Ed: By now if you have been reading my blog for a while you will know that I tend to try and write controversial headings to generate some reaction from the greater community. My hope is that the heading draws you in and the body of the post actually makes you want to express your opinion (which I am perfectly ok with being different from mine).
I had a very difficult question to answer 3 friends and investors last week who questioned how and why we chose a specific company in our batch at the accelerator. The fault was entirely mine, so it was very challenging to “justify” my position. Any way you looked at the situation, I could not tell them with a straight face that I really believed that the company we chose, would do a great job and they deserved to be picked. If I did, then they would question my judgment, and if I did not they’d question my ethics. Not a great position to be in either way. I would rather be an ethical person with poor judgment than the other way around.
Here’s the situation and the analysis from my standpoint.
As with most companies, institutions and organizations, we really want to be inclusive and diverse in our selection of companies at the accelerator. I dont think anyone would argue that we need to include many more women, students with no experience or entrepreneurs from tier-2 and tier-3 cities in our startup ecosystem.
We do try to keep the bar extremely high and that ensures only the best (according to our criteria) get to participate with us.
The trouble is when we try to meet specific numbers and commitments prescribed by the MBO (Management by objectives) and metrics driven management culture that most of us use as a guiding principle.
While many other accelerators and investors will tell you that they are not compelled to do a single deal if they dont like it or dont believe it will succeed, they also will tell you that they are driven by the same metrics, judged by the same criteria and “scorecard-ed” by the same characteristics as the rest of us. Let me give you an example.
Yesterday I had a chance to talk to an investor from a relatively passive fund. He was bemoaning the fact that they are hardly known in the ecosystem and most entrepreneurs dont even know that they invest in the early stage. Well, the reason most entrepreneurs dont know their fund, is because in 5 years they have invested in 8 companies. Compare that to an active fund, that invests in about 20 over a 5 year period and you can easily understand why this fund is “unknown”. So he was being judged and scorecard-ed by entrepreneurs and the media, and relegated to being a “passive, niche fund”.
We dont want to be a passive, niche accelerator.
That can only mean, that we “compromise” and include companies that serve the diversity mix but end up with a sub optimal set and lower the bar for certain sets of entrepreneurs so we can comply with our affirmative action criteria.
Luckily we know (or at least I think this to be the case) that deserving companies are not being ignored or being cast-aside to make room for those to meet our affirmative action goals.
I have though come to the realization that the amount of work needed to get high quality startups that also moves the ball forward progressively on affirmative action does not generate the returns from those efforts.
The same effort towards helping all high quality companies, generates more if not better returns.
So the question is: should we care only about returns.
Unfortunately while that was not the case a few months ago, it is becoming increasingly the case going forward.
Its disappointing and not a great situation to be in.
I am pained when in a batch of 50+ companies shortlisted we see not a single person who is a woman, or a very young, inexperienced student or a person who has a significant disadvantage relative to entrepreneurs from large metros. I feel its my responsibility to make room for them so we can create a few successes which will motivate more of them to join our “religion”, but I am at loss to figure out how to ensure that the ones we chose dont feel a tinge of disappointment when in doing so we lower the bar somehow.
To be clear, not all companies that are founded by these groups are “lowering the bar”. My issue is that there’s very few of them. If there are more than a handful, I’d be thrilled.
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