An Inclusive Approach to Capitalism: Eva Yazhari on Her New Women-Led Impact Venture Fund, Beyond Capital Ventures
Since its inception, the venture capital business model has been a grim example of capitalism-fueled power dynamics.
In a traditional VC transaction, an investor puts funds in a company—a monetary gain that will help scale the business. Yet what ensues is, in some ways, a partial loss. The founder, who has put her sweat equity into building a sustainable enterprise, now feels pressure to dedicate all of her energy towards prematurely generating outsize profits for her shareholders, or becoming a “unicorn” as soon as possible, rather than focusing on the long-term success of the company. It’s a bleak picture: To get here, the founder had to beat incredible odds, and now she feels forced to bow to her investors (who are often focused on a company sale or IPO) and often dilute her ownership of the business until she owns almost nothing. These extractive measures can result in the company’s mission being overshadowed by the demands of the money people.
This picture offers an example as to why venture capital has fueled leaders who are focused on profit without any concern for stakeholder wellbeing. Thankfully, that dynamic is shifting. With an increase of individuals who identify as women, People of Color, and LGBTQ+ in the venture capital space, more VCs are investing with a conscience and a willingness to share the wealth. This shift has The Conscious Investor founder Eva Yazhari thinking: What structural reforms and innovations are needed to propel this change?
As a venture investor, Eva wants to bring more justice and inclusion into the fold. She’s doing so with her new venture fund Beyond Capital Ventures where, as General Partner, she is employing equitable venture, a strategy she says will help “level the playing field in that power dynamic between the investor and the founders.” With equitable venture, a fund shares a portion of its profits with the founders in which they invested.
Here, Eva shares more about Beyond Capital Ventures’ strategy and the wider impact fueled by equitable venture. Her approach is a way to bolster equity and ownership, level the power dynamic, and to bring inclusivity to capitalism. “We see every portfolio company management team as a potential owner in Beyond Capital Ventures,” she says. “Our success is their success.”
A Conversation with Eva Yazhari
What is equitable venture?
Equitable venture is a strategy to change the way venture capital behaves in an ecosystem of founders and investors. Simply put, we view the founders of every company we invest in as a potential co-owner in our fund, Beyond Capital Ventures. What this means is that we plan to share the upside of the fund with them, by giving a profit share to every founder in our portfolio that meets specific milestones. The profit share is a way for the general partner, which is essentially the main owner and manager of a fund structure, to give profit to specific parties. Typically, if a fund has a couple of venture partners, you'll give them profits. Equitable venture extends to specific company founders in which you’re investing.
How is equitable venture an antidote to the power dynamic between founders and investors?
We seek to structurally align our incentives with portfolio company management teams by inviting them to be owners in our fund. Traditionally in venture capital, the investors in a company are the ones who hold the power. This power dynamic comes into play because these investors are substantial shareholders. The companies and founders tend to do what the shareholders want them to, in many cases. Most of the efforts of the company are centered around maximizing the investors’ profits, rather than the long-term success of the business. This can commonly include forcing exits for founders that promised returns to their investors, aggressive pressure on founders with little value add, and creating markets where company ownership is uneven and extractive.
Imagine a founder left with little equity after years of building a business, simply because the only capital available was venture capital funding. Equitable venture, in turn, levels the playing field in that power dynamic between the investor and the founders. We recognize that ultimately, entrepreneurs work much harder than venture capitalists, so by offering a stake in the fund’s performance, we are recognizing those efforts.
Tell us about Beyond Capital Ventures and how you’ll be employing the equitable venture strategy.
We’re a women-led emerging markets impact venture capital firm offering a diversified portfolio of Seed and Series A companies led by conscious leaders. At Beyond Capital Ventures, we will allocate part of the GP’s total carried interest allocation to portfolio company teams who meet predetermined performance milestones. We also have built in incentives in the Equitable Venture allocations for Founders and their companies to promote and attract women to management positions, and implement gender positive policies.
For seed investments, we will award a percentage of the GP stake to portfolio companies that go on to raise a Series A round in which we make a follow-on investment. For direct to Series A investments, we will put in place performance milestones that will enable our portfolio companies to earn a percentage of the GP stake over time. We decided to hold off until Series A for the allocation because it creates an ownership milestone. Once we give the profit share, it becomes a way for our portfolio company founders to be owners in our work. As someone who funds conscious leaders, equitable venture enables our fund to live that paradigm. We are funding people—and we are all in this together.
Beyond Capital Ventures has pioneered the use of a “gender bonus” in equitable venture as an innovative tool to spur reform. Can you talk about this intervention and how it disrupts that status quo?
Our team wanted to go one step deeper with equitable venture, to have it function as a tool to address gender diversity, one of our fund’s key impact themes. To encourage the companies we invest in to promote women into management roles and adopt gender inclusive policies, we are offering an additional bonus to companies that meet certain additional criteria, which include:
Having women being at least 25 percent of all full time employees in the company
Having at least one woman on the executive management team, or in a senior management position for at least one year prior to the Series A fundraise;
Having at least one woman on the capitalization table
Gender sensitive policies in place and enforced with regard to all aspects of the business;
Governance structure and mission statement that supports women in the business;
Positive impact of business model on women across the value chain (e.g., suppliers, consumers, etc.).
Companies that meet this criteria will be entitled to a 100 percent bonus of Carry Points relative to companies who do not meet the criteria. These additional criteria will be assessed at the time that the carry points will be allocated.
What is your motivation behind equitable venture?
We want our founders to be owners, have a stake in our work, and return gains into their ecosystems. In turn, this structure will support the Beyond Capital Ventures pipeline and ecosystem.
Equitable venture demonstrates that we're thinking about the founders - and the underlying value they create for our fund - and not being extractive with our work. It’s very easy to follow the traditional and systemic power dynamic model of I invest in you, you do whatever I see fit, and you show me a return. Equitable venture is a way to share some of the upside with our founders as they are the ones working the hardest to generate that upside.
Our whole strategy is centered around investing in the conscious leaders that are driving innovation around the basic goods and services like healthcare, energy access, financial inclusion, and the other sectors that we invest in. We are also aiming to be conscious leaders ourselves in how we deploy our investment strategy. Not only are we thinking about our investors, our beneficiaries, or the customers of the companies that we're investing in, but we’re also thinking about the environment and all the other stakeholders. Equitable Venture is part of our commitment to being holistic impact investors.
Who inspired this concept?
Leila Zegna, a general partner at Kindred Capital, is one of the pioneers behind the concept of equitable venture. We also learned about this strategy and structure from Teresa Farmaki of Astarte who allocated a profit share of her fund to Beyond Capital Fund, our first fund as an investee. And Patience Marime-Ball, of the Women of the World Endowment, inspired us to think differently about Equitable Venture’s potential, and implement the gender bonus.
Any additional potential business and investment benefits?
By creating the opportunity for the founders to be owners in the fund, we hope to build a community among our portfolio companies. They’ll be more likely to refer deal flow to us, communicate and take our calls when they’re busy, and put us in touch with other companies in their network. Venture investing can be competitive, and you want the founders you invest in to value your relationship because it gives you greater transparency and risk management as an investor.
What else drew you to this strategy?
Equitable Venture was a way for us to structurally innovate around the impact piece. Being an impact investor is more than metrics or checking a box. Creating deeper impact means questioning the structures that govern how we do business because those structures have produced inequitable outcomes. If we continue to do business as usual, we aren't going to change the fact that over 90 percent of VC funding goes to male founders. We have to fundamentally alter the power dynamics, and that starts with equitable venture and other structural tools that still fit into a traditional asset allocation model.
I cringe when I hear of funds that are using not just the traditional tools, but also have an all-male team and nothing innovative about their structure. At Beyond Capital Ventures, our intention is to have multiple dimensions of impact. So it's not just the way we invest, it's who makes the decisions for our investments. It's now the structure of how we are investing with the equitable venture pool. And it’s also giving the first fund, which is a pioneering non-profit evergreen structure, a percentage of the profit. It is centering our investment strategy around conscious leaders and aiming to be conscious for ourselves.
What is the ideal outcome?
It goes beyond just the numbers of returning some cash to the founders that we've invested in. Really, this is centered around signaling to them that they are also owners in our work. It is the feeling of contributing beyond ourselves. We're all in this together. And we are investing in people. If we were to say that we were investing in people and then did not put in place equitable venture, it may not have been particularly genuine. So the ideal outcome from this is the relationship and awareness that we’re all building something together.
Essentially, our goal is to evolve the transactional models of venture capital. We treat our portfolio company founders as true partners, stakeholders, and shareholders. We elevate them, and we shift the power dynamics. Because without these founders and their brilliant ideas, resilience, and dedication, we wouldn't exist. A lot of venture investors seem to forget that.
What do you see for the future of ownership and venture capital?
My way of doing things is to lead by example. Equitable Venture is something I believe in. It's a strategy that will get us closer to where we need to be. I hope other funds will be inspired to adopt this structure, and go above and beyond to be true partners to their portfolio companies.
Equitable venture fuels a greater representation of underrepresented groups. It fuels more equitable decision-making. I believe that equitable venture can change the game, but it does require a mindset shift away from the zero-sum game and the WeWork scenarios of the world. We are truly doing this for more than just financial return. We're creating communities and networks and, again, proving that we’re all in this together.
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