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Welcome to part two of our episode with Mitch Capor and Dr. Frida Capor Cline on choosing metrics that uplift your culture and improve your bottom line. If you missed part one, go back and listen. When we last left Mitch and Frida, they had formed their early stage investment firm, Capor 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.
So 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.
He'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 and 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 Pigeonle was clear. But 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. It 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 subsequently invested in. Frederick Matt, 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 K-port capital metric that takes into account not simply what a founder has accomplished, but where they started from to get there. To Mitch and Frieda, this is a far better predictor of success than a person's alma mater. And as they scaled K-port 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. So set benchmarks that you can be proud of for the life of your organization. You got to have incredible talent at every position.
There are fires burning when you're going home. Can you pull it even? Such an idiot. And when you go back to, this is totally going to be amazing. There are so many easy ways. So 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. So it just seems absolutely not all 10 years later. Well, that's just how you do it. We have a fate just how you do it. This is Masters of Scale.
I'm Reid Hoffman, co-founder of LinkedIn, partner of Graylock, 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 that 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. That'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 Frieda's investment strategy at Cape or 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. K-Pore Capital has used this insight to identify talent and opportunities that others overlook. Companies like Blockpower, Class Dojo, Eclima, 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, Erma and Jake from Bitwise Industries. They are a great complimentary pair. Erma's the engineer. Jake is a lawyer by training, and they just work phenomenally well together. The idea for the business and the passion and the determination came from their own lived experience.
Irma Ogun Jr. came from generations of migrant farm workers. But through scholarships and study, she became the first inner family to go to college. Becoming an engineer transformed her future path. Jake Soborall also knew how a tech education can change lives. His father had emigrated from Mexico to California and was an overnight security guard. And Tully saw a commercial for a computer learning center.
He enrolled and 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. BitWise'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.
Irma'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.
Jake and Irma are from Fresno. Know when things 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. That kick starts 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 home buyers 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 Capehorse 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 Frieda. Not 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.
The 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.
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We ended up having to be closed for a week between the two bathrooms upstairs and the various sinks. Everything was erupting at once. We also had flooding in the basement area where our backstock is and leaking through the ceiling. But Jillian didn't have to dip into savings or take a loan out to cover costs. She used points from her Capital One Spark card.
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We're back with Mitch Kapoor and Dr. Frida Kapoor Klein.
Before the break, we heard how Kapoor 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 keyboard'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. I 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 corner, I said, oh, if you can use your phone to summon transportation, that could be a game changer. And on that basis, it went in at the literally the very, very, very first round.
But that round was in 2010, a year before Mitch and Frieda went all in on social impact investing. But as Frieda 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.
There'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 Frieda hope for all their portfolio companies. But as the company scaled, it did so aggressively, often fighting with cities for the right to exist alongside the taxi medallion system. This combative spirit, stoked by Travis Kalinek and others, spilled into the culture, and the employees felt it.
I 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 him 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. Frida 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 Capeurs were at an uncomfortable crossroads.
Ideally, loyalty to principles 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.
VCs came to companies in our portfolio and said, you got to get rid of K-POR. 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. So it's really the knife in the back. You heard that right. Certain VCs use this moment to try and poach K-POR capital 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. Yes. Like, they have principles we don't. Don't you want our money? No, thank you.
Yeah, 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. 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. But 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 K-port 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 K-port Capital. He'll help tell the next part of the story.
the group that we assembled at UC Berkeley, they were great. They 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.
As 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 Founders' Commitment
The Kaper Capital Founders' commitment is a commitment companies make to build a diverse and inclusive workplace from the start. Not waiting till you're 100,000 or more employees, but when you're just getting started.
The founder's 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 K-port Capital helps with too. Brian 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 1,000 engineers. When am I going to make this right? They needed a path forward to meet the metrics they had set. So K-Poor Capital helped them formulate a strategy. Listen to their solutions because it may remind you of the bit-wise story from earlier in the show.
They 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. Ultimately, they did end up changing the culture. It's not a problem today. I can confidently say that. But back then, there weren't any blueprints of how to do this work. And I think that that was what was so important about what Mitch and Frida in particular brought to the table.
The founders commitment helped Cape or capital companies set their benchmarks and meet them and not meeting those benchmarks had consequences. If a founder kept putting it off and then they were raising another round, we would not participate in follow on.
This was not performative nonsense. This was not check the box. This was we're going to help you build a team that looks like your customers. And if you think about it, that is simply good business. However you set them, metrics matter. And when you can show those metrics to others, they can be very persuasive.
In 2019, K-Port Capital released a powerful set of metrics that kicked off a wave of conversation in the business community. It was a comprehensive impact report looking at the financial performance of their portfolio since committing the social impact criteria. There were a couple companies they surprisingly left out. Early on, we decided we were not going to include any of the results from the earlier investments in Twilio and Uber.
That's right. They excluded two blockbuster investments that would have made K-port capitals returns look even stronger. But there was a good reason.
For one thing, they would have skewed the results enormously, so we would have been in the top 1%. But it also happened during the formative period of capricapital when we weren't 100% impact focused. We said, no, we're going to pick a narrower data set to show that we're really serious. All of the companies had to meet our investment criterion, even though it meant eliminating the two absolute highest performers.
Even using those rigorous criteria, the 2019 keyboard capital impact report for shocking news. Well, maybe it wasn't shocking to Mitch and Frieda, but it did stun the venture world a bit. The original impact report was a game changer because it did a couple of things. That's managing partner Brian Dixon again.
One, we released our progress to date. We also showed the world that we were a top quartile venture fund. We had a 3x TVPI with a 29% IRR, and we pretty much showed that we could do it by building it with a diverse founder base. 59% of our founders were underrepresented and also women founders. If you didn't follow all of those metrics, that's okay. The VC community did.
We were able to show that we had top quartile financial returns in comparison with all firms of a similar size. The comparison against all comparable firms and not just other social impact firms captured the attention of some influential voices on Wall Street.
Carla Harris, who was vice chair, I think, at the time of Morgan Stanley, was just beside herself with joy that we had made an unequivocal case for things that she had been arguing for years. Carla and literally dozens of other folks came up and said, thank you for doing this. I am using your report.
with the people with the power that I need to convince to move in this direction. We've provided the data that this is not concessionary and turned conventional wisdom on its head.
Kapoor Capital followed up on the 2019 report with another in 2022 that continued the success stories of their portfolio companies through the turmoil of 2020 and beyond. 2022 was also the year Mitch and Frieda stepped back from day-to-day leadership of Kapoor Capital, putting the firm in the hands of Brian Dixon and his co-managing partner, O'Lilly, O'Novac Porrie. It was a thoughtful succession in contrast to when Mitch stepped down from Lotus in 1986.
By that point, they'd been partners for many years. They had led successful investments. We were confident that they were going to carry on in the spirit with which we started, and that had been the idea all along. So they went out and raised this $126 million fund, which is one of the largest black lead funds that has been done.
we ended up raising one of the top 10 largest funds from a Black Fund manager. And so we're really proud of that work, but more proud about the founders that we're able to back and the companies that we're able to support. Instead of writing a 250K check, we can now write a million on the check and lead a seed round. We're still back in the same type of founders, which are extremely diverse, but extremely mission oriented. And that's exactly what we do. And we're proud to do this work every day.
Brian and Ulili plan to deploy this fund to push the boundaries of human-centered investing, because your successors should be able to uphold your metrics for good culture and advance them farther down the field. While Mitch and Frida have handed over the reins of Cape Or capital, they have not stepped back from sharing their theory with the world.
in most quarters of the financial world, there is still a core belief that if you're doing anything for impact or diversity, you're being concessionary on returns. You will see us and Frida in particular trying to do something about the larger investing ecosystem and changing that. We think that how you make your money is as important as what you do with it.
I'm Reid Hoffman. Thank you for listening.
We had just had our first $10 million a year. We had all these incredible projects, but we were tied on cash flow. We were covering millions of dollars on clients behalf. That's Shannon Jones, co-founder of Verb, a brand experience agency. Verb helps create wow moments for huge companies. The Fresh Prince house, the up house, the Barbie dream house. But they often fronted costs, which led to major growing pains. Here's Verb's other co-founder, Yader Harrison.
We had these pivotal pop culture moments, but we were feeling defeated, knocking our heads against the walls with massive growth year over year. We've always said that we break our company every time we feel like we put it together and we break it again.
Just when you deer in Shannon were feeling truly stuck, they happened to win an award for verbs rapid growth, the irony. But at the awards ceremony, they met a Capital One business representative who helped steer them toward a cash flow solution. When you grow exponentially, you might need a cash bridge. We didn't even know what a cash bridge was.
Not only did he break it down, but from a personal standpoint, even saying he has entrepreneurs in his family, they're running to the same problem. It automatically became a we. We were in this together. One tool they started using, the Capital One Spark Cash Plus card, a business card with no preset spending limit. The Spark card in particular in terms of how our credit limit adjusts as we grow with the company over time has been immeasurably valuable for us
To learn more, go to capital1.com slash business slash cashback cards.
Masters of scale is a weight-what original. Our executive producers are June Cohen, Darren Trith, and Chris McLeod. Our chief content officer and interim president is Lori Hoffman. Our producers are Chris Godier, Masha Makutonina, Adam Scuse, Alex Morris, and Tucker Lagursky. Our editor at large is Bob Safian.
Our music director is Ryan Holiday. Original music and sound design by Eduardo Rivera, Ryan Holiday, and Nate Kinsella. Audio editing by Keith J. Nelson, Steven Davies, Steven Wells, Andrew Nolt, and Liam Jenkins. Mixing and mastering by Aaron Bestinelli and Brian Pugh.
Special thanks, Jodine Dorsay, Alfonso Bravo, Colin Howard, Tim Cronin, Kelsey Seisen, Sammy Oputa, Anna Pazino, Sarah Tartar, Luisa Velez, Justin Winslow, Nikki Williams, Janemmeh Azaquena, Mary L. Karakar, and Katie Blazing.
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