Investing in a diverse group of founders isn't a form of affirmative action, says billionaire Chris Sacca. It's an act of self interest, a fact many in the non-diverse venture capital world are ill equipped to recognize.
Sacca's venture capital firm, Lowercase Capital, has gained a reputation for putting money in a higher proportion of startups founded by women than competing firms. "We ended up getting there almost by accident," he said during an interview with Inc. editor in chief Jim Ledbetter at the Vision 2020 conference in San Francisco Thursday.
"It happened because I like making money and I like working with entrepreneurs who are building companies that are going to be worth lots of money, and who are working their asses off along the way," he said. He asserted that Lowercase could do more to recruit founders from minority backgrounds.
The problem: A lot of venture capitalists don't realize they are missing out on lucrative markets. He gave as examples his firm's investments in two startups that are tapping what he views as huge markets other venture capitalists are ignoring.
First, he spoke about his initially half-hearted investment in StyleSeat, an app for booking appointments with stylists and wellness professionals. The investor said he agreed to invest in founder Melody McCloskey's company because he knew her personally and knew she could hustle, but that he at first didn't think the company had a lot of potential.
He shared his thoughts on the startup with his wife, and she encouraged him to rethink his perspective. She asked him how much he thought women's haircuts cost. He guessed $40, an estimate so low it made her laugh. Then she asked him how many of their female friends he thought were naturally blond. That was when Sacca realized he did not understand the market for hair stylists. He went back to McCloskey and doubled his investment.
When McCloskey started seeking more funding from other venture capitalists, she turned up nothing. "I would keep referring her to my white male investor friends, and they just keep saying no," said Sacca. So he kept increasing his share of the company.
"It wasn't like affirmative action -- it was just like everyone else was asleep."
Sacca said Lowercase porftolio startup InVenture, founded by former consultant and UN analyst Shivani Siroya, could have fallen into a similar trap of being overlooked. The company is particularly active in Kenya, a country where other venture capitalists might not realize there's money to be made, underscoring the importance of geographic diversity as well. Siroya was self-funding it until Lowercase pitched in.
"Those two experiences have reinforced for us that everyone else is asleep, no one else is investing in these businesses," he said.