Mitch Kapor is a veteran leader in technology and finance. He was one of the earliest developers of the spreadsheet while working at Lotus, and an early investor in many tech giants. This week, Kapor and his wife Freada published Closing the Equity Gap: Creating Wealth and Fostering Justice in Startup Investing. James Ledbetter recently interviewed him for the Observer; this transcript has been edited for length and clarity.
Observer: Let me start with a somewhat personal question. You’ve had a legendary tech and financial career for decades. You don’t need to publish a new book. What made you take this project on?
Kapor: The work that Freada and I have been doing over the last decade-plus with Kapor Capital is really the most important work that I’ve done, the culmination of everything that I’ve learned. This is actually my first book. I haven’t had as much to say as would cause me to do a book prior to this.
I was not planning to start a venture capital firm. I was doing angel investing, and Freada was nudging me: Why wasn’t the investing I was doing more aligned with my own values? I was skeptical, because if I think about the mission of these companies, I’m just going to miss out on all the hot deals. But she prevailed on me, and we began to think about an approach to investing in high-growth tech companies that were also making a positive difference in the world.
This was 2008 and 2009. And the surprising thing was how compelling it was from the outset. It turned out that there are a huge number of founders who are starting their tech business because they want to change things for the better, and systematically told “Don’t do that. You won’t get funded. Take it out of your deck.” In our experience, you can invest in companies to improve the world and make money. That’s still anathema, but we have the stories and we have the data. That just seemed like a story worth telling.
You are talking about founders who are trying to bake in a social mission at the very early stages. But you are rather skeptical about the commitments to diversity and inclusion at the big tech companies. Can you explain that a little bit?
It’s just a lot harder to turn around an ocean liner than a canoe. A former head of people ops at Google said, “When we had five priorities at Google, diversity was number six. But when we had ten top priorities, it was number eleven.” We started trying to work with Google and Facebook on the nonprofit side. There were these lawsuits, the companies wanted not to disclose what their diversity stats were, and they eventually lost, or Google gave up, and Google came to us and said, “We want you to be our partner to tackle this diversity issue.” But they had trouble executing, taking it seriously and focusing on it. Whereas with founders, once we said, “We have money, but we’re also going to align with you on mission,” it gave us this enormous competitive advantage. We kept winning deals we otherwise wouldn’t have won because it turned out that that is what founders were looking for.
I don’t think that anybody would really question that financial services and big tech as a sector are lacking in diversity. But I wonder, are there other sectors where you see progress that you think finance and tech could benefit from emulating?
I think there are. A number of companies and professional service firms have third-party neutral complaint handlers that are an integral part of their people management. And they serve an incredibly useful function, which is to provide an informal channel if somebody has an issue or a problem that they can go to, to seek a resolution rather than file a formal complaint.
It’s telling that your response is about retention as opposed to recruitment.
If you look at the statistics, the hiring of people of color and women has gone up in a number of cases, but they leave. It’s a matter of, is the culture such that people who don’t fit the conventional stereotype can succeed.
One of the points you made is that Silicon Valley presents itself as a kind of ultimate meritocracy. But it isn’t, and I’d love for you to provide some examples of non-meritocratic behavior.
Until very, very recently, and still largely the case, when a venture capital firm wants to hire a new partner, they just work their network. So they wind up hiring more people like themselves because that’s who they know. And after George Floyd was murdered, our partner Brian Dixon published a post on the subject of addressing venture capitalists who wanted to invest in more black founders and founders of color. And he said, start with your own team. And actually, First Round Capital and Initialized have both in print credited Brian’s advocacy for a change in their practice.
You were an early investor in Uber, but as I read your chapter on that company, it comes across as a kind of mea culpa. Can you explain a how your view of that company took shape over time?
Sure. We invested in Uber right as Kapor Capital was beginning. That was before we had our impact investing commitment that every company closes gaps of access or opportunity for low income communities or communities of color. So we never count the Uber financial results when we talk about our returns. Travis was only in the picture as another angel in the deal. Travis was asked to step in, he retroactively became a co-founder, and the problems and issues really derived from the culture that was put in place subsequently. So it wasn’t there at the time of investment. But the culture at Uber was completely out of control and toxic to women. After Susan Fowler wrote her blog post about what a horror show it was, Freada said to me, we can’t remain silent. We wrote this public post calling on the other investors and directors to say this is unacceptable.
You’ve tried to implement certain changes at your own firm in the direction of diversity. Do you ever worry that your returns will suffer or that you’ll get pushback from the limited partners?
We’ve analyzed our returns, we’ve had top quartile returns since inception measured against all firms of our size. The proof is in the numbers and we see no reason that that’s going to change. We think it’s a fundamental dynamic. I can give you an example. Gusto was a company that reached out because of what we stood for and wanted us in their deal. They were vastly oversubscribed. But they wanted to work with investors who could help them in their mission and in their relationship with their employees that’s actually how we got in that deal.
Beyond your company, are there other companies in the tech or VC world that you think are pushing this in a successful way? Salesforce makes a big deal publicly about trying to get points for commitments to society. I’m not asking you to comment on Salesforce specifically, but are there beacons that you would point to and say this is the way forward?
I would say Twilio. Jeff Lawson as CEO has really demonstrated leadership in publicly saying “we want to be an anti-racist company.” They grew too rapidly, like lots of other tech companies and had to pull back. But he’s talked about how you do it in a way that doesn’t disproportionately disadvantage people of color.
Let’s project forward five years from now, 2028. What yardsticks will you use to determine whether your prescriptions have failed or succeeded?
What are the returns on all the funds? And have they kept it up? More broadly speaking, what happens with the whole ESG movement. I actually think, we’re moving to in the world I want to see, one in which taking ESG factors into account is a requirement of fiduciary responsibility.