The growing focus in the alternative investments industry on diversity, equity and inclusion has slowly begun to give women, minorities and other underrepresented groups more access to capital and opportunities to join teams that are building innovative businesses or to launch their own. But the way this focus is being implemented is causing leaders at all stages of the funding process to rethink how this can best be achieved.
That’s the view of Yanev Suissa, founder and managing partner of SineWave Ventures, who recently spoke with Venture Capital Journal about the deeper significance of diversity when it comes to the talent that venture fund managers are seeking. The Arlington, Virginia-based firm focuses mostly on deep tech start-ups and is nearing a final close on its third fund, whose target is said to be up to $150 million.
A better word than diversity for what VCs are after may be adversity, said Suissa. Much of the argument made for why DE&I is critical is “that these folks have faced a lot of adversity. And what does that mean from a returns/outcomes perspective? Growing up LGBT, I had a lot of challenges,” just as women and people of color have faced their own challenges in terms of bias and rejection.
“If you have overcome those or fought those, you develop perseverance, you develop grit, you develop drive and the desire to overcome the norm and break out of the box that folks have put you into,” Suissa explained. “That’s what we’re trying to do with our start-ups and our investments and our teams. We want to break out of the box. That’s the point of venture and of entrepreneurship.” Higher returns often come from seeing an opportunity that others have missed, he added.
Unfortunately, the box mentality tends to be reinforced, not questioned and reimagined, by the prevalent thinking around DE&I, he contends. Instead of creating separate buckets for deploying capital to underrepresented founders and fund managers and encouraging a check-the-box exercise for those buckets, Suissa urged people to reconsider the purpose and goals of diversity more holistically.
Too many institutional investors are inclined to think of diversity and returns separately rather than understanding that hiring or funding someone who embodies out-of-the-box thinking and a spirit of perseverance often leads to higher returns. That’s harmful and the wrong way to think about it “because you’re probably looking for the wrong things,” he said.
Diversity needs to be implemented in a more qualitative than quantitative way, in order to drive quantitative results. “I think that’s a harder approach, but the more important approach,” he argues.
Although there are relatively few people who identify as LGBTQ+ or as ethnic minorities in the VC world, a lot of them have used their experiences to think more openly, challenge norms and navigate traditional processes to find new and exciting ways of doing things, Suissa added. That’s how he sees diversity and innovation as being tied together and he wants the VC community “to refocus on the outcomes we’re looking to drive from diversity,” which he believes will have a bigger impact.
Rather than trying to hit certain numbers around DE&I, Suissa and his partners trust that a multicultural mix of talent will result organically from a mindset of recognizing people’s intrinsic value and fostering diverse networks, expertise and experiences.
Cultural affinity helps
The founders of many of SineWave’s portfolio companies represent the various categories that SineWave’s team members are associated with, including women, people of color, sexual orientation and veterans of the armed services. “There’s an ultimate connection and relationship to those entrepreneurs because we understand where they come from and, to some extent, how they think differently,” said Suissa.
Cultural affinity between a SineWave partner and a founder is just one of several factors that can convince a founder to select SineWave over another VC as an investor, “but it certainly helps,” Suissa noted. “Then from there you can use all of the other team members to broaden beyond that.”
Vivek Ladsariya, a SineWave general partner of Indian descent, has brought in several entrepreneurs “who happen to be people of color, because they think differently, and he’s able to relate to them [and motivate them],” Suissa said. But their unique perspective is only a starting point, as these founders “have to be able to execute in all kinds of markets, with all kinds of networks.”
All three founders of one portfolio company, Operant, have diverse backgrounds: chief technology officer Priyanka Tembey and CEO Vrajesh Bjavsar are of Asian descent, while Tembey and chief marketing officer Ashley Roof are both women. Operant’s cybersecurity platform protects clients’ cloud-based software environments.
Operant’s founders met Suissa and general partner Patricia Muoio when they were raising their $3 million seed round at the end of 2022. “[We] were looking to partner with firms specializing in cybersecurity. We were very excited by Pat’s technical leadership in cybersecurity and career at the [Department of Defense] and other places,” Tembey told VCJ in an email.
She sees the diversity of Sinewave’s partners as a definite plus. “Our first pitch call with SineWave was with Pat Muoio, which was the first time we were doing a technical deep dive pitch with a firm partner who is a woman,” she said. “Having a PhD in Computer Science myself, I was particularly excited that [Muoio] had a PhD degree from Yale and by her technical leadership and R&D career at the DoD.”
Tembey said she and her co-founders were looking for VCs with whom they could have a long-term partnership over the course of building out Operant. “Our subsequent relationship with the whole SineWave team has enforced that sense of partnership through the conversations and support they have provided us. Both of our teams being diverse is central to that dynamic, as I think we have a shared perspective about what it means to succeed with creativity and grit when there isn’t necessarily a clear paved path. Personally, having women mentors at a leadership and executive level is important to me and I’m very excited by the opportunity to work with Pat as my mentor.”
Eliud Polanco, president of Fluree, a web3-based data-sharing platform, said he appreciates that SineWave’s partners encouraged Fluree’s team to devote as much attention to fostering a diverse community as to the appropriate go-to-market strategy and other business fundamentals.
Polanco, who’s of Dominican descent, became president of Fluree last September, when the company merged with ZettaLabs, which Polanco had co-founded in 2019. SineWave participated in the combined company’s $12 million Series A round in April.
Typically with VCs, “most of the conversations tend to be around go-to-market and financial metrics and KPIs. Very few [GPs] are interested in getting to understand what are the things you value as a human being,” Polanco noted. “How are you going to manage things like work/life balance and how are you going to grow the company but not burn yourselves out and how are you going to create a mix of an interesting group of personalities to see how the teams are going to work and get along together?”
The thoughtful conversations that Polanco and other leaders at Fluree had with Suissa and the other partners reassured them that SineWave cared about them as people, not only as an investment in its portfolio, he added.
Fluree’s team includes people of European, Indian and Hispanic descent, as well as people who identify as LBGTQ+, Polanco said. “We’ve used that as we try to scale the team. Now we have resources spread across different parts the US. So a lot of this is making sure that we have this nice blend of people and build an environment where everyone feels that they’re contributing.”