Better metrics for better culture, part 2, with Kapor Capital’s Mitch Kapor & Dr. Freada Kapor Klein

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1:49Welcome to part two of our episode with Mitch Kapoor and Dr. Frida Kapoor-Klein on choosing metrics that uplift your culture and improve your bottom line.

2:02If you missed part one, go back and listen. When we last left Mitch and Frida, they had formed their early stage investment firm, Kapoor Capital, and they just committed to only funding startups that include a social impact mission. This commitment took a leap of faith at first. They didn't know whether using mission-focused criteria would help their financial returns, but they had a theory. Now was time to put it to the test. I remember going to meet with Frederick Hudson. He started a business to radically disrupt the hugely extractive cost of phone calls to and from prisons.

2:45So where did he get the idea that this would be a great business? In prison. We should explain. He was successfully engaged in an enterprise which is now quite legal, but at the time was not, having to do with cannabis.

3:04He'd be a cannabis mogul if he had started it a couple decades later. He was the best logistics guy for all the neighborhood dealers. But there he is in prison, and his entrepreneurial chops are at work again. So he starts a company called Pigeonly. Frederick created Pigeonly to help incarcerated people connect with their families. It let family members print photos from their cell phones and mail them to their loved ones. Next came features like a search tool to help locate people inside the prison system. Every new feature addressed a problem Frederick Hudson had experienced firsthand. To Mitch and Frida, the social value of Pigeonly was clear.

3:52But mission alone wasn't enough to secure their investment. The business plan would also need to be viable. So there were proof points they wanted to hear first from Frederick. We wanted to be guided by the data. he had really good answers to very tough questions. He was unapologetic. He was straightforward. And I said, oh, this is somebody who is committed, who knows the sector, who has a plan. He's thought things through. Okay, this is the kind of person we want to be backing. And that was kind of a template. for many founders we've subsequently invested in.

4:46Frederick matched the type of founder they were looking for by any of the metrics they'd set, including a unique one we heard about in part one. We were giving credit for distance travel. Distance traveled isn't measured in miles. It's a Kapor capital metric that takes into account not simply what a founder has accomplished, but where they started from to get there. To Mitch and Frida, this is a far better predictor of success than a person's alma mater. And as they scaled Kapor Capital, investing in more and more founders, it was this metric that helped shape the culture of their firm. That's why I believe when you choose your metrics, you also choose your culture.

5:27So set benchmarks that you can be proud of for the life of your organization.

5:39You've got to have incredible talent at every position. It's like this huge push. There are fires burning when you're going home. Can you believe it? Such an idiot. And then you go back to, this is totally going to be amazing. There are so many easy wins. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. Working out of a three-bedroom apartment. Stuff that just seems absolutely nut balls. Ten years later, we're like, well, that's just how you do it. We haven't made it just how you do it. This is Masters of Scale.

6:16I'm Reid Hoffman, co-founder of LinkedIn, partner at Greylock, and your host. And I believe that when you choose your metrics, you also choose your culture. So, set benchmarks that you can be proud of for the life of your organization. If you've watched any track and field races longer than 100 meters, you may have noticed a peculiar detail. The runners are staggered at the starting line, with each athlete a couple feet ahead of the last as you move from the inside to the outside lane. The reason for this is geometry. Because a racetrack has curves, the person on the outside lane has farther to go than the person on the inside lane in order to reach the finish line.

7:00That's why we talk about the advantages of having the inside track. But at some point, some enterprising designer realized that you can measure and thus counteract this mathematical inequality. Hence, the staggered starting line. It's this kind of thinking that has shaped Mitch and Frida's investment strategy at Kapor Capital. As you just heard, they use the unconventional yardstick of distance traveled to consider a founder's potential and their likelihood of success. Because if a founder has spent their life on the outside track, they've had to run faster than their competition advantaged on the inside.

7:39Kapor Capital has used this insight to identify talent and opportunities that others overlook. Companies like BlockPower, ClassDojo, Acclima, Promise, and many others. To demonstrate how Mitch and Frieda's investment theory works in practice, we'll begin with a story they write about in their book, Closing the Equity Gap. Let's jump to another of the stories in the book, Irma and Jake from Bitwise Industries. They are a great complementary pair. Irma's the engineer. Jake is a lawyer by training. And they just worked phenomenally well together. The idea for the business and the passion and the determination came from their own lived experience.

8:28Irma Oglin Jr. came from generations of migrant farm workers. But through scholarships and study, she became the first in her family to go to college. Becoming an engineer transformed her future path. Jake Soberall also knew how a tech education can change lives. His father had emigrated from Mexico to California and was an overnight security guard until he saw a commercial for a computer learning center. He enrolled and it put him on a high-wage, high-growth career track. Irma and Jake wanted others to experience that same life-changing transformation. So they founded Bitwise Industries to provide tech solutions for clients that now include the state of California.

9:21Bitwise's major innovation is in how it trains its engineering workforce. They offer paid apprenticeships to those traditionally shut out of tech, like veterans, the poor and unhoused, undocumented people, and the formerly incarcerated. Their scouting benchmarks actually look a lot like the ones Mitch and Frida used to find founders. Bitwise was also looking for candidates who traveled a long way, metaphorically speaking.

9:56Irma's insight was that the things that keep low-income people, underestimated people, from pursuing tech, and especially learning how to code is the obstacles of daily life for poor people, not their inherent talent or smarts or interests. So she began focusing on things like, okay, we're going to pay the apprentices. They need childcare, we'll provide it. They don't have a way to get to school, we'll pick them up. Their family is food insecure, we'll drop off some groceries. But Jake and Irma's mission didn't stop at uplifting the workforce. They also wanted to revitalize what they call underestimated cities, starting with their own hometown.

10:45Jake and Irma are from Fresno. No one thinks of Fresno as an epicenter of tech or innovation. How can people in Fresno be trained to enter into the tech ecosystem for jobs in Fresno? Not we're going to take them out and transfer them to Silicon Valley or someplace else, but how can we teach them tech skills, let them live in and uplift their communities? lifting people out of poverty and jump-starting a city's ecosystem, all while making profits, sounds almost too idealistic to be possible. But these goals are actually connected. When you provide jobs and training to underserved communities, the buying power of those communities goes up.

11:38That kickstarts the local economy and sets a flywheel spinning that leads to improved outcomes for all. As evidence this works, Bitwise's success can be seen in one surprising metric. Realtors in Fresno will tell you that about 30 % of the new homebuyers are all Bitwise employees or trained at Bitwise. They actually transformed the economy of the city. And they went on and did this again in Bakersfield, in Merced, in Oakland, and then they expanded nationally. In February 2023, the KPORs led an$80 million round for Bitwise that will help fuel an expansion into Chicago's South Side. Telling the Bitwise journey has become something of its own mission for Mitch and Frida.

12:26Not just because it's a great story, but because the culture of Bitwise is what helped them make their decision to invest. And hopefully, this thinking will spread throughout the VC world. When we made a trip to Fresno, the atmosphere in their building was palpable of inclusiveness and belonging, of energy, of momentum. You could see people changing on the spot. Irma wears a t-shirt or a sweatshirt almost every day that says, no one belongs here more than you.

13:05the lived experience of our founders translate into the core products and services of the business, but also the culture of the companies that they start. Exactly. When you build using human-centered metrics, you get more human-centered companies. But as you'll hear when we return, the opposite is also true. No one belongs here more than you.

13:45This is Mike Nicholas, Capital One business customer and co-founder of Ansett Uncles, a plant-based restaurant and community space in Brooklyn, New York. And he's telling us how they started a product line. We already had a space in the community. The food was an extension of our lifestyle and our values. So we know we wanted to create something that was an offshoot to that. Our pepper sauce. That's my grandmother's recipe. That's like a liquid gold, right? If someone wants to approach us and ask us, what do we do? We provide flavor. Growing a product line is no small investment, but Mike and his wife and co-founder Nicole were able to manage with the help of their Capital One Business card.

14:24Working with Capital One Business, we're able to leverage our limits and utilize those points, making sure we can continue the scale at the speed that we need it to go. To learn more, go to CapitalOne.com slash business cards. Most single-function AI tools just gum up your workflow. Project management becomes a tedious relay race of copying, pasting, and switching tabs until you forget what you were even doing. Say hello to Superhuman. the AI productivity suite that gives you superpowers everywhere you work. With the intelligence of Grammarly, Mail, and Coda built right in, you get things done faster and collaborate seamlessly.

15:05Superhuman lets you handle multiple tasks wherever you're working. No more copy-pasting, no more jumping between AI tools, and there's no learning curve. Superhuman gets what you really need from day one. It understands your writing style, helps you focus on what matters, and proactively offers the next best step. Unleash your superhuman potential with AI that meets you where you work. Learn more at superhuman.com slash podcast. That's superhuman.com slash podcast. We all remember the choices that shape the course of our lives. In business, world-renowned venture capital firm Sequoia Capital calls them crucible moments.

15:43Their podcast brings you inside the pivotal decisions that defined some of today's most influential companies like Stripe, Klarna, Zipline, and Supercell. Tune into Sequoia's new season of Crucible Moments to discover how some of the most transformational companies of the modern era were built. Crucible Moments is available everywhere you get your podcasts and at cruciblemoments.com. Go listen to Crucible Moments today. We're back with Mitch Kapoor and Dr. Frida Kapoor-Klein. If you're enjoying this episode, share it with friends by clicking the share button on your podcast player.

16:27Before the break, we heard how Kapor Capital used human-centered metrics to find founders worth investing in. Their theory? That founders who spent their lives running on the outside track are ready to outrun the competition. These founders can spot market gaps where others fail to look. and they tend to scale with inclusivity at the heart of their cultures. But ironically, one of the Kapor's most famous investments scaled with the opposite approach to culture and it led to an implosion that rocked the company and all of Silicon Valley. That's right. They were one of the very first investors in Uber.

17:06I knew Garrett Camp. Garrett Camp, Canadian entrepreneur, co-founder of Uber. He had this incredibly intriguing idea. It was at a time when the technology was still pretty primitive. Connectivity on iPhones still wasn't great. 3G was just coming in. GPS barely worked. The maps were terrible. Travis. Travis Kalanick, co-founder and former CEO of Uber. When I got involved at the very beginning, he was only in the picture as an angel, not as an executive. Had he been, I think it would have been a different analysis. But what I saw trying to look around the corners, I said, oh, if you can use your phone to summon transportation, that could be a game changer.

17:55And on that basis, it went in at literally the very, very, very first round. That round was in 2010, a year before Mitch and Frida went all in on social impact investing. But as Frida points out, they did believe Uber could close equity gaps in people's lives, starting with the passengers. Black people, especially Black men, from the early, early, early days of Uber said, now I can get a safe ride home. Suppose I'm a hospital worker and I'm in a dicey neighborhood and public transportation isn't running. I know I can get a safe ride home because the taxis won't stop for me. Frida still makes a point of asking her Uber drivers their stories.

18:47There's a woman who picked me up at SFO, a single mom. She only drove at night when her mom could watch her daughter. There's no other job where she could pick her hours. It gave her maximum time with her daughter to take her to school, to have dinner with her. Then when her daughter's ready for bed, mom goes out and drives for Uber. These are all ways that Uber accomplished what Mitch and Frida hope for all their portfolio companies. But as the company scaled, it did so aggressively, often fighting with cities for their right to exist alongside the taxi medallion system. This combative spirit stoked by Travis Kalanick and others spilled into the culture, and the employees felt it.

19:32I was invited in by different employee resource groups to come do presentations on bias. Travis was halfway around the world, of course, when I was giving a talk about bias. But then what started to happen, quite ironically, is Emil Michael, who was a senior exec there, started calling only on the weekend. He would call Mitch's cell phone and say, can I speak to your wife? which probably tells you a little about some of the culture at Uber.

20:09Frida spent hours talking to Uber's senior executives about what she thought needed to change. They would call with crises and I would say, okay, here's what you need to do. And they followed exactly none of my advice. But they kept calling. Then, in 2017, An Uber engineer named Susan Fowler wrote on her blog about her terrible year with the company. Her post blazed a fiery path across the internet as she detailed instances of sexual harassment Uber's HR department ignored. It was exactly the kind of abusive behavior Frida had fought against for decades. The K-Pors were at an uncomfortable crossroads.

20:56Ideally, loyalty to principals and loyalty to a portfolio company are one and the same thing. With Uber, they diverged dramatically. The culture was toxic. It needed to be called out. We couldn't remain silent. So they didn't. Instead, they wrote an open letter to Uber's board and other investors, calling out Uber's behavior and arguing for change. It was very controversial at the time. Other VCs came to companies in our portfolio and said, you got to get rid of Kapor. You should take money from us. These are the hot companies because they're going to turn around and do to you what they just did to Uber.

21:41So it's really the knife in the back. You heard that right. Certain VCs use this moment to try and poach Kapor Capital Investments. investments. Fortunately, the companies just came and... They came and told us. I was on stage at South by Southwest, and a woman entrepreneur asked me the question, what should I say to this person? And I was stunned. I did not know this was going on. And our entrepreneur said to the first VC who approached her, thank you for telling me who you are. I will never take money from you. Yes, exactly. Like, they have principles, we don't. Don't you want our money? No, thank you.

22:29Yeah, no, I thought your letter was super important because it shows that above everything, it's doing the right thing and being right for humanity and for who we aspire to be. And that's where everything targets to. It's not like you just have to be whatever the equity value of the business is. Like, well, no. It's like, that's tobacco company thinking. It's terrible. Right. Indeed. The experience with Uber was a major lesson in why building around human-centered metrics is sound business advice. When you build with only short-term shareholder gain in mind, you may be setting your company up for a major fall down the road.

23:09But culture problems aren't always as glaring as the Uber example. Cultural corrosion can happen at any organization if you're not measuring for it. Which is why, even before the Uber scandal broke, other Kapor Capital companies were looking for more uplifting benchmarks for success. Brian and I were running a focus group together. Brian is Brian Dixon. On campus at UC Berkeley of our founders. He started as one of the firm's first summer associates. And today, he's co-managing partner of Kapor Capital. He'll help tell the next part of the story. The group that we assembled at UC Berkeley, they were great.

23:52They kind of told us some of the challenges that early-stage companies were facing. As Brian and Frida listened to these founders, they learned there was one challenge that rose above the others. Across the board, what they said is, we need help hiring engineering talent. We can't compete with Google and Facebook on compensation. And we need some way to signal that we are different. They wanted to be able to show the world and potential candidates what they stood for, why they were building these type of companies. But they also wanted something that was actionable. That feedback for us was gold.

24:36As you've already heard, scaling companies around a clear mission is good business. But that success sometimes comes on a longer timeline. And if you can't stay competitive on talent in the short term, your chances of hitting those long-term goals go down. What these startup founders needed was some kind of competitive differentiation that set them apart. In 2016, they found their answer. The founder's commitment. The Kaper Capital Founders Commitment is a commitment companies make to build a diverse and inclusive workplace from the start. Not waiting until you're 100, 1 ,000 or more employees, but when you're just getting started.

25:18The Founders Commitment wasn't retroactive, which explains why Uber never signed it. But many other companies already in the portfolio did. Because the desire to build diverse cultures didn't just come from the investor side. The goals come from the founders and not from us. Because at the end of the day, it should be authentic to the founder, and they should set goals the same way that they're setting goals for financial goals or headcount goals or the number of customers. Not only do these diversity goals need to be specific, the founder needs a strategy to achieve them. But that's something Kapor Capital helps with too.

25:56Brian has an example. I won't name the company. From an investment standpoint, it was a rocket ship of a company. The founder had a challenge where they had diverse employees on the sales team, on the HR team. But the engineering team was mostly white and mostly male. This company's founder recognized they were falling short of their diversity and culture benchmarks on the engineering side. The founder was, you know, I'm at a thousand engineers. When am I going to make this right? They needed a path forward to meet the metrics they had set. So Kapor Capital helped them formulate a strategy. Listen to their solutions because it may remind you of the Bitwise story from earlier in the show.

26:46They ended up implementing an internship program so they can attract candidates when they were still in college and help build that pipeline for when they would graduate, and they ended up getting a bunch of candidates through that. They ended up having a boot camp-like program where they were able to attract non-traditional candidates and get them into their workflow as well. And they also partnered with some of the boot camps who had great engineering talent, but just didn't have a traditional path. These solutions helped the company change the makeup of their engineering team, which in turn changed their culture for the better.