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POWERcast: Investing in Diversity and Public Purpose
Episode 116th September 2022 • Leadership Forum: The Podcast • John Glenn College of Public Affairs, The Ohio State University
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In our latest Leadership Forum: The POWERcast, Elizabeth Edwards, founder and managing partner of H Venture Partners, shares how policymakers and investors can demand that companies factor into their operations good environmental and social standards as well as diversity and transparency in governance. Brands with a strong sense of purpose tend to attract quality employees, more consumers and better supplier partnerships — and outperform other companies in investment returns. 

Transcripts

Tina Pierce 0:12

Welcome to leadership, the power cast, a podcast by the John Glenn College of Public Affairs at The Ohio State University. My name is Dr. Tina Pierce and I will be your host today. The Leadership Forum Podcast offers leadership tips and inspiration for public service professionals. Power cast episodes highlight women leaders in public and nonprofit organizations, and their stories of overcoming challenges unique to women in politics and public service. Today, I'm honored to be joined by Elizabeth Edwards, Founder and Managing Partner of H Ventures Partners. Welcome, and thank you for joining me today.

Elizabeth Edwards 0:59

Thank you so much for having me.

Tina Pierce 1:03

ding in the United States. In:

Elizabeth Edwards 2:05

Well, so I was very lucky, early on, right when I was getting my MBA to get completely sucked in, immersed excited about our case competition, which is really kind of the Capstone competition within the MBA course. And I happened to present to a group of executives in our teams who are all presenting to these judges who are volunteering their time. And on that panel of judges were executives from Procter and Gamble, and also Deloitte and one of the partners at Deloitte came up to me, and he said, Hey, now you really seem to enjoy this. You're good at it. Have you ever considered strategy consulting as a career, and I hadn't, and was recruited to join Deloitte. And that's really where I got exposure to the venture capital world, because we were doing front end, m&a work for Johnson and Johnson. So we were on the other side of the table, we were looking for startups with really compelling technologies for Johnson and Johnson to either license or acquire. And it was at that time that I really got to know entrepreneurship, innovation. And that's where I fell in love with consumer. That's where I fell in love with venture capital. And after two years of Deloitte, decided to jump into venture capital. So it really started with innovation. Right? The the wonderful work and risks that entrepreneurs take to bring to life brand new disruptive technologies, and I knew that I wanted to be part of that really early work. And so 17 years ago, got into the field. At that time, I had no idea how competitive the venture capital field is, how small it really is that this part of alternatives is, it's not a huge population of people in the world that do this kind of work, but it's, um, it definitely is important work. And really, at that time, I had no idea how insular and, and the lack of diversity really that existed, you know, within the field, and so I was blissfully unaware. Really just, you know, love the love the work. And now that, you know, been part of the venture capital ecosystem for years, one of the things that I love to do is to look for ways to really help our community, be more diverse and really understand some of the barriers to that happening.

Tina Pierce 4:58

I love it. So not only Did you immerse yourself into this, you know, quite, as you say, small ecosystem, but you're making an impact. So tell us a little bit about your company, ah, H Ventures partners.

Elizabeth Edwards 5:14

Yeah, so H Venture Partners is five years old, I started the firm after working for two really wonderful firms, West capital and Maywic. And you know, there was part of small teams, investing all over North America, first as a generalist, and then as a consumer specialist. And H Venture Partners really came about, through my desire to fund more female entrepreneurs, I saw a huge gap in the marketplace, and had been part of, you know, a number of different meetings with a variety of VCs and did see what the research shows, which is that female entrepreneurs do have a tougher time raising capital. And so I wanted to be a, you know, a positive force, and candidly just saw the business opportunity was after, you know, trying to get several really high quality deals over the finish line, one being daily harvest, which is now you know, over a billion dollar valuation, I saw these incredible teams, you know, not getting the kind of traction that they really deserved. And so said, you know, what, there's a big opportunity here, I'm gonna focus on this, I'm gonna focus on consumer and and try to see, you know, more female founders funded and, and that's how we got started.

Tina Pierce 6:46

I love it. Let's dig a little deeper into the intersection between, you know, venture capitalism, and again, public works public purpose. And so government involvement in the VC market has become an important catalyst for entrepreneurial ecosystems of young and innovative firms. Why should VCs care about public purpose? And feel free to, you know, speak to also that consumer aspect of it as well? Why should VCs care about public purpose?

Elizabeth Edwards 7:23

Well, you know, I think there are so many reasons that purpose is a really important area to consider when you're investing capital, what we've seen historically is that brands that have a really strong sense of purpose, tend to outperform, and I'm thinking of like brands, like Patagonia brands that are a force for good. Consumers really identify with that. And this has been a trend for a long time. It's it's an enduring trend that we've seen, but then, you know, the numbers play out when we look at stock performance, you know, for companies who really do have a strong sense of purpose. High quality individuals want to work at those firms. consumers want to buy their products, suppliers want to partner with them. And so there's value to that as an investor. And so we look at the outperformance of purpose driven firms. Another way to answer that, you know, why should VCs be, you know, focused on it, you know, one life is too short to work with, you know, folks who don't have a great sense of purpose, but financial return. For VCs, our main job is to produce the best adjusted return that we can for our investors. So we're professional investors, and optimizing return is something that we want to be focused on. People don't talk a whole lot about the risks, you know, of investing in companies that don't have, you know, solid governance, good leadership, good, you know, sense of purpose. But there's an implicit risk, I think, and, you know, companies that are either badly managed or, you know, managed by folks that aren't so, you know, so great. So that's something to consider. I think another way to think about the question, though, why should VCs be concerned about, you know, public purpose, and to flip it around? Why should the public be concerned about what VCs are investing in? And I think that is, that is an important question that, you know, that leaders within, you know, our state senate, our, you know, our federal government should concern themselves with and we are starting to see, you know, the SEC and some, you know, public pensions and others really start to ask some of these questions because you know, this It does have a big impact. What VCs invest in or don't invest in has an impact on the public.

Tina Pierce:

Here's some more insights on that in terms of what they do invest in, or what they don't invest in, answer that question for us, just with maybe one or two examples.

Elizabeth Edwards:

Yeah, so ESG environmental, social governance factors are factors that are related to purpose, having a good positive impact on the world. And that is something that I would say larger sophisticated investors have started to focus on or really at the the first few innings of this, we're not seeing a ton of capital really move yet, but I think we will soon An example could be climate impact. And so we have large investors, like Blackrock that three years ago, issued a statement that they're, you know, they're not going to be insuring companies and coastal areas, because of climate change. You have a lot of investors endowments, university endowments are trying to divest from coal from, you know, from gasoline from big greenhouse emissions. And so, you know, that is one area, you know, the environmental aspect. And then I would say, the second, you know, that you have environmental, you have social governance, you know, social being things like child labor, we look at this a lot, because, you know, there are certain ingredients in cosmetics, for instance, mica, that, unfortunately, historically, they've used a lot of child labor around the world in order to mine that mica that goes into your eyeshadow that goes into your blush and, and whatnot. And then governance. We've recently seen in Europe quite a bit, and now in California, and other places, attention to the boards of companies. And do these boards have representation? Are there women? Are there people of color on the board, we know that there are plenty of women and people of color that are, are very experienced and qualified to sit on these boards. But do we see the same kind of representation, you know, within that customer base or base employees that we see on the board, so that those are the three legs of the E, S and G. But as a venture capital investor, I think one of the biggest opportunities that we still have within call it the G, for instance, is more transparency around where capital flows. And so you brought up the really great point of where capital ultimately flows to founders. But there is a bit of a disconnect at the fund level. And here we are in Ohio, and Ohio actually has a law on the books that Ohio pensions must at least consider Ohio investment managers and minority investment managers. Interestingly, their definition of minority investment managers is, you know, really strictly people of color, Hispanic, and it does not include women, although we know that, you know, kind of the biggest gap is actually women and people of color and Hispanic. But that, you know, those types of policies, I think, do help, I think there's still a lot of work to be done that with, with, you know, average Joe investors, you and I, when we look at our retirement accounts, to see the kind of reporting that we really need to see in order to make informed decisions about where we want to put our money, because we as retirees, or you know, or folks that are saving for retirement, are putting our money, unbeknownst to us, in an industry that is owned and controlled 99.9% of it by white men. And so that's really the, you know, the first area where we need to see more transparency, we should see, okay, who owns this, who is making the investment decisions, do they have a diverse board or investment committee, as well as other things? I think the big one, probably the most important one, even before diversity is, hey, what's the climate impact here? Uh, you know, is this a group that is looking at sustainable technologies with their underlying portfolio companies? Are we focused on the things that we really need to be focused on for long term sustainability? So right now, you're not going to see greenhouse gas emissions reported in your Charles Schwab statement, you're not going to see, you know, gender diversity reported in your UBS statement? Should you probably.

Tina Pierce:

I love it, thank you for in depth examples that really help us understand, again, why we have the public should be concerned and research and looking into where our public dollars are going to support again, these venture projects. So I want to I want to go into that just a little bit deeper, more and more government access to cutting technologies, skills, and business models involve tapping into advances being made through private and commercial innovation. How can public policy foster conditions in which entrepreneurs can thrive, especially given, you know, this movement towards products that are environmentally safe? And towards not having a negative impact on our social environment as well?

Elizabeth Edwards:

Well, I think, you know, the, the funds need to flow in a way that reflects the values of the public. I think, one, you know, one challenge that I'm sure folks in elected office have, is you know, there, there's a good part of the public that just doesn't believe that climate change is real, or that we need to be concerned about gender or racial equity at all. So that yes, that is that is a challenge. But when you look to Europe, when you look to some of these other, you know, places, but I would say, you know, definitely Europe as the, as the leader, we're actually seeing pretty amazing strides in terms of getting more women and people of color on boards. So getting more representation there, we're starting to see more capital allocated towards climate initiatives. So I think it really starts with policy. First and foremost, do we have the public well, to make the decisions as to where our resources need to be going? Number one, and then actually focusing on that transparency. I'm a fund manager reporting, any type of reporting, accounting, all of that, you know, if you're going to, if you're going to count, you know, profits and losses, and you're also going to, you know, account for greenhouse gas emissions, I will be honest, it's not necessarily automatic. Those are things that we have to work at, and, and develop tools and systems and standardized terminology, standardized forms, in order for companies and managers to be able to do that efficiently. But those things aren't happening, those tools are definitely being used at larger companies. And we're starting to see some of it trickle down to smaller. So we're on a path, anyone that's a part of any of this is impatient to see it happen faster.

Tina Pierce:

I love it. Your last response also got this issue of diversity and equity. Right? And so female VCs are twice as likely as their male counterparts to fund women run businesses. What can VC firms, individual investors and entrepreneurs do to dismantle the barriers, female as well as people of color entrepreneurs face and meaningfully advance gender, racial, ethnic diversity, and equality and equity and venture capital?

Elizabeth Edwards:

I think it starts at the top, you know, you have to see, you have to see leaders at the top that are really committed to doing this on all levels. And so, I look at things like ownership of the firm leadership of the firm investment decision making, and then broadly, diversity within you know, the whole organization so It's pretty difficult, I would say, to network into, you know, a group of female founders if you are not female, although the the intention can be there, and I'm definitely seen as a, you know, great example, like, Kirk Sims is head of the Texas Teachers, Retirement System emerging manager program, he's come to women and private equity summit for and he's, you know, the only guy that but he funds female fund managers and so you know, makes the effort and shows up because that is part of you know, he is actively looking to fund female managers those same VCs, If you want to invest in women, you got to show up in the places where, where those female founders are interactive. And I would say the same is true for funding founders of color, you have to actively reach out network, make it a make it a priority, but it really starts at the top. Because if it's not, if it's not part of the brand, if it's not part of the mission of the organization, it just, it won't happen, right? Leaders can only focus on so many key initiatives at a time, and we're already three at a time. And so it's not in your top three, it's not in your top three, that's not going to happen that year.

Tina Pierce:

Thank you so much for that. So that top three, I would love to get your insights on what those top three should be as we think about what are the industry wide organizational and interpersonal barriers to kind of gender, and let's just say this broad all encompassing diversity, when we think about those barriers, and you've mentioned some industry wide organizationally. What are those things that are companies that our investors should be focused on to break down those barriers that may impact the diversity, both on an industry level and an organizational level?

Elizabeth Edwards:

I think recruiting is a big one, it honestly starts with, you gotta follow the money. So I know that there are plenty of female founded minority founded VC firms out there, that this is either one of the reasons they exist, or just by virtue of being a woman or a person of color, it is something that they recognize and what would like to see change that in and of itself, is a fundamental shift from, you know, the industry of yesteryear where it was just, you know, so patently, you know, white male, you know, sort of Stanford, Harvard, San Francisco based I mean, it just had a reputation. So you're, you're seeing more conversation and and more firms and, and just really great. Organizations and networks evolve. That's where it started. So those those communities that support entrepreneurs that are for Us, By Us, and have those you know, allies that have joined like, yeah, like, I love, you know, diversity, equity inclusion, like, you're actually great, you know, companies here, we should make sure to send someone or like, I'm gonna go, I volunteer, I'm going to show up at that event and network and meet people and help. But the really big shifts come from the larger investors and the ILPA, the International Limited partner Association, that is the group that has really set the standards for how pension funds and sovereign wealth funds, then invest in private equity funds, venture capital firms. And so when those investors at the top when the state of Ohio or you know, the Ohio State University endowment says, we're going to, you know, we're going to divest from greenhouse gas emissions, we're going to ask the question, of some of these venture firms that we're interviewing to manage our endowment dollars, like, what what's the ownership of your firm look like? Who is on your investment committee? Give us a breakdown of your diversity status within your firm. Give us a breakdown of your diversity status within the companies you invest in, when you have to put pen to paper, or fill out an Excel spreadsheet with this info. Just being asked that question makes people wake up and realize that they're being measured by yet another set of standards, not just what are your returns? And you know, what have your returns been for the last 10 years? But what are you doing in this space? So that's, that's really what needs to happen. And it's starting to happen. The questions are being asked, now, are the checks being written yet any differently?

I, I've heard some stories, you know, just anecdotes of firms not getting hired again. So typically, like you'll an endowment will invest in, you know, I fund three, and then I fund four, and then I fund five. And wait a second, is this is this firm, really representative of what we want to be investing in? They started asking the questions, maybe they don't get the investment in fund six, because the answers were not compelling enough. So I've heard of that happening a couple of times, I think what really needs to happen, though, is greater investment in the fund ones, and the fund twos of the firms that actually do meet the profile. So when you look at the new crop of venture capital investors out there, there are only a few public pensions, larger endowments that are truly investing in that new class of up and coming female and minority fund managers where they're, they're writing, you know, a million dollar or $5 million, or $10 million check into a first time or second time fund. Why is that important? Because you can keep asking the guys that have a billion dollars or $10 billion dollars under management, the same questions, and they'll make some changes. But there's nothing fundamentally different at the top. And I think it takes longer for that to really change within an organization. And I haven't seen a ton of firms like navigate that well, where its ownership, its control, its investment making decisions, you know, the newer crop of our emerging managers that are Latina, and black and female, right, those firms are backing those companies. It's just that, you know, we're not, we're not seeing a whole lot yet, even in downloads, endowments, and foundations are known to invest in emerging managers that are that, you know, more diverse set, but it's still typically their, their later stage buttons later, the funds that they have already, you know, built the firm over the last 10 years and done really, really hard work. So I think there's still opportunity to, to write smaller checks and smaller emerging firms.

Tina Pierce:

And you brought them full circle, again, noting that organizationally, it comes from the top you have to have leadership that is onboard and committed to the diversity of gender and minorities, right. And then you brought in that element of recruiting, you have to go out to where those businesses and companies are, and ensure that they have a mission and a vision that's connected to the public purpose, right. And then, you know, thirdly, that spark of hope that you have that companies will continue to connect to that public purpose that investors will ask those tough questions of the funding firms to say, okay, of the companies that you are working with, how diverse are they what is their commitment to the issues and the values that are important to our community, as they look to work with firms to invest everything from pensions to and I love how you brought in foundations, because again, as nonprofits, we look to foundations to provide this stability economically for our purposes and our missions that we care so deeply about that can provide again, those additional dollars when we need to do work in our community. So again, we want to ensure that those foundations are connecting dollars with the purposes that are ultimately being reflected in the work of the nonprofits, we want to make sure that there's a solid connection there. So thank you so much for that. Thank you for joining me today and sharing all of your wisdom and insights before we close the you Have any last tips to share with our rising women leaders?

Elizabeth Edwards:

Yeah, I would say that, you know, the the changes coming, it's obviously been a long time in the making, when I look at the, you know, the groups I'm a part of, and their successes, you know, other fund managers, female fund managers, black fund managers, Latina fund managers, I'm really excited to see so many new firms that are being formed, investing income, really, you know, compelling companies that are that are out there doing the work. And as long as you know, as long as we see this, this cohort of great fund managers out there and raising capital, investing capital, I think we will see a more meaningful impact here in the next 10-20 years, as those firms mature, and are able to attract, you know, more capital, but, you know, what can each of us do, you know, today and every day to help us you don't have investors just get the word out. Every time I, you know, I talked to an executive woman about did you know, that 99% of all, like retirement dollars are managed by white men. They're shocked, they're concerned, they go in, they talk to their wealth managers, the next day, the next week, and start making changes, because it's just something that's not well known. I think that there are so many other areas like Hollywood, sports, politics, where representation is obvious. This is one industry and unfortunately, we are still in a, you know, in a world where money and power are very closely linked. You know, and there's a lot of money in politics, still, unfortunately, that has an impact. And so I think, you know, this is one industry, where, whether it's intentional, you know, intentionally a lack of transparency, or I think it's just natural, because investment firms tend to be, you know, less out there, you know, right. They're not making a major motion picture, they're not competing, and, you know, in a televised event, you know, a sports event. So it's just not as obvious and it's, you know, something that just needs to be more out there. You know, and I think that the more individuals take note and and make their own investment decisions accordingly, we'll see, you know, faster and more positive change.

Tina Pierce:

Wow, Elizabeth, again, thank you so much for your time. Thank you to our listeners for joining us on the power cast today. Until our next episode, let's continue to change lives and change the world through leadership.

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