
tions. Thank you.
Mr. DAVIDSON. Thank you, Mr. Chairman, and I appreciate the
opening testimony from the witnesses. And I will say, Mr. Abbey,
I am impressed with the business that you and your co-founders
have built, and congratulations for identifying such an important
niche to establishing a more robust credit reporting system. I think
I would just be interested in your perspective in terms of how your
own lived experience helped you identify the problem, and maybe
solve it?
Mr. ABBEY. Thanks a lot, Ranking Member Davidson, and I’m
really humbled by your kind words. When my mother and I came
to America, we didn’t have a credit score and had to go borrow
money from a predatory lender. And that experience really inspired
me and my co-founder, who had the same experience, to create a
product that creates a win-win-win construct. The product we cre-
ated at Esusu is one that doesn’t point fingers. Landlords win, the
residents win, and society at large wins because we are not solving
homelessness backwards.
And what really perturbed me was when you pay your mortgage,
that data is reflected in your credit profile, but when you pay rent,
for the 109 million Americans, in an average, spending $1.44 tril-
lion to their landlord, that data is not visible. And that is what es-
sentially led us to build this billion-dollar business, making sure
we can pave a permanent bridge to financial access and inclusion
for those who have been predominantly left behind. I think we still
have a long way to go, but like my grandmother always says, you
have to build a doghouse before you build the White House.
Mr. DAVIDSON. Thanks for sharing your story, and congratula-
tions on your success. And I just think, thank God, I am so thank-
ful for the country that I got to experience, but I was born here.
Thanks for coming here and making a difference, growing your
business here and, frankly, helping solve a problem for a lot of peo-
ple. And from a personal view, I am sure your own personal experi-
ences helped you, but fundamentally, you just had a really big idea
that solves a problem. And I am glad that you found the capital.
Thanks for your persistence in doing it.
Ms. Haque, you have focused on helping people find capital in
your own path. Would you describe how Venture Forward as well
as the industry is taking the initiative to address some of the kind
of broad issues, maybe from a broad perspective, but specifically,
what are some of the initiatives that you have seen address the
testimony today?
Ms. HAQUE. Ranking Member Davidson, thank you for the ques-
tion. I want to hit on a few programs that we have found to help
meet some of the needs of the industry, and the first one I want
to mention is VC University, to which I briefly alluded. And what
we recognized a few years back was a recognition that talent is not
a pipeline problem or diversity and talent is not a pipeline problem.
However, in the industry, because it has traditionally been small,
it has run as an apprenticeship model. And if you don’t know some-
one in the industry or live within a few miles of a few cities in this
country, the recognition or the understanding of venture capital
can be hard. And that initially is just a barrier that we felt that
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we could play a role in, to scale some of that education more broad-
ly.
And so, VC University, in which we partnered with UC Berkeley,
has now grown over the past 4 years to have more than 2,000 as-
piring investors across the country come through this program.
Many of them are underrepresented, and we offer them education
to really understand the nuts and bolts because we don’t want just
purely the education or information on VC to be a barrier. But we
recognize that just education is not enough, and so we have added
in additional elements of making sure investors in today’s industry
are supporting these up-and-coming investors through a
mentorship program, through a scholarship program that we offer
to underrepresented and aspiring VCs across the country. We have
seen a lot of diversity within these cohorts. For example, our most
recent scholarship cohort was 90 percent people of color, 60 percent
women, 60 percent based outside of California, Massachusetts, and
New York, 20 percent identified as LGBTQ, and 7 percent were ac-
tive military or veterans.
Mr. DAVIDSON. Yes, thanks for the background. I will say that
I have seen quite a bit of diversity in the industry, and have per-
sonally been involved extensively in trying to push legislative clar-
ity for the space. I am thankful for groups like the Women of Color
in Blockchain. They have invited me numerous times to speak with
them, and they, of course, are focused on women, but in particular,
women of color. There are, of course, a lot of White males in the
industry. It is male-dominated, but it is also encouraging to see the
diverse folks who are involved in terms of heavily next probably
Asian and certain areas of the Middle East. But I look forward to
providing regulatory clarity for the entire United States because,
again, a lot of the liquidity is moving out of our economy because
Congress hasn’t taken action, and the action at the SEC, in par-
ticular, has frightened a lot of capital law.
With that, I look forward to the rest of the testimony, and I yield
back.
Chairman LYNCH. The gentleman yields back. The Chair now
recognizes the Chair of the Full Committee, the gentlelady from
California, Chairwoman Waters, for 5 minutes for her questions.
Welcome.
Chairwoman WATERS. Thank you very much.
Mr. Michel, venture capital’s investments in 2021 reached well
over $35 billion, yet most of the investment has been directed to-
wards White- and male-funded companies. But multiple studies
have found that companies with diverse leadership, specifically
with more than one gender, and/or one race, or ethnically rep-
resented are more innovative and make more money. The Harvard
Business Review found that venture capital investing teams lim-
ited to any one gender or any one race do much worse. I assume
that venture capital firms are heavily profit-driven, but it seems
they are ignoring clear data on how to boost those profits. Why do
you think this is the case, and what are the ways we can help busi-
nesses with high growth potential to have a fair shot in receiving
venture capital funds?
Mr. MICHEL. Thank you, Chairwoman Waters, for such a consid-
erate question. I believe that it is because of the outdated model
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connected to how venture capital evaluates companies. I brought
this up in my testimony, but there is this thing of benchmarking,
which really is about sameness. It is really about, how does some-
thing match up with something that I already know, something I
am already comfortable with, something that already makes sense
to me, right? In an industry that has been built predominantly on
White male culture, it is really about benchmarking how does this
female founder, how does this Black female founder benchmark
with someone that I know, benchmark with someone that I went
to school with, benchmark with someone who is already in my so-
cial network?
These are biases that implicitly end up locking out people of
color, and locking out women, because they don’t benchmark in the
same way. They don’t have the same lived experiences. And so,
funds like mine have emerged to close gaps like these to ensure
that there is funding that is very specifically going to certain com-
munities. And people have asked, is that too exclusive, but really,
it is really about the fact that there is an immense need for more
funds and more organizations in general that are focusing on clos-
ing this gap. Not only do we need to hold venture capital account-
able, and I really agree with what Chairman Lynch said about hav-
ing a scorecard for ventures so that it is really transparent how
well a fund is doing when it comes to how they are diversifying,
and how they are when it comes to their staff from within and
when it comes to their portfolio, but it is also important to create
more funding structures to go to diverse fund managers, but who
have authentic—
Chairwoman WATERS. If I may just interrupt you for a moment
here, when you talk about benchmarking, if you have venture cap-
ital companies whose leadership has never met, or interacted with,
or know very many Black people, and come with the belief that we
are not good entrepreneurs, how do you deal with that kind of atti-
tude and those kinds of feelings? You are talking about how impor-
tant it is, and we are talking about how important it is to have
people inside your firm who have to make these decisions. And if
they don’t have people who are making decisions that are inclusive,
and are particularly interested in diversity because they don’t
know anything about the cultures, anything about interaction, they
have never been in Black communities, they have never seen young
Black businesses that work very hard to be successful, how do you
overcome that?
Mr. MICHEL. I know my way of overcoming that was starting my
own fund, because I was the founder who was experiencing this. I
am a first-generation American. My parents immigrated here from
Haiti, and I come from a culture of figuring out how to liberate my-
self. I was a founder who started my own company, and got an in-
credible amount of traction, but I was being given the runaround
by venture capitalists. I was taking meetings, and those goalposts
kept getting pushed out, and that is why I started Black Founders
Matter, to call out the elephant in the room. I believe that it is im-
portant for funds to have representation within, because that is
how you get authentic connection to the actual communities, be-
cause it is also hard as a Black founder to be able to trust.
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Chairwoman WATERS. So you think that what Mr. Lynch is say-
ing in terms of how we take a look at first to ask, how many people
of color do you have in your firm in leadership—
Mr. MICHEL. Yes.
Chairwoman WATERS. —in addition to how many companies or
startups have you funded? We are going to try and do everything
that we can. We thank you for being here today and the others who
are giving us some ideas about what we can do. We are going to
work very hard to open up these opportunities. And thank you, Mr.
Lynch, for allowing me time today to interact with you on this most
important subject. Thank you.
Chairman LYNCH. Thank you so much, Madam Chairwoman.
Thank you for spending time with us. I really appreciate your lead-
ership.
The Chair now recognizes the distinguished gentleman from Wis-
consin, Mr. Steil, for 5 minutes for his questions. Welcome.
Mr. STEIL. Thank you very much, Mr. Chairman. I appreciate
you holding today’s hearing.
Ms. Haque, we have talked a lot about different ways diversity
is impacting us in the financial services sector. I think one area
that we haven’t touched on is geographic diversity. We continue to
really see VC funds building up in San Francisco, New York, and
Boston. I am here in Wisconsin. We are in a remote hearing. I am
at home. And I recommend that everybody come to Wisconsin in
the summer. It does not get better than summer in Wisconsin. I
see some smiles, as some of you guys are probably dealing with the
heat and an actual garbage fire in D.C. today, but I want to dive
in on geographic diversity. Ms. Haque, if I read your resume cor-
rectly, you are from the great State of Mississippi. Is that accurate?
Ms. HAQUE. I am. Yes, I was there for the first 18 years of my
life.
Mr. STEIL. Spectacular. Do you meet a lot of people in the broad-
er VC space from Mississippi and similar States?
Ms. HAQUE. I would say in my 15 years in the venture capital
industry, I have met one venture fund manager in the State of Mis-
sissippi. And I think that speaks to why I am very passionate
about this topic, which is the fact that I didn’t get exposed to ven-
ture capital until I moved to San Francisco 15 years ago. And I do
think that is what our program, like VC University, is trying to ad-
dress is to just make it more accessible to understand that venture
capital is a viable career opportunity as an investor or as an entre-
preneur, to just demystify that. One specific program related to
this that we have seen a lot of interest and success with is VC Uni-
versity Live, where we have actually partnered with universities
across the country—the University of Michigan, Tulane, SMU, and
UNC-Chapel Hill—to hold these types of educational workshops,
bring together the local ecosystem, shine a spotlight, and then just
provide more education on really the nuts and bolts of VC and how
it works.
I do think that what we have seen from a positive aspect of the
pandemic has been a bit more dispersion of talent across the coun-
try. But I think it is really important to think about how are you
opening up local capital that is not just the seed or the earlier-
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19
stage capital, but really those later-stage, local capital that may be
helpful for companies along their growth cycles.
Mr. STEIL. I appreciate that, Ms. Haque, because I totally agree.
I think when we look at what happened with the Volcker Rule, the
impact of that consolidating capital into some of our largest cities,
particularly San Francisco, New York, and Boston, I think it is to
the detriment of some of our smaller communities, whether or not
that is in the State of Mississippi, where you spent the first 18
years of your life, or in the great State of Wisconsin. I think it is
something that we have to explore. You commented nicely about
the impact that you can have in relationships with schools.
I want to shift gears slightly in my remaining time to thinking
about the way that early-stage investors are playing an active role
in their portfolio companies, different than more late-stage, pos-
sibly passive investors in the way that these investors can really
actively mentor in these early-stage investments. How do you see
the importance of that early-stage mentorship in the entrepre-
neurial ecosystem?
Ms. HAQUE. At the really earliest stages, a founder pretty much
could have just an idea, and so the investors are really working
with founders from day one to help provide strategic and oper-
ational guidance. They are connecting entrepreneurs with cus-
tomers, other potential investors, taking board seats, hiring em-
ployees, et cetera. And so, they are really helping and working ac-
tively with that fund manager to help build this business from the
ground up, and the investor is going to see no upside from that in-
vestment until the company is successful.
And I do think that there is a lot of this active management that
has been really core to the venture business model, and venture in-
vestors have multiple founders in their portfolio. So, it is not that
they are just dedicating their time to one founder, but it could be
dozens, and venture firms are typically small. The median size of
a venture firm in this country is six employees, and so it is a mat-
ter of time management. But I think there is just a lot of align-
ment of interest for those investors to see the founders be success-
ful.
Mr. STEIL. Absolutely. In my remaining time, I would flag that
I think one of the things we should be looking at as a committee
is ways to limit the regulatory burden in some of our early-stage
companies. When we think about these emerging growth companies
with amazing potential, often, great entrepreneurs are stepping up.
It is really a point in time where we could look to be encouraging
more entrepreneurs to be entering this space if we look at the regu-
latory burden that the Federal Government is often placing on
many of these companies.
Cognizant of the time, Mr. Chairman, I will yield back.
Chairman LYNCH. Thank you, Mr. Steil. The Chair now recog-
nizes the distinguished gentleman from Florida, Mr. Lawson, for 5
minutes for his questions. Welcome.
Mr. LAWSON. Good afternoon to everyone, and I would like to
welcome all of the panel. This has been a great discussion. And my
question is going to be sent out really for the whole panel because
from what I have heard this morning, you all are very interested
in where we stand.
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20
The Federal security regulation restricts the type of investors
that can gain access to private investment opportunity, including
certainly venture capital investments. And accordingly, what it re-
quires for an accredited investor is that the investor must have
particularly high income, a whole wealth of at least a million dol-
lars beyond the value of their primary residence. Only around 10
percent of the households in the U.S. will meet this threshold. How
do we balance the need to protect prospective low-income investors
from risky investment with the high bar to enter the CV space?
And this is for the whole panel.
Mr. ABBEY. I am happy to go first. Thanks a lot for that ques-
tion, Congressman Lawson. When we think about getting everyone
involved, I do strongly believe there is a balance. We need to have
the right disclosures to make sure folks know what they are getting
themselves into. Venture capitalist investment is extremely risky,
but also has high returns. So, making sure we have those edge lan-
guage and we are incredibly clear about the kind of investments in
the vehicle would be helpful. And getting folks involved, limiting
things like accredited investors, creating more opportunities, and
letting more people engage from an investment standpoint is en-
couraging. But we need to just be very, very balanced in our ap-
proach because we are one of the rare cases where we became a
billion-dollar business. Most times when you invest in this vehicle,
you can lose everything. We just want to have a balanced approach
where we are educating potential investors, accredited or not ac-
credited, about what they are getting themselves into.
Mr. MICHEL. I would like to add to that. I think this is also a
question of scale, because if we are talking about the general popu-
lation and their ability to be able to invest in ventures like this,
it is quite risky. But it is about what level of exposure makes sense
based on where someone is financially, right? We have seen a lot
of efforts in recent years for crowdfunding, where communities are
able to come together and put together—put in $500, put in $1,000,
put in what is reasonable.
Usually, the general population is excluded because venture
funds are so large and the barrier for entry is so high in terms of
having to put in a check for $50,000, $100,000, up to millions of
dollars. But having opportunities where people who don’t have as
much to be able to put into funds at that scale are able to still be
able to participate in the returns, that can come from investing in
venture capital. So, I think that there is an opportunity when it
comes to being able to just scale what that amount is so that peo-
ple aren’t exposed and don’t lose a lot of money, because you can
lose money in this space.
Ms. ABRAMSON. Congressman?
Mr. LYNCH. Go ahead.
Ms. ABRAMSON. I will just quickly add that, yes, we can ask
funds to lower their minimums that are required to be part of the
funds, which is something we did at Rethink Impact to allow inves-
tors from 39 States, 67 percent being women, to invest. That was
a big thing. And the second thing is there are companies like
Ellevest—you heard from Sallie Krawcheck today—who give inves-
tors an opportunity to take part in this type of investment vehicle
and in a broad type of vehicle that can be safer and be better
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21
aligned to their broader investment portfolio and to what they can
actually do, but lowering the risk as well. I think the other piece
is to not think exclusively about individual venture funds, but
buckets of investment.
Ms. KRAWCHECK. And I will chime in. I think you may be trying
to run, when we may be trying to crawl a little bit. When I think
of women investors today, the majority of their money remains in
cash, which was bad enough when it was earning zero percent, and
now with inflation, means they are going backwards. And so, we
are focused in the first instance on how do we make sure they are
taking their money and investing it to earn the returns before they
get into the higher-risk venture type of investing.
Mr. LAWSON. My time is running out. Those were some great an-
swers. I am still concerned, as I yield back, about the million dol-
lars beyond the value of their residence, because residence carries
a lot of value today, and we can talk about that another time. I
yield back, Mr. Chairman.
Chairman LYNCH. I thank the gentleman. At this point, I would
like to just ask my friend and colleague, Mr. Davidson from Ohio,
if he has any closing remarks as we conclude this hearing. Thank
you.
Mr. DAVIDSON. Thanks, Mr. Chairman, and thanks to our wit-
nesses, and I am just appreciative that, frankly, we have a diverse
group of people here. You have all been successful. I think the
strength of America is we have been able to attract people from
around the world. I think we should celebrate the fact that in a
normal year, we bring about a million new Americans into our
country legally every year.
We certainly have many challenges, but I look forward to work-
ing with my colleagues to solve them, and I hope that we can do
that in this space by providing some regulatory clarity. We are see-
ing real challenges for even keeping the capital and keeping the
ideas inside the United States of America, because we haven’t pro-
vided regulatory clarity for a large portion of this market. And I
hope we can do that—crawl, walk, run, but let’s start moving, and
I just appreciate collaborating with you, Mr. Chairman. Thanks
again for holding the hearing, and thanks for the witnesses, and
I yield back.
Chairman LYNCH. I thank the gentleman. Thanks for your kind
words. This is a very timely hearing. We see what is happening in
the VC space. There has been a certain retrenchment because of
the economy. So, it makes us doubly concerned that founders of
color and women founders—we don’t want to see the situation grow
even worse for them in a tight economy. So, we are very, very ap-
preciative of the perspectives that have been provided by the wit-
nesses here today. I am very happy with the questions that were
asked as well. They were very evocative and brought a lot of good
thoughts here that I think might result in legislation at some
point, and I would like to thank our witnesses for their testimony
today.
The Chair notes that some Members may have additional ques-
tions for these witnesses, which they may wish to submit in writ-
ing. Without objection, the hearing record will remain open for 5
legislative days for Members to submit written questions to these
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22
witnesses and to place their responses in the record. Also, without
objection, Members will have 5 legislative days to submit extra-
neous materials to the Chair for inclusion in the record.
That concludes our hearing. Thank you all, and enjoy the day.
Mr. ABBEY. Thank you.
Ms. ABRAMSON. Thank you so much for having us.
Mr. MICHEL. Thank you. This was an honor.
Ms. HAQUE. Thank you.
Chairman LYNCH. Thank you.
[Whereupon, at 1:14 p.m., the hearing was adjourned.]
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APPENDIX
June 30, 2022
(23)
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24
Testimony of Wemimo Abbey, Co-Founder and Co-CEO Esusu
Before th e Committee on Financial Services
Task Force on Financial Technology
U.S. House of Representatives
June 30, 2022
Madam Chai r, Ranking Member, and members of the Committee thank you for this opportuni ty to
appear before you today. I also want to express my gratitude to the staff for their tireless efforts.
My name is Wemimo Abbey. I am the Co-Founder and Co-CEO of a Harlem-based fintech u.nicom
called Esusu Financial. Esusu was founded in 2018 and is one of the few Black-owned finteeh startups
in the world to be valued at a billion dollars raising a total of$144 million .
I grew up in the slums of Lagos, Nigeria. I lost my father at the age of two. My mother and two sisters
raised me. ln 2009, I immigrated from 80-degree weather in Lagos, Nigeria, to negative 20 degrees in
Minnesota. Seeking a way to pay for college, my mother and I were turned away from the major banks
because we did not have a credit score. My mother pawned my father's ring, took out a 400% interest
predatory loan, and borrowed money from church members to afford my first year of college. lnspirecl
by our experiences, I co-founded Esusu on a core premise: where you come from, the color of your
skin, and your financial identity should not determine where you end up in life.
Credit is fundamental to financial stability and upward mobility, but financial exclusion makes die
American drean1 unattainable for millions. Data released by the Consumer Financial Protection Bureau
in 20 15 confinned that approximately 45 million Americans are credit invisible and unscorable. Every
month, over I09 million Americans spend on average $1, 100 in rent (over $1.44 tri llion annually) whiclt
is often their largest mond1ly household expense. Over 90% of renters do not get credit for paying rent
on time, leading to financial exclusion. Esusu helps bridge this gap by reponing on-time rent payments
to the three major cred it bureaus, (Equifax, T ransUnion, and Experian), helping renters across the nation
establish and improve their credit scores to unlock quality financial products. When renters encounter
financial hardship and can't afford to pay rent, we pair them with 0% interest rate microloans to help keep
them in their homes.
Today, we are here to discuss obstacles to investments in diverse-o\\11ed Fintechs. According to Forbes,
US fintech billionaires are worth a combined US$162 billion -- more d1an a dozen fintcch billionaires
were created over the past year. None of these minted billionaires arc Black or people of color. In 202 1,
venture capital fintech investment reached $35 billion -- White male-led startups received over 70% of
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25
investment compared to I% for Black founded fintech companies. TI1ese staggering facts shine a light
on the realities of investment in the fintech landscape and point to another reason why the racial wealth
gap persists and is growing.
I offer three thoughts on why investment obstacles persist in diverse-owned Fin techs:
1. First, investors tend to co-invest in people they know and are comfortable with. For example, over
75% of Esusu·s investors arc women or Black VCs. They understand Esusu's mission and also
generate outsized unrealized returns by investing in Esusu.
2. Second, due to implicit or unconscious bias, many seasoned investors do not consider people of
color to be successful entrepreneurs. Personally, my Co-Founder and I spoke to 326 investors
before we got one to bet on us.
3. Third, investors may struggle to relate to the problems that entrepreneurs of color and immigrants
seek to solve. For instance: a well-paid venture capitalist may not have any personal experience
being credit invisible or underbanked, so startups that seek to address these problems are likely to
be ofless interest to them.
I would recommend asking institutions under the purview of this committee to implement three
solutions:
l. First, create ta-x incentives for established banks and the main credit bnreaus to work with or adopt
technologies or services developed by minority-ov,ncd fintcch startups.
2. Second, create ta-x incentives for established venture capitalists to place more investment bets on
minority and immigrant fintech entrepreneurs.
3. Third, instruct federal agencies tasked with regulating the financial services sector to engage more
proactively with minority-owned fintech startups so that founders can share their perspectives on
compliance challenges and the ways in which the needs of marginalized communities are
sometimes overlooked or misunderstood by regulators.
In closing, I fundamentally believe investing in minority fintech companies can generate outsize returns
and have a profound impact on the lives of many. Esusu is a perfect case study. A company founded by
sons of immigrants is now valued at $1 billion while working tirelessly to keep families in tl1eir homes.
Our story is only possible in America. There's an African saying "if you want to go fast, you go alone, but
if you want to go far, yon go together. True change will take both sides of the aisle working together to
make this Union more perfect.
2
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26
Appendix:
Es usu raises$ I 30 million Series B at a$ I billion valuation
Today we arc proud 10 announce !lull Esusu lu1s raised $ 130 million ma$ I billion valuation. TI1is Series B financing
provides Esusu with the capilal to execute our mission of dismantling barriers 10 housing for working families. and
work Iowards our vision of unleashing the power of dala 10 bridge the racial wcallh gap. This fundraise makes Esusu
one of the few Black-owned startups 10 reach unicorn status both in the United Simes and globally. Learn more l!£.!:!:,
3
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27
RETHIN K
IMPACT
Testimony of Jenny Abramson
Founder & Managing Partner, Rethink Impact
Before the U.S. House Committee on Financial Services
Task Force on Financial Technology
Hearing entitled, ·combatting Tech Bro CuHure: Understanding Obstacles to Investments in Diverse-
Owned Fintechs"
Thursday, June 30, 2022
Biography:
Jenny Abramson is the Founder & Managing Partner of Rethin k Impact, the largest VC
Fund backing female and non-binary CEOs using tech to build
$1 B+ companies by tackling the world's greatest challenges in
fintech, health care, education, and the environment. She sits
on the boards of Ellevest, Wellthy, Winnie, EveryDay
Labs, Candidly, Sempre Health and is a board observer for
Eleanor Health and Neurotrack. Previously, Jenny served as
CEO of LiveSafe, a tech security company focused on
preventing school shootings and sexual assaults. She also
held leadership roles at The Washington Post, Personal (a
data tech company), The Boston Consulting Group, D.C. Public Schools, and Teach for
America.
Jenny is a board member of the NFL Players, Inc., the Jacobs Foundation, and DC Prep. She is
also an active member of All Raise, co-leading their data efforts. Finally, she is an Advisory
Board member of the Catalio Nexus Fund (an early -stage health focused VC fund).
Jenny was named a Forbes' Impact 50 in 2020 (alongside Bill Gates and Melinda French Gates.
Serena \Alilliams and Steve & Jean Case), Entrepreneur Magazine's 100 Powerful Women and
a DC Tech Titan. She has been covered in The New York Times, in The Washington Post, and
on CNN, interviewed on Squawk Box, featured at the Code Conference, at the United Nations,
at the G7, and on Capitol Hill. She received bachelor's and master's degrees with honors from
Stanford University, an MBA with honors and the Dean's Award from Harvard Business School
(where she also served on the Investment Committee for Shareholder Responsibility for
Harvard University) and was a Fulbright Scholar at The London School of Economics.
Twitter: @abramsonjenny
Linkedln: Jenny Abramson
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28
RETHINK
IMPACT
Overview:
Rethi nk Impact is the largest, US-based venture capital firm investing in female and non-binary
leaders using tech to solve the world's biggest problems. Rethink Impact believes that the next
generation of extraordinary companies (in fintech, health, environmental sustainability, and
education) will find success through their relentless pursuit of mission, for the benefit of all
communities.
Sample Fintech Investments:
i:- candidly Led by CEO Laurel Taylor, Candidly is tackling the $1.7T student debt
crisis' through its financial wellness platform that helps people borrow, repay, and save more
efficiently.
IICON I Led by CEO Laurie Rowley, Icon is helping the 55 million working Americans who do
not have access to 401(K) plans2 through its low-cost, fully portable, workplace-based
retirement solution.
morty Led by CEO Nora Apsel, Morty is democratizing mortgages by creating a digital
way to match borrowers to the right type of mortgage at the best price.
9 Led by CEO s,m, Krawdaeck, B""" is ~cOiog ~, Oweslment gap foe~,
(who are 80% more likely to be impoverished in retirement3), helping them build wealth and
save for the future by providing the products and support to do so.
1
Federal Student Aid, Educationdata.org
' EBRI
3 NIIRS
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29
Notable Press:
ie~t ;>t\U !Jork ein1ts
DealBook/ a - s& Pollcy
0 OLIOOK HlWSlrTTU
Exclusive - Venture Fund for Women
Raises More Than Expected
Forbes
PE.RSOHAt. FINANCE • E.OllOR$' PICK
Hidden Figures: Inside Jenny
Abramson1s Female FirstVC
Fund
..
Jenny Abramson' s pitch to female Hekli Patel: -We're t ryint to bulld a
founders: I've been in your shoes. new breed of VC firm." (Photo by
.IA.MEL 10PPIN roFt ~Olt81ES Jamel Toppin for Forbes) JAMEL
TOP91N
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30
Testimony Introduction and Overview:
Introduction:
Good afternoon. Chairman Lynch and the esteemed members of the Task Force on Financial
Technology. I am honored to be with you today to discuss the obstacles to investments in
diverse-owned fintech companies. I am the Founder and Managing Partner of Rethink Impact,
the largest venture capital fund in the United States investing in female and non-binary CEOs.
Our portfolio of companies uses technology to tackle the world's greatest challenges in a
number of sectors including fintech (with a focus on fi nancial inclusion). Therefore. today's topic
is one I care deeply about and we focus on on a daily basis.
To give you brief context, before I was a venture capitalist in 2015, I was a tech CEO and often
found that I was the only woman on a given stage or in a given room. As a data
nerd from Stanford , I researched the numbers and learned that only 2.3% of venture capital
dollars went to female founders in 2015 (PitchBook). What shocked me about this was that my
own mother ran the first major venture capital fund investing in female leaders 25 years ago,
and the percentage of dollars going to female founders actually went down in that period. I
decided the best way to change this pattern was to start a venture capital fund that could drive
institutional scale dollars to female tech CEOs.
With that context in mind, I will address three key areas in my testimony:
(1) Why is there a lack of investments in diverse-owned fintech companies?
(2) What is the missed financial and societal opportunity resulting from this deficit?
(3) How can we reverse these trends?
(1 ) Why is there a lack of investment in diverse-owned fintechs?
• The lack of diversity in who controls venture capital dollars impacts who receives that
money. 86% of venture capital decision makers are men (AIIRaise, 2021).
• Covid has exacerbated these trends.
• The current economic downturn is likely to further this imbalance.
(2) What is the missed financial and societal opportunity resulting from this deficit?
• Estimates indicate venture capital opportunity costs from withholding investment to
diverse founders may be as high as $4 tri llion (Quartz, 2020).
• Venture-backed teams of diverse founders (both in terms gender and ethnicity) create
more innovation and have better financial outcomes, including 30% higher multiples on
invested capital when companies are acquired or go public (Forbes, 2020).
• Given the fact that women drive 70-80% of all consumer purchasing decisions (Inc
2019), and that both women and people of color d isproportionately experience the
inequalities that many fintech businesses are tackling, not including these groups in the
creation of products or services is a missed opportunity for innovation.
(3) How can we reverse these trends?
• Most people are unaware of how lopsided venture capital funding is in this country and
of the financial opportunity that comes with investing in diversity. We must share the
data, so people understand the economic benefits of this investment.
• It is critical to highlight the success of individual diverse fintech entrepreneurs as it
makes the data more tangible for investors. Example companies:
o Candidly (tackling student debt through its financial wellness platform)
o Icon (innovating on the outdated model of 401 Ks for middle-class workers)
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31
o Morty (democratizing access to mortgages digitally)
o Ellevest (addressing the investment gap for women)
• Finally, we need to diversify who controls investment dollars as this impacts which
entrepreneurs get funded.
Conclusion:
Getting more dollars in the hands of diverse fintech owners is not only critical to increasing
financial inclusion in this country but it's a great thing for consumers, investors, and our
economy more broadly. I started this testimony by sharing my Mom's experience of fighting for
women 25 years ago, and while the numbers have not improved on many fronts, I would like to
believe that together, the people in this room can ensure that my own daughters are not sitting
here in 25 years repeating this testimony. Thank you.
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32
Statement of Maryam Haqne
Executive Director, Venture Fonvard
before the Committee on Financial Services Task Force on Financial Technology
"Combatting Tech Bro C ulture: Under standing Obstacles to Investments in Diverse-
Owned Fintechs"
J une 30, 2022
Chair Lynch, Ranking Member Davidson, and Members of the Task Force, thank you for the
opportunity to testify today on the important topic of diversity, equity, and inclusion (DEi) in the
U. S startup ecosystem and share what the venture capital (VC) industry is doing to address this.
My name is Maryam Haque, and I am the founding Executive Director of Venture Forward, a
501(c)(3) supporting organization to the National Venture Capital Association (NVCA) with a
mission to diversify, educate, and empower the VC investor class to advance the industry and
maximize impact and returns.
The fact is that women, people of color, other marginalized communities, and investors and
founders based outside of historically-dominant startup hubs are underrepresented in VC.
Venture Forward ' s mission is to change that. Our work em powers talented individuals to become
VC investors by creating opportunities and opening doors that might otherwise have been closed
to them. For VC investors and firn1s, we represent a " square one" resource to help them
implement meaningful DEi practices. We are the only organization advancing diversity from an
intersectional lens, supporting investors from a cross section of backgrounds and demographics.
Venture Forward provides education, resources, and connections to drive intersectional diversity
withi n the VC community. Our work primarily focuses on the investor base because investors
control where and how capital is deployed to founders, and data shows that more diversity
among investment check-writers leads to a more diverse set of founders raising capital. Our work
revolves around three key pillars:
• Educate : We educate aspiring VC investors and provide insight and resources to hel p
them succeed in the field.
o We democratize access to VC education through VC University, a certificate
course co-led with NVCA and UC Berkeley, full scholarships, and dedicated
mentorship. 1
o We offer highly curated half-day workshops (through the Limited Partner (LP)
Office Hours program) where underrepresented and emerging managers receive
guidance from experienced LPs about fundraising best practices.2
1
VC University. ht1ps:/h"cn1urcct"ipitaluni\CCSi1V.com
' LP Office Hours, h\ips://,·cnturcfo,ward org/lpolr Limited Partners (LPs) arc the entities !lu11 invest in venture
capital funds. Examples of common LPs include pensions, endowments, foundations. family offices. and individual
investors.
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o We provide training, educational programs, and other resources to meet the needs
of the community of aspiring investors.3
• Empower: We empower current investors to implement and administer meaningful DEi
strategies and policies within their finns to create change in the industry. Alongside our
parent organization NVCA, we are uniquely positioned to transform the industry from
within.
o Every two years, we conduct a Human Capital Survey of VC firm workforce
demographics and talent management strategies to measure the industry 's DEi
progress.4
o We host DEi workshops and events for industry leaders and expens to foster
discussion of progress, opponunities, and challenges.5
o We facilitate tangible engagement and support between VC fim1s and
underrepresented emerging investors, via scholarships and curated mentorsh ip
opportunities. 6
• Engage: We help current investors engage with aspiring investors by sharing job and
mentorsh ip opportunities, introductions, and frameworks for collaboration.
o Through our VC University program, we offer experienced VCs the opportunity
to help educate the next generation of investors.7
o Our Mentorship Program matches scholarship recipients from historically
underrepresented backgrounds with two mentors- an Experienced VC Mentor
and a Peer Mentor. 8
o We guide VC partners in hosting office hours for emerging managers from
historically underrepresented backgrounds to share fund raising guidance and best
practices.
Impact highl ights of Venture Forward's programs and initiatives include:9
Collected workforce demographics and talent management data from more than 37S
VC finns through the VC Human Capital Survey as we continue to measure the
industry' s DEl progress.
Educated more than 2,270 aspiring and early-career VCs through VC University
ONLINE and VC University LIVE.
' For e,amplc, Brand Building workshops for underrepresented VC investors: Comms 101
llllps://,·cnturcforward.org/evcnt/comms-101-building-vour-brand-as-a-vc-invcstor/2021-02-23 and Connus 20 I
11110s:/frcnrurefon, ard.org/cvcmkomms-20 I-bui!ding-you r-brand-as-a-,·c-invcs1or1202 I-03-02
' VC 1/uman Capital Survey. powered by NVCA. Venture Fonvard. and Deloitte
h11ps://,,·w ,, 2.dcloi11c.com/i1s/cn/pages/.1udit/ar1iclcs/di\'crsitv -vcnturc-capi1al-lmman<api1al-su"·c\'.httnl
' For example. virtual workshop on ··Lcvcmging Human Capilal Sun'e)' Insights 10 Drive DEi in VC." April 2021.
https:/hch111nanc~lpitalsurvev2021.spl~shthat.com
• VC University Mcntorship Program, hllp:/Jbit.h /VCU Mentor Info
7
VC University Lunch & Lcam wcbinars, https://vcnturefomard.omA·c-universitl"/#lunchandlcam
• VC University Men1orship Program. k!entoring PonMrd. h11ps://,·cnt111-cfon,ard.org/rcsourccslmentoring-fon"ard
9 Venture Forward Lmpact & Testimonials, h11ps://vcntureforwarcl.org/impact-and•tcst imonials
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34
Encouraged VC activity outside the traditional startup hubs by hosting VC University
LIVE at the University of Michigan, Tulane University, SMU, and the University of
North Carol ina at Chapel Hill.
Provided more than 360 VC University full scholarships to emerging investors from
underrepresented backgrounds.
Matched more than 190 VC University scholarship recipients with 2 mentors each -
an Experienced VC mentor, and a Peer Mentor in a highly-rated Mentorship Program.
Facilitated more than 500 one-on-one and roundtable meetings for 175 emerging and
underrepresented VC fund managers to meet with LPs and experienced VCs to learn
about fundraising best practices via LP Office Hours.
Venture Forward's work is guided by years of tracking, listening, and learning from the VC
industry. NVCA publicly launched Venture Forward in June 2020 after incubating Venture
Forward programs (including several of those highlighted above) under NVCA. Our work dates
back to 20 14 with the formation of a Diversity Task Force. 10 It conti nued with the release of the
first VC Human Capital Survey in 2016, and with updated surveys in 2018 and 2020_11 These
biennial surveys have been critical to tracking and measuring the VC industry' s DEI progress.
We will be fielding the 2022 survey in the second half of the year. In 2017 and 20 18, we worked
with industry leaders to create and release resources and best practices to address harassment and
discrimination. 12 We have also supponed and led VC finn comm itments through the White
House Demo Day Pledge in 2015 and the #VCHumanCapital Pledge in 2020.13
Row Venture Capital Works
The impact and success of venture capital over the past 50 years stems from its unique structure.
There are approximately 2,890 active U.S. VC firms in existence today. These VC firms provide
risk capital for high-growth, innovative stanups to bui ld and scale their companies. These are
equity investments that are essentially ill iquid and worthless stock unti l a company matures and
succeeds, which can take 6 to IO years for an acquisition, public listi ng, or other liquidity event.
VC is a risky and long-term investment, and the likelihood of success is low. 14
VC investors invest out of funds that are structured as limited paitnerships, where the investors
are LPs and the VC firm itself as the general panner (GP). The alignment of interest among the
LP, GP, and startups are critical to the VC model. Value creation is not driven by financial
10
Press release. NVC4 Forms Diversity Tn.sk Force ro Foster Grenier /11clusio11 across the Innovation Ecosystem,
December 8, 2014. h11ps://11'·ca.org/prcssrclcascs/nvca-fonns-di,·crsi1v-1ask-forcc-fos1c r-grea1cr-incl11sion-across-
i 11110\·ation--<:eosvstem
11 VC H11111a11 Capital S11n,ey. powered by NVCA, Venture Forward. and Dcloinc
https·//w" v.:2 dcloit1c.com/us/cn/pagcs(a11dilfarticlcs/dh·crsit\·-venturc-capital-human<apital-suryc,·.luml
12 Press release, Nl'CA Unl'ei/s Resources to Help Address Sexual Harassmenr in Ve11111re Ecosystem, February 22,
2018, lutps://n\'ca.orgfprcssrelcases/n,·g1-unveils-rcsourccs-hclP:address-sexu:il-harassmcn1-,·cn1llrc::CcoS\ s1cm
13 Press rclcasc. l,,,enders of1he Vcmure C npitnl Industry Commit 10 Actions to A lh1ance Inclus ion in the
Elllrepreneurial Ecosystem. August -I. 20 I 5, hltps://m·ca.org/prcssrclcases/lc,1dcrs-of-tl1c-,-ent11 rc-capital-ind11stn'-
co111mit-to-actions-to-cldv:1ncc-inclusio,1-in-t.11e.-entrcprene11rit1l-ccos,·ste111: #VCHumanCapital Pledge signatories.
https://nvca.org/m·ca-and-\·cnturc-fom·ard-vchumancapilal-plcdgc
14 Nl'C4 2022 Yearbook. hups·//n\'ca org/rcscarch/nvca-vcamook
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35
engineering, debt, or transaction fees. VC firms actively engage with a founder and company,
providing strategic and operational guidance, connecting entrepreneurs with investors and
customers, taking a board seat at the company, and hiring employees. The company's stock only
yields value at the time of an acquisition or public listing (which can happen a decade after the
initial VC investment). Founders benefit from appreciated stock and stock options, while the GPs
and LPs share the capital gains. During the lifetime of the VC fund, the GP also receives a
management fee from the LP (typically 2% of the fund size) for general fund operations and
expenses. 15
State of Diversity, Equity & Inclusion in Venture Capital
The VC industry has lacked d iversity, equity, and inclusivity. But the good news is that the
industry has seen some progress (albeit s low and uneven), and it is working to improve itself.
According to our latest VC Human Capilal Survey that collected data as of June 30, 2020,
females constituted 16% of investment partners, up from 11% in 2016. There has been little
progress though in the equitable representation of Black or Hispanic investment partners, which
represented 3% and 4%, respectively, of investment partners in 2020. 16 However, the
demographic composition ofjunior investment professionals reflects greater diversity, and the
wider adoption of diversity-focused talent management and recruitment practices suggests some
cause for optimism.
Another area for optimism comes from more firms explicitly assigning responsibility for
promoting diversity and inclusion internally - 50% of firms had a staff person or team tasked
with this responsibility (compared with 34% in 2018 and 16% in 2016). Simultaneously,
diversity and inclusion strategies are becoming more widespread; 43% of firms had implemented
a diversity strategy (against 32% in 20 18 and 24% in 20 16), while 41 % had an incl usion strategy
(versus 31% in 2018 and 17% in 2016).
This intentionality translates to improved diversity outcomes. Fim1s with dedicated DEl staff,
strategies and programs achieve greater gender and racial diversity on investment teams and
among investment partners. 17 The increased emphasis on DEi is also a broader ecosystem trend.
More firms reported that LPs and portfolio companies had requested their DEl details over the
past 12 months. 18
" Sec ··vc IO, .. sectionor NVCA 2022 Yearbook. hnps://nvca orglrcscarch/nvca-ycarbook
•• TI,c survey questions on nice and cllu1ici1y had a different ronnai in 1.hc 2016 smYcy a11d arc not companible 10
those in 2018 and 2020.
17
Op-ed rcrercncing VC Human Capital Sur1,ey. '·Taking stock or the VC industry's progress on diversity , equity
and inclusion,.. h11ps://1cchcrnnch.com/202 t /0M27/Jaking-stock-of-1he-1·c-indust " 's-progrcss-on-divcrsi11-cgui 11 •
and~inclusion
18
Id.
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36
% of investment partners by
gender
89%
Male 86%
2016
■ 2018
Female ■ 2020
Source: 2020 VC Human Capi tal Survey
% of investment partners by race &
ethnicity
White
Q.l
u 15
Asian/ Pacific Islander
"'
er:
■ 2018
■ 2020
Black 13%
3%
?:
·;:;
·2:
-5
w
Hispanic t%%
Source: 2020 VC Human Capital Survey
Note: Figures for 20 16 are not shown because the survey questions on race and ethnicity had a
different format in the 2016 survey and are not comparable to those in 20 I 8 and 2020.
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37
% of firms
Have human capital strategy
Have diversity strategy
Have inclusion strategy
Have a staff person/team assigned with
promoting DEi internally
Collect race & ethnicity data for each 61%
employee
■ 2016 ■ 2018 ■ 2020
Source: 2020 YC Human Capital Survey
Our survey results also highlight the importance of intersectional approaches to DEI. For
example, the data shows that progress within one demographic element can be more nuanced
when considering people who represent multiple marginalized communities (e.g., the percentage
of investment partners who are women has steadily increased, but the percentage of investment
partners who are women of color has not).
The lack of diversity among founders largely mirrors that of investors. In 2020, companies with
a female founder accounted for 25.2% of total VC deal count, while black-founded companies
accounted for 2.6% of total YC deal count. 19 Latinx-founded startups comprised I. 7% of total
YC dollars invested in 2020.20
Geographically, YC activity has also been concentrated in three states-California,
Massachusetts, and New York-which accounted for where 84% of VC assets under
" QI 2022 PilchBook-NVCA Venture Monitor. h11ps://m•c.1 .org/rcsc;irch/pitchbook-m·ca-vcnt11rc-monito r:
Crunchbasc, VC Funding To Black-Founded Startups Slows Dramatically As Venture lnves1ors Pull Back.
h11ps://news.cmnchbase.c9m/di\'Crsitvfrc-fl1nding-bl:=tck-foundcd-s1artups
20 Crunchbasc. VC Funding To Ear(v-Stnge /,atiru·-Founded Starwps In 11,e US I las Sia/led. I/ere 's Why 71wt
.A4atters, https://news.crunchbasc.com/startups/la1in\"-sl:-irtup-foundcrs-Yc-funding-so1netl1ing,-,·cnturcd
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38
management were based at the end of2021 ; 54% of total VC deal count in 2021 ; and 73% of
total VC dollars invested last year. 21
Founders and funders who are women, people of color, represent other marginalized
communities, and dispersed across the country have not had equal access to VC or equal
opportunity to succeed and share in the success of VC.
OEl in VC: Challenges & Opportunities
The structure of VC, how it works, how decisions are made, and how firms approach DEi
historically have brought challenges towards progress.
Structure of VC
Financial risk and security: VC is a risky and long-term asset class, where most
investments inevitably fail For someone without financial security or personal wealth
(or connections to wealth), the barrier to entry can be high when the upside is risky.
Long-term industry means longer success (or failure) cycle: Success as a VC can
take more than IO years to measure, which makes the industry quite unique from
other sectors of the economy. In addition to the risky nature of VC investing, it can
take years for success to be determined and for an investor to see the potential
investment upside. adding to the longevity of financial risk an investor can face.
• Low turnover, small industry with few opportunities for new entrants (fund
economics): VC firms tend to remain small (median of 6 employees and 4% turnover
among senior investment professionals) to max.imize the financial benefit for the
investors. The economics of a fund are such that GPs are mainly operating with the
support of management fees until investments are realized. The limited number of VC
firms, low turnover at existing firms, and the high barrier to entry to new fund
managers also means there are few "available" opportunities for new entrants. 22
VC firms are small and oftentimes lack resources/organizational 1>riority 011
DEl: Low headcounts and low turnover, coupled with the priority on investment
professionals, VC finns have historically put little resources towards prioritizing DEi.
However, the latest VC H11ma11 Capital Survey shows that this is changing, and more
finns are prioritizing.
Limited partners are capital a llocators: LPs are the allocators of capital to VC
finns, who operate primarily as fiduciaries to their stakeholders, essentially
controlling where and how much capital is committed to VC fim1s. Recently, more
LPs have started to prioritize DEi when evaluating fund managers or in the GP
reporting process, but this remains far from the norm.23
Limited access to education and information on VC: VC is rarely taught in a
structured forn1at or in a way that is widely accessible, and the historically small
"NVC4 2022 l"earbook. ht1ps://111·ca.org/rescarch/mca-,earbook
n I -C f-/11111a11 Capital S111wy. powered by NVCA. Venture Fonvard, and Deloitte
h11 ps·//w,, w2 dcioiltc com/ustc nlp,1gcs/;u1dit/aniclcsldh·crsi1,.-,·cnturc-caoital-human-caoital~su"·c, hJml
'-' Id.
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39
industry has largely operated through an apprenticeship model. 24 This has been an
additional barrier to entry, which Venture Forward has made a priority to address
through programs like VC University.
Decision-making process
Homophily: Homophily has been prevalent as VC investors tend to gravitate towards
people who are from the same demographic group.25
Unco nscious bias: Unconscious bias stems from stereotypes that can influence how
investment and hiring or promotion decisions are made.26
Patte rn matching: This occurs when investors rely on common attributes or create a
frame of reference of past hiring or funding decisions that led to success to inform
future decisions. 27
Network effect: Historically, investors have tended to rely on their existing networks
when sourcing talent. 23
Subjectivity vs. objectiv ity: Soft skills are frequently cited when VC investors assess
talent. However, soft skills are often subj ectively measured compared to other
objective metrics, increasing the possibil ity of unconscious bias creeping into talent-
related decisions.29
DE[ approaches
Lack of emphasis 0 11 the E a nd I: Initiatives that have focused on bringing more
underrepresented investors into the industry have not fully considered how to support,
retain, and promote that talent once they enter the industry. Equity is the outcome of
diversity and inclusion, wherein all people have fair access, opportunity, resources,
and power to thrive. Inclusion refers to the actions taken to understand, embrace, and
leverage the unique strengths and facets of identity for all individuals so that all feel
welcomed, valued, and supported. Both equity and inclusion go beyond
representation (i.e., diversity).30
Lack of emph asis on intersectional a1>proaches to DEi : Some industry and firm
initiatives that have focused on a specific demographic have not recognized that
individual experiences can be based on multiple and intersecting identities that can
24 VC is an Apprenticeship Business, hups·//,rn w.,outubc.co1n/\\"atch?,= JWjTOyO111j 10
25 Homopltily refers to the desire to associate with those similar to you. ll can arise from similarities in demographic
clwacteristics. such as ellmicity. age. ,md gender, and from acquired characteristics such as education. oecupatioR
and religion. Source: Homophily in Entrepreneurial Team Fonnation,
hnps://W1," nbcr orgis, stcm/filcs/\\orking papers/\\ 23459/" 23459.pdf: Examples: VC linns with female panners
arc 2:x more likely 10 i.nvest in companies with a rcma1c on 1hc cxecu1ive team. 3x more likely 10 invest in companies
witl1 female CEO. Black-fw1ded venture finns ,~we invested in Black-founded ponfolio companies al a rate 4x
higher than non-Black-fotmdcd VC firms. Investors belonging to the same racial group increases the propensity to
work togctherbv 39%. lm•cstors having a degree from the same school increases their propensity 10 \\"Ork together
by 34%. Souree: 1l1c Other Diversity Dividend. hnps://hbr,org/2018/07/thc-01 hcr-divc rsi1,-dh·idcnd
26
Paradigm IQ, Unconscious Bias FAQs, hllps://mnv parndigmig.com/2016/07121/unconscious-bias-fags
27
Harvard Business Review. A VC's Guide to Investing in Black Founders. https://hbr.org/2020/06/a-,·cs-guide-10-
i1wcs1ing-in-black-foundcrs
"' VC 1/umon Copitol Survey. po""cred by NVCA. Venture Forward. mid Deloine
http5://www2.dc101ttc com/us/cn/p:1gcs/audithu1iclcs/di"crsi1y-ve11turc~apirnl-hnmf!n-c.1µi1t1l-surYCv html
29
Id.
JO Id.
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40
contribute to unique experiences and may expose individuals to double or even triple
barriers. This has led and can lead to uneven diversity progress.31
The good news is that there is a growing recognition and acknowledgement among the industry
of these historical barriers. More VC firms are acting with intentionality to address challenges
brought on by structural issues and the decision-making process, and implementing DEi
practices to drive meaningful change. Furthermore, Venture Forward, and other organizations
like BLCK VC, LatinxVC, VC Familia, and All Rai se, are providing valuable programs,
resources, guidance, and connections to help VC firms expand their networks and support
underrepresented and emerging investors.
Seeing the industry's impact statistics over the past 50 years is also important to shining a light
on the potential opportunities that could be unlocked by an industry that further prioritizes DEi.
Three areas where DEi progress in VC has the potential to have a bigger, positive impact:
(nnovation: VC is funding the innovation of tomorrow. Finns will have blind spots on
innovation if they 're only focusing on the same networks and demographics for talent
and fonding.
Expand & unlock opportunities: The industry' s success and impact to date has largely
lacked DEi focus. An industry focused on DEi has the potential to surpass that and
unlock its full potential.
• Financial performance & returns: Diverse teams (at both the company-level and firm-
level) outperfonn non-diverse teams.
The Outsized lmpact of VC-backed Companies
As someone who has been in the VC industry for 15 years and who has researched the profound
positive impact VC-backed startups have had on our economy.jobs, innovation, and value
creation, I frequently cite noteworthy statistics to quantify tl1is impact. These are important to
juxtapose in conversations about DEi because they show the potential to unlock even more
positive impact if we have a more diverse, equitable, and inclusive ecosystem.
Employment at VC-backed companies grew at a rate of8 times compared to non- VC
backed companies from t 990 to 2020. 32
VC-backed companies constitute 50% of all U.S. public companies founded aft.e r
1968 and that went public after 1978. These companies represent 77% of total market
capitalization.33
" BSR, Why Company Diversi1y. Equity. and Inclusion Programs Need lmersectional Approaches.
https://ww\\ .bsr.org/en/ou r-insights/blog-,·iew/comp;im•-diversit\ :C<]Uitv-inclusion-progrnms-nced-intcrscctional-
approachcs
" Employment Dynamics at VC-Backcd Companies in the U11i1cd States: 1990 10 2020.
1u112s·//n,·ca-org/cmplm mcnt;dvnamics
" GornaU. Will ,md Strebulaev. Hya A.. the &o11omic Impact ofVenture Capital: £videncefram Public Companies
(June 2021). Available al SSRN: h11ps://ssm.com/abs1mct~ 26818~ I or hllp://dx.doi.om/10.2139/ssm26818~1
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41
VC funds posted the highest pooled internal rate of return (TRR) for 7 vintage years
between 2011 and 2019 compared to other private market asset cl asses.34
42% of drugs approved by the FDA between 2009 and 2018 originated with VC
funding.31
Although the U .S. VC ecosystem is relatively young compared to other sectors of the economy,
and may appear small, it has had an outsized impact in almost every facet of the lives of
Americans.
Conclusion
The health of the U.S. startup industry and the opportunity for even greater success and impact
are dependent on today 's industry leaders advancing a more diverse, equitable, and inclusive
ecosystem. I appreciate the Comm ittee' s attention to this imponant topic. As we can see from the
data, there is more work to do, and Venture Forward remains committed to its leadership role on
this issue.
34
PitchBook. Global Fund Performance Report.
hups·//lilcs piJchbook com/wcbsi1c/lilcs/pdf/2022 Global Fund Pcrfonnancc Rcoon as of 03 2021 " iJh prcli
mina" O.f 202 1 da1a.pgr
" SVB. Trendr in 1/ealthcare /11vest111ents and Exits 2019,
ht1ps://,,""''·s"b.com/globalassets/librar\·/managedasse1s/pdfs/heal1hcarc-reoon-20 19-mid,car.pdf
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House Financial Services Committee: "Combatting Tech Bro Culture: Understanding
Obstacles to Investments in Diverse-Owned FinTechs"
Madam Chairwoman, Ranking Members, and Members of the Committee, thank you for the
invitation to testify today on "Combatting Tech Bro Culture in Fintech."
I am Sallie Krawcheck. I am the CEO and co-founder of Ellevest. I have been the chief financial
officer of Citi and the CEO of Merrill Lynch Wealth Management, of Smith Barney, and of
Sanford Bernstein.
Ellevest is an investing and financial planning platform built for women. Our mission is to "get
more money in the hands of women."
Our company is diverse: In an industry in which the leadership teams are 23% women, ours is
84% women. And while industry leadership teams are 11 % people of color, we are 50%, with a
board that is likewise 80% women and 50% people of color.
We proudly count among our investors Rethink Impact, which is a woman-led fund that invests
in women leaders solving the world's largest problems, and Melinda French Gates' Pivotal
Ventures, which invests with the goal of advancing social progress and building a more
equitable country. We're also backed by Penny Pritzker's PSP Capital, Jessie Draper's Halogen
Ventures, and Sarah Kunst's Cleo Capital, as well as women-run investing groups like Astia
Angels and Broadway Angels.
Ellevest has just completed a $53M Series B capital raise, making us one of just a handful of
fintech companies run by women-CEOs to raise a total of $100M+. We count this a particular
victory, since women CEOs raise just a single-digit percentage of venture funding overall - just
1.8% of the total in 2022 to-date - and women have raised just 1% of fintech dollars over the
last 10 years. That puts our chances of getting from initial idea to today at "pretty close to
miniscule." And there were times that our raise process felt like that.
Where do things stand today for women raising fintech venture funding?
Well, there are a few things to note, representing good news and not-so-good news on this
front:
The good news is that there has been an influx of capital from women investors to invest in
early-stage venture capital, some amount of which is specifically for funding women and under-
represented founders.
The tough news for us fintech founders is that the venture investments that women investors
make - and that women CEOs raise - tends to be in more traditional women-focused
consumer businesses. As in, not fintech.
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And the even tougher news is that this has not translated into later-stage funding, where it's
rough going for women - and particularly women in fintech - when it comes to raising Series
Band later rounds.
(I'd like to emphasize that these later-stage numbers matter, because fintech can be capital
intensive, more so than other businesses. In our case, we're investing people's money, so the
low-capital-intensity, build-the-plane-while-you're-flying-it start-up approach doesn't work as well
as it often does for other industries. You need to build your infrastructure, a product that works,
a compliance system, information security systems... and we found, if you're engaging with
women, we had to be building a brand and a community... all before your launch)
In my experience, there are fewer women writing the larger-sized checks. As of just a couple of
years ago, the maiority of venture capital firms lacked even a single woman partner.
And, adding insult to injury, raising early-stage capital from women funders can be a double-
edged sword, because new research shows that women CEOs' ablility to get next-round funding
is lower when they were funded by women in their prior round; this is true whether they are
looking to raise from men or women investors this time around. This appears to be the result of
simple bias and the implicit assumption that raising money from women meant that you weren't
"good enough" to get funding from the more established players (read: men).
I would note that all of these statistics are true despite the research that women-run businesses
provide as-good or better results than men-run founding teams, on less capital.
The implications of this?
They go well beyond the frustrations of founders who can't get funded, particularly because of
the role that financial services, and fintech, plays as the lifeblood of our economy.
So, first I would ask if you think it is a coincidence that, in the investing industry, 98% of mutual
fund assets are managed by men, 86% of financial advisors are men, 75% of senior leaders are
men...and that women say they don't see themselves refiected by the industry, that they don't
feel seen by the industry, that they rank it among the lowest of any industry they engage with?
That, when I was running Merrill Lynch, the vast majority of women withdrew their money from
the company in the year after their spouse's death?
I would ask if it's a coincidence that, with 99% of fintech venture funding going to male founders,
Ellevest is the only wealthtech app for which the majority of app downloads have been by
women, running at more than 90%, versus percentages in the 20s and 30s for others?
And while some of you may be thinking, "Well, the real reason for all of this is because women
aren't as good at math as men," I can tell you that's not true. Or that "women aren't as good at
investing as men;" that's absolutely not true. Or that "women are risk-averse when it comes to
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investing"; we see no evidence of that at Ellevest - it's simply the thing the industry tells itself
to try to explain why they have so few women clients.
Instead I would argue that all those financial services and fintech companies have not centered
their offerings on women's needs. And that, in itself, is a direct result of women not getting
funding.
And so women, as individuals, invest less of their wealth than men do, giving up returns that the
markets have provided over time. This is one big reason for the gender wealth gap, which sits at
32 cents to a white man's dollar (and 1 penny for Black women).
Think, too, of the businesses not founded, and so the needs that are not met; the investments
that have not been made that would have built a more secure future for women and their
families; the economic growth we could have seen had that wealth been created.
Think of the toxic relationships so many women are stuck in, the dead-end jobs they can't leave.
the small businesses they can't start... because they simply don't have the money to.
Is this something that any of us want for our daughters?
And because I know I must add this in order to get some people's attention - in addition to
women. who else is this bad for? Men. Men whose businesses won't prosper because of the
sales to women that weren't made. And who still tend to carry the burden of being responsible
for the money in their family, which leads to real stress.
What is the answer?
It's not for women entrepreneurs to try harder; we're already trying harder. Because even for
those who are successful in raising funds, the price we pay is steep: If women raise, say, 2 % of
venture dollars, that means 50x as many meetings as men have, 50x as many earnings models
sent out, 50x as many questions answered, 50x as many demoralizing no's, 50x as much time
away from the business (when the odds are already stacked against a start-up's success).
When I was raising for Ellevest, I knew we faced an uphill battle. So my first thought was to go
to sources of capital (like pensions and endowments) who had been vocal in their desire to
invest in women and to get more women into financial services. I got some introductions to their
venture capital firms, which led to some polite meetings, but they all d ied with the venture firms'
investment committees. (Cue: "Hey, I tried. Gotta let our managers manage, though. Can't
meddle.")
Ultimately, for us, a big part of the solution was to double- and triple-down on our bet on women.
raising our round from accredited women investors who came together to invest in Ellevest in
groups through special purpose vehicles. These were often sponsored by existing women
investors in Ellevest. It gave them the opportunity to access a deal at a later stage than they
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otherwise could have, and it helped us further live our mission. The result is that more than 70%
of our new investors in this round were underrepresented investors.
And we live to fight another day.
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To: Chairman Stephen F Lynch, Ranking Member Warren Davidson and Chairwoman Maxine
Waters
My name is Marceau Michel. I am the founder of the Black Founders Matter and a passionate
advocate for underrepresented founders and fund managers. It is an honor to share my
thoughts and observations on this very timely matter.
Much like the legal end of slavery, racial integration and affirmative action our society needs to
have measurable and accountable methods to facilitate positive change. To this day, even
those efforts have not created parity in this country but have enabled social progress.
What I'm asking is that you consider how our society and lawmakers are holding the venture
investment industry accountable to finally integrate in a meaningful way. There have been many
empty vows to improve the abysmal statistics of diverse investment. However, there has been
no significant movement or effort truly diversify by include women and BIPOC founders in their
portfolios. This is unacceptable. So I took action.
In June 2022 I launched the 25 by 25 pledge for venture funds to make a real measurable
commitment to change. This pledge entails investing 25% of their current fund in startups led
by BIPOC women and 25% BIPOC women representation within the staff by 2025. This was
created to give funds a clear objective to work towards. Without measurable intentionality we
will not see any change or improvement. Funds need to be representative of the founders they
are investing in. The existing tradition is for funds to be run and invested homogeneously. This
is an obvious blind side to diverse investment. Thus to realize significant change in investment
exposure, VC funds must have more BIPOC representation from within the firm.
Classist Tech Bro culture has weakened our economy and limited the solutions that diverse
founders are creating. Discrimination based on socioeconomics and network is what's allowed
this to prevail. Change must be mandated.
My experience investing in Black Founders has only proven this to be true. After making my
first 5 investments in ventures led by Black men, I made a specific choice to only look at deals
led by Black women. This effort led to investing in superstars like Olympian Allyson Felix and
other incredible companies founded by black women. The Black Founders Matter has invested
in and alongside some of the most influential women in this country, however it took a
concerted effort to do it.
Our communities have had very little choice in the financial institutions and companies that
serve us. Fintechs that claim to serve and target our communities without any level of
representation or connection to said communities is a form financial manipulation. Without any
accountability this will continue.
Lack of internal representation leads to an inability to even find viable diverse investments. I
want to dispel the misconception that there is a lack of Fintechs led by diverse founders. Often
these founders do not benchmark well against the existing mold that has been shaped by the
dominant white male culture in VC.
Dismissing the lived experiences and perspectives of diverse founders is a detrimental mistake.
It's these lived experiences that inform the products we create with the specific needs of our
communities in focus. This leads to better outcomes and services for all.
We've repeatedly seen women and BIPOC founders prove more capital efficient and yield
higher returns. This should lead to an increase in interest in such ventures. However, investing
in and working with said founders exist outside the comfort zone for most VC funds.
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If legislation can't be put into place to integrate Fintech financing, how can the emerging
diverse founders in this space be empowered?
When cities and municipalities want to revitalize districts and neighborhoods they provide
incentives to attract investment. These "opportunity zones" serve as a catalyst for economic
growth and land appreciation. What if a similar approach were taken to entrepreneurs.
In recent years there have been more emerging funds that have specific focuses on the
immense opportunity zone that is unrepresented founders. These funds need more capital and
investors need more incentive to invest with them. Are there ways to incentivize investing in
funds that are focus on closing this gap? Is there funding that can be created for emerging
funds that are investing in women and BIPOC founders?
I believe it takes multiple approaches to tackle this disparity. I know this committee of
esteemed leaders has the ability to put forward policies that will transform what can happen
now and for generations to come. By creating metrics for existing VC funds to meet, funding
for emerging funds that are focused on this space and incentivizing investment these funds will
push the needle forward. What makes this country remarkable is our ability to grow and push
forward.
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48
Statement by Affirm Inc.
Virtual Hearing - Combatting Tech Bro Culture: Understanding Obstacles to
Investments in Diverse-Owned Fintechs
June 30, 2022
Before the U.S. House Committee on Financial Services
Task Force on Financial Technology
Chair Lynch, Ranking Member Emmer, and members of the Task Force on Financial
Technology:
Affirm Inc. appreciates the opportunity to submit a comment to the Committee on
the June 30 th hearing titled Combatting Tech Bro Culture: Understanding Obstacles to
Investments in Diverse-Owned Fintechs. Affirm strongly supports investing in policies,
products, and personnel that drive diversity, equity, and inclusion. The challenges facing
the country in addressing and remediating systemic and widespread inequities are
endemic in the financial services industry. Affirm is committed to being a part of the
solution. An important measure of success in our mission to provide honest financial
products that improve people's lives, is how effective we are, as a company, in driving
financial inclusion and equity at all levels of our organization. We are encouraged by the
comments and questions raised in the hearing. One of the defining points raised by
Chairwoman Waters was recognizing that a big part of the solution is having DEi
represented in all parts of an organization, and to "have people inside your firm to help
make these [management] decisions.[ ... ] and be particularly interested in diversity [ ... ]". 1
We submit this comment to outline our approach to Diversity, Equity, and Inclusion
(DEi) initiatives, so that it may serve as a template and model for creating a company
culture that ensures employees feel valued, while also being challenged and empowered
to drive change that will move the financial services industry forward. This comment also
serves to outline our progress in implementing our mission. Our approach to DEi is
straightforward and effective, and while we will always learn and grow, we are proud of
what we have built at Affirm, and this comment also serves as providing the receipts to
our progress in implementing our mission.
Ultimately, we strive to: (1) build a business around a product that is honest,
transparent and a driver of consumer health, especially for underrepresented
communities. In order to do this, we (2) have built and continue to foster a company
culture that values and expects individual commitments to DEi initiatives and inclusive
1
Remarks by Chairwoman Waters: Virtual Hearing - Combatting Tech Bro Culture: Understanding Obstacles to Investments in
Diverse-Owned Fintechs (starting at@ 56:30)
https:l/financialservices.house.gov/events/eventsing!e.aspx?Event1D=409522#Webcast
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49
products. We have also (3) created broad and multi-faceted tools and resources through
our employee foundation, Affirm Cares, to harness our employees' commitment to DEi
and empower them to be change agents. By investing in these priorities, we are
fundamentally moving the industry forward, especially as our employees grow, thrive, and
take on bigger roles (during and after their time at Affirm), because they will be equipped
with the resources and experience to drive critical change.
(1) Building a business around a product that is honest, transparent and a driver
of consumer health, especially for underrepresented communities.
Affirm is a payment network that empowers consumers to spend and save responsibly,
while helping merchants of all sizes better serve their customers and drive growth. For
consumers, Affirm is a transparent and flexible alternative to credit cards and other buy
now pay later solutions. We empower consumers to pay-over-time with no late or hidden
fees, while treating every transaction as an explicit borrowing event. In doing so, we
provide a wide breadth of consumers with control, flexibility, affordability, and increased
purchasing power.
Every time a consumer wants to use Affirm to buy something, they must be approved,
and we only approve consumers we believe can responsibly afford to pay us back. Our
underwriting models assess a consumer's ability to repay, considering data beyond just
traditional credit scores, including tra nsaction history and credit usage, before making a
real-time credit decision. This approach enables Affirm to responsibly expand access to
a wide segment of consumers, including those whose traditional credit scores may not
fully represent their creditworthiness as a borrower. Once approved, a consumer will see
their biweekly and/or monthly payment options available through Affirm, with time frames
ranging from six weeks to 60 months. Consumers who choose Affirm always see their
total cost upfront. They never owe a penny more than what they agree to at checkout,
even if they're late or miss a payment.
Affirm offers interest-free and simple-interest bearing loans. By underwriting every
loan individually, we are able to responsibly lend to as many consumers as possible.
Affirm's biweekly "pay-in-4" option is always interest-free and always 0% APR. Affirm's
monthly payment option can be interest-free or can be interest-bearing with simple
interest generally ranging from 10 to 30% APR -below the 36% national military lending
cap rate that has been supported by consumer advocacy groups and bipartisan members
of Congress. Affirm 's interest-free loans are truly 0% APR and have no deferred, hidden,
or surprise interest orfees, ever. In the case of Affirm's interest-bearing loans, any interest
charged is clearly stated upfront, in plain numbers, and never increases or compounds.
Our responsible approach to expanding credit access is a large part of our mission to
offer honest financial products that promote opportunity for millions of Americans,
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50
especially low and moderate income ("LMI") borrowers that would otherwise be left
vulnerable to predatory lenders and high-interest-rate products. By underwriting every
application in real time, we are able to ensure we are extending affordable credit to LMI
customers, who accounted for 1/3 of Affirm's 2021 total sale volume.
It is worth noting that, Affirm products are subject to rigorous and comprehensive
regulatory oversight. As part of our mission to provide honest and transparent financial
products, we have gone above and beyond what regulations require and will always do
best by the consumer. For example, Affirm consumers to whom credit is extended receive
Truth in Lending disclosures for all our products, even when it is not required. This
ensures that consumers receive consistent and transparent disclosures. Further, Affirm
is subject to regulatory supervision and oversight, both directly and indirectly, by way of
partnerships with our originating bank partners and under federal and state laws. 2 This
includes licensing in states that require licensing of our interest-free bi-weekly "pay-in-4"
product with no late fees, as well as servicing and collection licenses required of us and
our vendors.
(2) Creating and fostering a company culture that values and expects individual
commitments to DEi initiatives
At Affirm, we believe that diversity, equity, and inclusion are vital. We embed DEi into alll
processes, programs, and structures at Affirm-from how we conduct business to how
we hire, develop, advance, and retain talent:
Affirm Leadership:
• 75% of Affirm's board of directors are from underrepresented groups
o 3 female directors,
o 2 male directors identify as Asian or Black
o 1 director identifies as LGBTQIA+
• 50% of Affirm's executive leadership team are women
• More than 2,100 of Affirm's merchant partners are certified as Women-, Veteran-,
or Minority-Owned businesses. We also have an ongoing internal initiative to
ensure we have the most current self-reported demographic data for our merchant
partners.
2
The laws to which we are or may be subiecl lo include but are not lim ited to: Truth-in•leoding Act and RegulatK>n Z· Section 5 of the
Federal Trade Commission Act; Section i 031 of the Dodd-Frank Act: Equal Credit Opportu,,ity Act and Regulation B: Fair Credil
Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, and ReguJatlon V; Fair Debt Collection Practioes Ac!
and Regulation F; The Telephone Consumer Protection Act; Gramm-leach-Bliley Act and Regulation P: Califomia Consumer Privacy
Act and othe< data prolectton laws and regulations, such as EU General Data Protection Regulation: Holder Rule and equivalent state
laws: Electrooic Fund Transfer Aci and Regulation E: Eleclronlc Signatures in Global aod National Commerce Act Military Lending
Act: Servieemembers CMI Relief Acl; The Coronavirus Aid, Relief, and Eoonomic SeC\lrily Act
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51
Internal Staff, Community Groups, and Committees
• Affirm established a Diversity & Inclusion Steering Committee (DISC) that serves
as an internal committee composed of senior leaders from across the company to
provide oversight, support, and guidance to departments and teams across the
company on business initiatives that impact DEi.
• Affirm has a robust DEi team that is dedicated to full-time DEi work. Their focus
areas include internal DEi policies and programs, external hiring partnerships,
recruiting from Under Represented Groups (URGs), and increasing and supporting
our merchant partners from URGs.
• Affirm engages with local nonprofit organizations to build connections and offer
support. We've hosted Code Nation and Code 2040 in our offices and worked with
Career Karma on their Reskill America initiative.
• Affirm has a comprehensive training program, which includes courses on
unconscious bias, diversity hiring strategy, psychological safety, and inclusive
leadership.
• Affirm publishes a publicly available annual DEi report to promote transparency
and report progress towards goals, and a quarterly newsletter to keep all Affirmers
aware of DEi opportunities and updates. This report is an in-depth look at our
goals, accomplishments, and future. (Report)
• Affirm utilizes ongoing third-party tools to assess parity in compensation-related
processes.
• Affirm established, and provides resources for, Community Groups (CGs),
Employee Resource Groups (ERGs), and DEi working groups throughout the
company.
Employee and Community Resource Groups
Our ERGs are made up of people from underrepresented groups and their allies. ERGs
work with company leadership to advance our commitment to hiring and retaining a
diverse workforce and help facilitate a culture where all Affirmers feel they belong.
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Community Groups (CGs) help build belonging, community, and inclusion at Affirm. Our
CGs come together over common identity, shared characteristics, and shared life
Vete,ant@
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52
experiences.
• CLAC (Chinese Language and Culture)
• Immigrants@
• Jewish Community@
• Mental Wellness@
• South Asians@
• Parents@
• GEM (Gender Empowerment in Engineering)
• SWANA@ (South West Asia and North Africa)
(3) Creating broad and multi-faceted tools and resources to empower our
employees to be change agents
A central institutional structure that empowers our employees to make an impact is the
Affirm Cares Employee Foundation ("CARES"). CARES is an employee volunteer-led
501(c)3 non-profit established by Affirm in 2019. CARES aims to make a positive impacl
in the communities in which we work and live by sharing our expertise and funding across
three impact pillars: financial literacy and inclusion, technology training and education,
and vibrant communities. CARES was established to formalize the already ongoing
community and volunteer investment hours employees were making in their communities
since 2015. Since its inception in late 2019, the Affirm Cares Employee Foundation has
raised and awarded grants of over half a million dollars to local community non-profits.
[1J;
Pillar #1: Financial literacy & inclusion: Provide fair and responsible credit for
communities and businesses, credit education support, and nonprofit investments
focused on equitable economic growth.
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53
Pillar #2: Technology education & training: Support access to technology for K- 12
coding academies and bootcamps, as well as providing workforce development and
support for small urban and rural businesses.
Pillar #3: Vibrant communities: Partner with organizations focused on housing
insecurity, homelessness, cIvIc engagement, neighborhood preservation and
revitalization, small business development, and community enrichment.
In 2021 , CARES invested and collaborated with vanguard organizations tackling some of
the most pressing social impact issues facing the country. Charitable donations typically
ranged from $ 1,000 to $10,000.
2021 IN REVIEW
As our community grows, so does our organlzatJon end impact.
Thanks to generous donors, we're able to celebrate the following
highlights rrom the fiscal year that end ed 202 1!
GRANTS
FINANCIAL LITERACY & INCLUSION VIBRANT COMMUNITIES
Oasis for Girls Porc nts for Publlc Sc.hools of SF
Junlot Achievement srerre Communtty House
C ouncil for Economic Education
N ew York Cares
Neighborhood AHies
TECHNOLOGY EDUCATION & TRAINING H omifton Famlles
M 1ndsMatte r The Trevor Project
Mission Bit Stoel Smillng (Vlo N e ighborhood A mos)
RRRCompu ter e Ievcn1h Roscuct
College Track SF M atin Food 8ank
Circle o f Schools The Forestry and Are ffee:ruiung Program
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54
In 2020 CARES invested in front line organizations working in Health and Racial Justice
Previous Grant Recipients
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In conclusion, we submit this comment in the hopes that our approach to Diversity, Equity,
and Inclusion (DEi) initiatives can inform industry priorities and solutions. Furthermore,
we aim to demonstrate, with our documented successes, that well defined and
intentionally implemented DEi initiatives can combat and eliminate the toxicity of bias and
systemic inequity that is rooted in so many facets of the financial technology industry, and
society at large. Affirm welcomes the opportunity to work with the Committee and to build
progressive solutions that move the industry forward by integrating DEi into every facet
of investments, products, and policies. Thank you very much for your consideration of our
comment.
Sincerely,
Katherine Adkins
Chief Legal Officer
July 5, 2022
0
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