Transcript

Better metrics for better culture, part 2, with Kapor Capital’s Mitch Kapor & Dr. Freada Kapor Klein

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Welcome to part two of our episode with Mitch Kapor and Dr. Frieda Kapor Klein on choosing metrics that uplift your culture. and improve your bottom line. If you missed part one, go back and listen. When we last left Mitch and Frida, they had formed their early stage investment firm, KPOR Capital.

And they just committed to only funding startups that include a social impact mission. This commitment took a leap of faith at first. They didn't know whether using mission focused criteria would help their financial returns. But they had a theory. Now.

Was time to put it to the test. I remember going to meet with Frederick Hudson. The

Hugely extractive cost of phone calls to and from prisons. So where did he get the idea that this would be a great business? In prison. We should explain.

He was successfully engaged in an enterprise which is now quite legal, but at the time was not. Having to do with cannabis. Yeah. He'd be a cannabis mogul if he had started it a couple decades later. He was the

Best logistics guy. For all the neighborhood dudes. But there he is in prison and his entrepreneurial chops are at work again. So he starts a company called Pigeon Lake. Frederick created Pigeonly to help incarcerated people connect with their families.

Let family members print photos from their cell phones. and mail them to their loved ones. Next came features like a search tool. to help locate people inside the prison system. Every new feature addressed a problem Frederick Hudson.

had experienced first hand. To Mitch and Frida, the social value of Pigeonly was clear. Oh But mission alone wasn't enough to secure their investment. The Business Plan.

but also need to be viable. So there were proof points they wanted to hear first from Frederick. We want it to be guided by the data. He had really

Good answers. Two very tough questions. Was unapologetic, he was straightforward. And I said, Oh

who is committed, who knows the sector, who has a plan, he's thought things through. Okay, this is the kind of person we want to be backing. And that was kind of a template. For many founders we subsequently invested.

Mm. Frederick matched. The type of founder they were looking for. By any of the metrics they'd set. including a unique one we heard about in part one.

We were given credit. for distance travel. Distance travelled. Isn't it?

Measured in miles. It's a KPOR capital metric that takes into account Not simply what a founder has accomplished. But where they started from to get there. To Mitch and Frida, this is a far better predictor of success.

than a person's alma mater. And as they scaled KPOR capital, investing in more and more founders, it was this metric. that helped shape the culture of their firm. That's why I believe when you choose your metrics, you also choose your culture. So set benchmarks that you can be proud of for the life of your organization.

You gotta have incredible talent at every position. There are fires burning when you're going out. Can you believe it? Such an idiot. And then you go back to this is totally gonna be amazing. There are so many easy way. So I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. Working out of a three-bedroom apartment. Just how you do it. This is masters of scale.

I'm Reed Hoffman. Co-founder of LinkedIn, partner of Greylock. And your host. And I believe that when you choose your metrics, you also choose your culture. So

Set benchmarks that you can be proud of. For the life of your organization. If you've watched any track and field races longer than a hundred meters, you may have noticed a peculiar detail. The runners are staggered at the starting line. With each athlete a couple feet ahead of the last.

As you move from the inside. To the outside lane. The reason for this? Is geometry. Because a racetrack has curves, the person on the outside lane has farther to go than the person on the inside lane in order to reach the finish line.

That's why we talk about the advantages of having the inside track. But at some point. Some enterprising designer. Realize that you can measure and thus counteract. This mathematical inequality.

Hence. The staggered starting line. It's this kind of thinking that has shaped Michin Fried's investment strategy at K poor Capital. As you just heard, they use the unconventional yardstick. Uh.

Distance traveled to consider a founder's potential. And their likelihood of success. Because if a founder has spent their life on the outside track. They've had to run faster. than their competition.

Advantaged. On the inside. KPOR Capital has used this insight to identify talent and opportunities that others overlook. Companies like Block Power. Class Dojo.

A clear. Promise. And many others. To demonstrate how Mitch and Frieda's investment theory works in practice, we'll begin with a story they write about in their book. Closing the equity gap.

Let's jump to another of the stories in the book. Irma and Jake. From bitwise. Industries. They are a great complimentary pair. Ermis the engineer.

Jake is a lawyer by training. And they just work phenomenally. Well together. The idea for the business and the passion and the determination came from their own lived experience. Irma Ogwin Jr.

Came from generations of migrant farm workers. She became the first in her family to go to college. Becoming an engineer. Transformed her future path.

Jake Soberall also knew how a tech education Mm. Can change lives. His father had emigrated from Mexico to California. And was an overnight security guard.

Until he saw a commercial. for Computer Learning Center. He enrolled. And it put'em on a high wage. High growth career track.

Roman Jake. Wanted others to experience that same life changing transformation. So they found it. Bitwise industries. To provide tech solutions for clients.

That now include the state of California. Bitwise's major innovation. Is in how it trains its engineering workforce. They offer paid apprenticeships to those traditionally shut out of tech. Like veterans, the poor and unhoused.

Undocumented people. And the formerly incarcerated. Their scouting benchmarks. Like the ones Mitch and Frieda.

Use the fine founders. Bitwise. Was also looking for candidates who traveled a long way. Metaphorically speaking. Irma's insight was that the things that keep

Low income people Underestimated people. From pursuing Tech. And especially learning how to code.

Is The obstacles of daily life for poor people. Not their inherent talent or smarts or interest. So she began focusing on things like okay we're gonna pay the apprentices.

They need child care. We'll provide it. They don't have a way to get to school. We'll pick'em up. their family is food insecure, we'll drop off some groceries.

But Jake and Erma's mission didn't stop. and uplifting the workforce. They also wanted to revitalize what they call Underestimated cities. Starting.

with her own hometown. Jake and Irma are from Fresno. No one thinks of Fresno as an epicenter of tech or innovation. How can people in Fresno be trained

To enter into the tech ecosystem for jobs in Fresno. Not we're gonna take them out and transfer them to Silicon Valley or someplace else, but how can we teach them tech skills, let them live in and uplift their communities? Lifting people out of poverty and jump starting. А сирі з ікосистем.

All while making profits sounds almost too idealistic to be possible. But these goals are actually connected. When you provide jobs and training. To underserve communities the buying power of those communities. Goes up.

That kickstart. The local economy. And sets a flywheeling that leads to improved outcomes for all. As evidence this works, Bitwise's success can be seen in one surprising metric. Realtors in Fresno will tell you that about thirty percent of the new home buyers are all Bitwise employees or trained at Bitwise.

They actually transformed the economy of the city. And they went on and did this again in Bakersfield. In Mercedes. In Oakland. And then they expanded nationally.

In February twenty twenty three, the KPORs led an eighty million dollar round for BitWise that will help fuel an expansion into Chicago's South Side. Telling the bitwise journey. has become something of its own mission for Mitch and Frida. Not just because it's a great story. But because the culture of Bitwise

It's what help them make their decision to invest. And hopefully this thinking. Will spread throughout the V C world. When We made a trip to Fresno.

The atmosphere in their building was palpable. Of Inclusiveness and belonging of energy of momentum. You could see people changing on the spot.

Urma. Where's a t shirt or a sweatshirt? almost every day that says No one belongs here more than you. The lived experience of our founders.

Translate Into The core products and services of the business But also the culture of the companies that they start. Exactly.

When you build. Using human centered metrics, you get more human centered companies. But as you'll hear when we return. The opposite. Із асотру.

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Learn more at creativeplaning.com slash masters of scale. Hey there, it's Jill Slassenger. I'm launching a new show. It's called Money Moves, and your money is going to move. We're gonna help you make better financial decisions. We're gonna call out the BS you're finding all over social media. We're gonna give you actionable guidance to make your financial life clearer, less stressful. We're gonna answer your financial questions and take the mystery out of your financial life. Follow and listen to Money Moves with Jill Schlesinger wherever you get your podcasts. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show because every Friday we release a second Rapid Response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely. From Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find. Just search Rapid Response wherever you listen to podcasts and hit follow to make sure you never miss an episode.

I hope to see you there. We're back. with Mitch Kapor and Dr. Frieda Kapor Klein. If you're enjoying this episode. Share it with friends by clicking the share button on your podcast player.

Before the break we heard out Capor Capital. Use human centered metrics to find founders worth investing in. Their theory? That founders who spent their lives running on the outside track. are ready to outrun the competition.

These founders can spot market gaps. Where others fail to look. And they tend to scale. With inclusivity. At the heart of their cultures.

But ironically. One of the K Port's most famous investments scaled with the opposite approach to culture. And it led. to an implosion that rocked the company. And all of Silicon Valley.

That's right. They were one of the very first investors. In Uber. I knew uh Garrett Camp. Garret Camp

Canadian entrepreneur Co-founder of Uber. He had this incredibly intriguing idea. It was at a time when The technology was still pretty primitive.

Connectivity on iPhone still wasn't great. 3G was just coming in. GPS barely worked, the maps were terrible. Travis Travis Kalanick Co-founder and former CEO of Uber. When I got involved at the very beginning

He was only in the picture as an angel, not as an executive. Had he been, I think it would have been a different analysis. But what I saw trying to look around the corners, I said, Oh, if you can use Your phone. To summon transportation.

That could be a game changer. And on that basis it went in at the Literally the very, very, very First.

R That round. Was in twenty ten. A year before Mitch and Frida went all in. On social impact investing.

But as Frito points out. They did believe Uber could close equity gaps lives. Starting. With the passengers. Black people, especially black men.

From the early, early, early days of Uber said Now I can get a safe ride home. Suppose I'm a hospital worker and I'm in a Dicey neighborhood and public transportation isn't running, I know I can get a safe ride home because the taxis won't stop for me. Frida still makes a point of asking her Uber drivers

Their stories. There's a woman who picked me up at SFO. Single mom She only drove at night? When her mom could watch her daughter.

There's no other job where she could pick her hours. It gave her maximum time with her daughter to take her to school, to have dinner with her. Then when her daughter's ready for bed, Mom goes out and drives for Uber. These are all ways. that Uber accomplished. What Michin for you to hope.

For all their portfolio companies. But as the company scaled. It did so aggressively. Often fighting with cities for their right to exist alongside the taxi medallion system. This combative spirit.

Stoked by Travis Kallanick and others spilled into the culture. And the employees. Felt it. I was invited in by different employee resource groups. to come do presentations on bias. Travis was

Halfway around the world, of course, when I was giving up. Talk about bias. But then what started to happen quite ironically was Is Amel Mical. Who was a senior exec there.

started calling only on the weekend He would call Mitch's cell phone and say, Can I speak to your wife? Which probably tells you a little about some of the culture at Uber. Free to spend hours.

Talking to Uber senior executives about what she thought needed to change. They would call with crises and I would say, Okay, here's what you need to do. And they followed exactly none of my advice. But they kept calling. Then

in two tausen sevent An Uber engineer named Susan Fowler. wrote on her blog about her terrible year with the company. Her post. blaze that fiery path across the internet.

as she detailed instances of sexual harassment Uber's HR department ignored. It was exact the kind of abusive behavior. Frida had fought against for decades. The K pors. Right, an uncomfortable crossroads.

Ideally. Loyalty to principles and loyalty to a portfolio company are one and the same thing. With Uber, they diverged dramatically. The culture was toxic. It needed to be called out.

We couldn't remain silent. So they didn't. Instead, they wrote an open letter to Uber's board and other investors calling out Uber's behavior. And arguing for change. It was very controversial at the time.

Other V Cs Came. to companies in our portfolio. And said, You gotta get rid of Korea.

You should take money from us. These are the hot companies. because they're going to turn around and do to you what they just did to Uber. So it's really the knife in the back. You heard that right. Certain V Cs

Use this moment. To try and poach. KPOR Capital Investments. Fortunately the companies just came and They came and told us.

I was on stage at South by South West. And a woman entrepreneur asked me the question. What should I say to this person? And I was stunned. I did not know this was going on. And our entrepreneur said to the first V C who approached her.

Thank you for telling me who you are. I will never take money from you. Yes, exactly. Yes. Like they have principles we don't. Don't you want our money. No thank you. Yeah, no, I thought your letter was super important because it shows that

above everything, it's doing the right thing and being right for humanity. And for who we aspire to be, and that's where everything targets to. It's not. Like you just have to be whatever the equity value of the business is. Like, well, no. It's like that's tobacco company thinking. It's terrible.

Right. Right. Indeed. The experience with Uber. was a major lesson in why building around human centered metrics is sound business advice.

When you build with only short term shareholder gain in mind. You may be setting your company up. for a major fall down the road. But culture problems. aren't always as glaring as the Uber example.

Cultural corrosion. Can happen at any organization. If You're not measuring for it. Which is why.

Even before The Uber scandal broke. Other Capor capital companies were looking for more uplifting. Benchmarks for success. Brian and I were running a focus group together.

Brian is Brian Dixon. On campus at UC Berkeley of our founders. He started as one of the firm's first Summer Associates. And today he's co managing partner.

of Capor Capital. He'll help tell. The next part of the story. the group that we assembled at U C Berkeley They were great. They kinda told us some of the challenges that early stage companies were facing.

As Brian and Frida. Listen to these founders. They learned there was one challenge. that rose above the others. Across the board what they said is we need help hiring engineering talent.

We can't compete with Google and Facebook. On compensation. And we need some way to signal that we are different. They wanted to be able to show the world and potential candidates what they stood for, why they were building these type of companies. But they also wanted something that was actionable.

That feedback for us was gold. As you've already heard. Scaling companies around a clear mission. Is good business. But that's success.

Sometimes comes on a longer timeline. And if you can't stay competitive on talent in the short term. your chances of hitting those long term goals go down. What these startup founders needed. Well some kind of

Competitive differentiation that set them apart. In two thousand sixteen. They found their answer. The Founder's Commitment. The Caper Capital Founders Commitment is a commitment companies make to build a diverse and inclusive workplace.

From the start. Not waiting till you're a hundred, a thousand, or more employees, but when you're just getting started. The founders commitment. Wasn't retroactive. Which explains

Why Uber never signed it. But many other companies already in the portfolio did. Because the desire to build diverse cultures didn't just come From the investor side. The goals come from the founders and not from us.

Because at the end of the day it should be authentic to the founder. And they should set goals the same way that they're setting goals for financial goals or headcount goals or the number of customers. Not only do these diversity goals need to be specific, but The founder needs a strategy to achieve them.

But that's something Kapor Capital. Helps with two. Brian has an example. I won't name the company. Фром інвестмент, і вас рокишіп ава компанії.

The founder had a challenge where they had diverse employees on the sales team, on the HR team. But the engineering team was mostly white and mostly male. This company's founder recognized they were falling short of their diversity and culture benchmarks on the engineering side. The founder was, you know, I'm at a thousand engineers. When am I gonna make this right? They needed a path forward to meet the metrics they had set.

So KPOR Capital, help them formulate a strategy. Listen to their solutions. Because it may remind you of the bitwise story. From earlier in the show. They ended up implementing an internship program so they can attract candidates when they were still in college and help build that pipeline for when they would graduate. And they ended up getting a bunch of candidates to that. They ended up having a bootcamp like program where they're able to attract non traditional candidates and get them into their workflow as well. And they also partnered with some of the boot camps.

who had great engineering talent, but just didn't have a traditional path. These solutions help the company change the makeup of their engineering team. Which in turn. Change their culture for the better. Ultimately they did end up changing the culture.

It's not a problem today, I can confidently say that. But back then There weren't any blueprint of how to do this work. And I think that that was what was so important about What Mich and Friday In particular, brought to the table.

The founder's commitment. Help KPOR capital companies set their benchmarks. And meet them. And not meeting those benchmarks. Had consequences.

If a founder Yeah. Putting it off. And then they were raising another round. We would not

Participate in follow on. This was not Performative nonsense. This was not Check the box. This was

We're gonna help you. Build a team that looks like your customers. And if you think about it, that is simply good business. However you set them. Metrics matter.

And When you can show those metrics to others, they can be very persuasive. In twenty nineteen, Kore Capital released a powerful set of metrics that kicked off a wave of conversation in the business community. It was a comprehensive impact report. Looking at the financial performance of their portfolio since committing to the social impact criteria.

There were a couple companies they surprisingly left out. Early on we decided we were not going to include any of the results from the earlier investments in Twilio and Uber. That's right. They excluded two blockbuster investments. That would have made Capor Capital's returns.

Look even stronger. But there was a good reason. For one thing, they would have skewed the results enormously, so we would have been in the top one percent. But it also happened during the formative period of Cape Or Capital when we weren't a hundred percent impact focused. We said no, we're gonna pick a narrower data set to show that we're really serious. All of the companies had to meet our investment criteria.

even though it meant eliminating the two absolute highest performers. Even using those rigorous criteria. The twenty nineteen K Boer Capital Impact Report Or shocking news. Well.

Maybe it wasn't shocking. To mention Frida. But it did stun. The Venture World a bit. The original impact report was a game changer because it did a couple of things.

That's managing partner. Brian Dixon again. Mm. One we released our progress to date. We also showed the world that we were a top quartile venture fund.

He had a three X T V PI. We did twenty nine percent IRR. And we pretty much showed that we could do it by building it with a diverse founder base. Fifty-nine percent of our founders were underrepresented, and also women founders. If you didn't follow all of those metrics, that's okay. The VC community did.

We were able to show that We had top quartile financial returns. In comparison with all firms. Of a similar size. The comparison

Against all comparable firms. And not just other social impact firms capture the attention. of some influential voices on Wall Street. Carla Harris, who was vice chair, I think at the time of Morgan Stanley. was just beside herself with joy.

That we had made an unequivocal case for things that she had been arguing for years. Carla and literally dozens of other folks came up and said Thank you for doing this. I am using your report. with the people with the power that I need to convince

We've provided the data. That this is not concessionary. And turn conventional wisdom on its head. Kore Capital followed up on the two thousand nineteen report with another in two thousand twenty two. That continued the success stories of their portfolio companies.

Through the turmoil. of twenty twenty and beyond. Two thousand twenty two was also the year Mitch and Frida stepped back. From day to day leadership of K Por Capital. Putting the firm in the hands of Brian Dixon.

And his co managing partner. U Lily. Oh Novak Pori. It was a thoughtful succession. In contrast.

When Mitch stepped down from Lotus in nineteen eighty six. By that point. They'd been partners for many years. They had led successful investments. We were confident that they were going to carry on in the spirit with which we started. And that had been the idea all along. So they went out. And raise this

Hundred twenty six million dollar fund. Which is one of the largest black lead Funds that Has been done. We ended up raising one of the top ten largest funds from a Black Fund manager. And so are really proud of that work.

But more proud about the founders that we're able to back and the companies that we're able to support. Instead of writing a two hundred and fifty K check, we can now write a million dollar check and lead a seed round. We're still backing the same type of founders, which are Extremely diverse, but extremely mission oriented, and that's exactly what we do, and we're proud to do this work every day. Brian and U Lily plan to deploy this fund to push the boundaries of human centered investing. because your successors should be able to uphold your metrics for good culture. and advance them farther down the field.

Wild. Mission for you to have handed over the reins. of Capor Capital. They have not. Step back from sharing their theory.

With the world. In most quarters of the financial world There's still a core belief that if you're doing anything for impact or diversity, you're being concessionary on returns. You will see us.

And Frida in particular. trying to do something about the larger investing ecosystem and changing that. We think that how you make your money Is as important is what you do with it.

I'm Reed Hoffman. Thank you for listening. Humans will never be more intelligent than AI. There can be two types of companies. Those were great at AI and those that went out of business because they weren't. How do we build a future?

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and we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. Masters of Scale is a Wait What original. Our executive producers are June Cohen, Darren Triff, And Chris McCloud.

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