Tech: On the minds of the Women of Influence

In July, affiliate title Private Equity International and other affiliates unveiled the inaugural Women of Influence in Private Markets list to celebrate trailblazing women in alternative assets. It featured 60 women working across private equity, venture capital, private debt, infrastructure and real estate, selected by our editorial teams from over 680 nominations.

A number of the professionals on the list focus on investments in the technology sector. Here, we ask some of those women about the developments they are seeing in the tech industry, the skills required to grow portfolio companies in this space, and how they believe investors can contribute to efforts to enhance diversity in tech.

The panel

Amy Nauiokas
Founder and CEO, Anthemis

Kimmy Paluch
Managing partner, Beta Boom

Olivia Steedman
Senior managing director, Teachers’
Innovation Platform,
Ontario Teachers’ Pension Plan

Chelsea Stoner
General partner, Battery Ventures

Which tech verticals do you focus on and how have you seen those evolve over the course of your career?

Amy Nauiokas: My firm focuses on fintech and insurtech investments. As a venture capitalist who has spent her entire career cultivating resilient financial services businesses at the earliest stage of their growth, it’s been exciting to watch fintech become one of the most active sectors. Additionally, it’s been interesting to watch the funding rounds grow exponentially larger over the years. Mega-rounds of at least $100 million are becoming fintech’s new normal.

Kimmy Paluch: We know from numerous empirical studies that innovating for women and ethnic minorities is a multi-trillion-dollar opportunity annually in the US alone. Within that, we have found that women and multicultural consumers have been particularly overlooked in financial and health technology innovation. I see those verticals, in particular, as presenting massive opportunities for both economic gain and social
impact.

Olivia Steedman: Teachers’ Innovation Platform’s investments span a wide range of verticals, with the consistent theme of identifying unique applications of technology to solve challenging problems. Our investments in companies such as Motif, a novel ingredients manufacturer that uses synthetic biology to improve plant-based foods, and SpaceX, a pioneer in rocket and spacecraft design, are just two examples that show where technology is continuing to evolve.

Chelsea Stoner: I focus mainly on vertical, or industry-specific, business software, including software for specific healthcare sectors. I’ve invested in companies that make software for dentists, physical-therapy practices and even blood laboratories, for example. I’ve also done deals in other areas like financial software, payments technology and human-resources software. The biggest evolution I’ve seen with these types of companies is the proliferation of more software companies focused on very targeted markets; because the cost of developing software has come down so much in recent years, you can find very customized operating or workflow software for just about any industry imaginable.

What skills are most useful for investing in tech companies and helping them grow?

AN: While the role of a venture capitalist is to help start-ups achieve scale, the most useful skills aren’t necessarily part of the traditional venture model. We need to be able to provide founders with hands-on guidance for everything from hiring, organizational design and marketing communications to mental health support – the latter is especially important given the founder burnout crisis.

KP: Producing high returns comes down to three things: sourcing deals, evaluating companies and de-risking investments. Most people obsess about sourcing and choosing, but my experience is that investing the human and social capital to help portfolio companies succeed often trumps everything else, which is supported by empirical research. For example, at Beta Boom, we work with portfolio companies every day.

OS: Our experience investing across industries provides useful pattern recognition for finding great companies run by great entrepreneurs. Where TIP has been successful is by identifying incredibly talented management teams and working closely with them to realize their vision, often leveraging connections from Ontario Teachers’ ecosystem of over C$220 billion ($177 billion; €153 billion) in investments.

CS: While I think technology acumen helps, you don’t necessarily have to be a skilled technologist or engineer to invest in this sector. Other skills like understanding go-to-market models, knowing how to recruit and grow talented leaders, and having a personal network of talented executives can be very helpful too. It takes great people to grow great businesses.

What is the most exciting thing about investing in the tech sector right now?

AN: I’m excited about the new generation of affinity banking and the rise of fintechs focused on serving specific communities, like immigrants and communities of color. My firm has made recent investments in First Boulevard, one such neobank aimed at the Black community, and in Daylight, a neobank serving the LGBTQ+ community.

KP: Technology innovation is on an immutable march toward democratization. Unfortunately, more than 70 percent of VC investment in under-represented founders is going to alumni of elite universities and exclusive companies like McKinsey, according to Beta Boom research. These ultra-high-pedigree founders make up only about 1 percent of under-represented founders. I’m extremely bullish on the other 99 percent of overlooked innovators.

OS: Technology is helping to accelerate our path to a more sustainable world – having a direct link between increasing revenues and increasing benefits for people and the planet is certainly exciting. The pace of change within the tech sector is also something that excites me: both with respect to new technology development and the application of existing technologies in novel use cases.

CS: One thing that’s particularly exciting to me is the increasing number of technology businesses getting started – and scaling – in smaller business/technology markets. By this I mean places outside the major, traditional tech centers of the San Francisco Bay Area, New York, Boston and even Austin. We find great businesses all the time in places like Georgia, Vermont, Florida and Wisconsin, among others. I always joke that my investments are in places where it takes a connecting flight to get to the board meeting – no non-stop trips!

How can private markets firms support greater diversity in the tech industry?

AN: While capital is one part of the equation in improving representation of diversity in tech, approaching the problem with money alone is shortsighted. A one-size-fits-all approach to diversity will not work. Instead, we need to start from a place of understanding the unique challenges different groups face on the path to entrepreneurship. At Anthemis, diversity and inclusivity is part of our DNA and has informed our commitment to creating systemic, long-term change in the tech industry.

KP: The old Silicon Valley pattern matching is increasingly becoming irrelevant in today’s fast-changing innovation landscape. There is massive opportunity in founders coming from diverse educational and professional backgrounds. However, in order to unlock the trillion-dollar potential of this group of innovators, investors need to look beyond pedigree and need to play a more active role in helping founders succeed.

OS: The entrepreneurs building the companies that will shape our future come from across the globe. It’s important to cast a wide net in search of the best teams, seek opportunities from pools that might not be familiar, and support companies to recruit diverse operational and board talent. We are building a global, diverse team at TIP and we see real value in companies that offer varied backgrounds and perspectives.

CS: I don’t think there are any easy answers here. But certainly, we can be a model to our portfolio companies, and the industry at large, by setting a good example with diversity – using tools like the Rooney Rule to make sure diverse candidates are always being considered for open positions, and pushing for more diversity on our company boards. We’re starting to cast a wider net when recruiting junior investors, for example, and looking at new sources for talent, whether that’s new educational institutions or other industries. Data has shown that more diverse partners at investment firms often lead to investments in companies with more diverse leadership, so that can help as well.

This article first appeared in affiliate title Private Equity International