 We all, many of us, know Mitch Kaypore, but he still deserves an introduction here. Mitch Kaypore is an American entrepreneur and impact investor, first known for his work as an application developer in the early days of the personal computer software industry. Mitch and his wife, Frida, founded Kaypore Capital in 2009, a venture capital firm that focuses on investing in companies operating in the information technology, education, health, work, finance, mobile, justice, food, media, and retail sectors. The firm is based right here in Oakland, California. Talking to Mitch, who some see as a god or grandfather of this work, you can still hear that the urgency that remains in his voice. A strong believer of this work, he is here to talk to his colleague Arjan about the gaps of opportunity between the top, the bottom, and bringing them closer together to produce a more inclusive economy. Arjan Shuta is a trusted and experienced venture investor and founder of Core Innovation Capital, where he is invested in nerd wallet, opportune, ripple, coverhound, and 30 others. He is here today in his own words to have an honest conversation with Mitch about impact investing, what's real, and what's fake. Let's hear it from them. Please welcome to the stage Mitch and Arjan. Thank you, gentlemen. Hi, Mitch. Hi. Well, this will be an intimate conversation. If people want to come down front, we'll tell and spill the real secrets to the small group. What should we talk about? Why we hate the term impact investing. Do you? Yeah, it's super unhelpful. Why? It's kind of discredited at this point because it means different things to different people. The orthodoxy in the world of money management thinks it's necessarily concessionary. Some people, as you said, think it's philanthropy in disguise and it distracts from the important issues of trying to build companies that simultaneously create real social and economic value. And I'd rather focus on that than get lost in labels. Makes sense. What about you? You run a fund. You have LPs. We don't have LPs at K-Borg Capital. Yeah, you have a distinct advantage on me. Take more extreme positions. Yeah, so the term is more problematic upstream than downstream for us. So a lot of in the LP world, while impact investing is said to have trillions of dollars of potential interest, we find that the greatest interest comes from people who have financial interest in our impact work or strategic interest in our impact work. Almost all the mission-driven impact is real but very temporary. So we find that a lot of the impact investors are catalytic. They make a one-time placement on a shiny object and then they move on to the next shiny impact object. Whereas these are all long-term things we're doing. These are not shiny objects, challenges that we're tackling. We're tackling big social and environmental issues, social in my case, everything in your case. And so indeed, LPs are much more skeptical about the term. On the entrepreneur side, actually, the term notwithstanding but being mission-driven is actually a competitive advantage. And so we consistently get into deals because we are genuine about our mission. And I think people feel that. Entrepreneurs feel that. Like they're taking pay cuts, et cetera, et cetera, to do something outlandish and big and difficult. And it's actually a competitive advantage. That was the biggest surprise for us when we went all in on impact in 2012. To be honest, it was a bit skeptical. It was Frida, my wife, who was nudging me about this. And I was afraid that it might chase off entrepreneurs if we said we're only investing in companies that close gaps of access or opportunity for underserved communities. It did chase off a few people, but what was completely surprising is what a brand advantage was when we planted a flag and said, this is what we care about and we think about this and this is how we measure ourselves. Entrepreneurs came out of the woodwork and said, I want you on my cap table. I've been told never I can't talk about this to people when I'm raising money, but this is where my heart is. And if you're on my cap table, you're a counterweight to my other investors. And I said, yeah, but we're putting in like $150,000, $250,000 a deal. And these other guys are doing $5 million. It doesn't matter. Your voice counts every bit as much. And so like you, we continue to win deals that we would otherwise be completely uncompetitive in. And that's a kind of a hidden and secret advantage. Now you know about it, but most people don't. So let's double click on this idea, right? We're all here because we have some interest in social capital markets. You've talked about kind of real impact and fake impact. So what is, like, what are some of the misnomers you see out there? Well, so this is probably the single... Well, let me put it this way. When Anand Girardas wrote Winner's Take All, which I know he was here and somebody said he got the only standing ovation, I was thrilled because it was one more thing that I didn't have to write and I would never be able to write anything one 100th is good. But basically, he distinguishes between real change and fake change. And our metric, our criterion when we invest, as I said, is if this thing works, who's gonna benefit and will it close a gap of access or opportunity for a low income community or communities of color? And if it doesn't, it doesn't meet our impact criterion. So just because something is ed tech or health... Or fintech. Yeah, fintech doesn't make an impact. And in fact, we see things like really great online tutoring marketplaces that for $200 an hour will get your kid the world's best tutor. And impressive technology and the stuff works. And we go, this is anti-impact. This is gap widening. This is enabling affluent parents to purchase more advantage for their kids getting into college vis-a-vis everybody else. And people are sort of upset and offended. But it's ed tech. It's making the world a better place. It's helping people learn. And I'm going, no, that's sort of fake change. And then one more thing on this. Please. Well, go ahead. It's not far away. I was just going to say that increasingly I have come to understand the importance for investors of getting out of their own bubbles of privilege and bubbles of the little expensive gated communities that they live in down the peninsula that if you don't understand what people's lived experience is actually like, that you're trying to serve. If you can't connect with it, you're going to be a terrible investor and you're not going to be doing the world any kind of favor. And the best investing teams are ones where the people who are on the team can connect with and have shared lived experience with the entrepreneurs and the entrepreneurs come from a very wide set of backgrounds. That's where you're going to get real problem solved. So how do you do that? You're a rich guy. You're living in the Bay Area. Like how do you connect with this underserved people that you want to affect personally? Just you. Secret weapon is my wife, Frieda K. Porclayne. You need to understand when she was in junior high school, she was cutting school to go pick it for the farm workers. And this was when Cesar Chavez was organizing them. So she has been at this for many decades and a lot has rubbed off. But the fact is that at K. Porclayne Capital, she and I are the only two white people. Everybody else is a person of color by design. And the folks in the firm have a different set of networks. They look different. We look different than the average firm. And I'm telling you, it helps an enormous amount when it comes to deal flow. And we go to different places. We go to HBCUs. We go to the historically black colleges and universities, which run accelerator programs. And we look and see who they're turning out. We go to the kind of places where a more diverse set of entrepreneurs are going to be found. It's not rocket science, but it's also not check the box. I have fatigue with my colleagues saying, well, we're four white male partners. What can we do? We want to be more diverse. Where do we start? It's sort of like they're expecting somebody to hand them a checklist of do this, do that, do the other thing, as if any part of the investing business actually worked that way. If you're serious about something, you've got to undertake to go figure out how you're either acting in your own behalf or standing in your own way. And Silicon Valley, HBC is still pretty much standing in its own way when it comes to diversity and inclusion. All right, so you're walking the talk on diversity and inclusion. You're clearly exhibiting it in your day-to-day life. What's still ahead of you? Where do you feel like you need to improve more to walk your talk further for the next step that you care about? Well, we, like any other firm in our position that genuinely believes in impact, we have to produce results. We can't just be talk. It all has to do with showing that you can generate a portfolio with economic and social value that's not concessionary, that your returns are top quartile, and that you've got demonstrable impact. Are you doing that? We are, we went all in, as I said, in 2012, so we're six, seven years in. And what does all in mean? Like all of your capital, all of your wealth? No, it means that this is the only way we invest. Everything has to meet our impact criteria. All the companies need to sign our founders commitment, which says that they are committed to building a diverse workforce and an inclusive culture. That's cool, we have something like that too. That's the fair measure. So we are intending to publish interim results next year, which is a risky thing because they're not full exits and markets can go up and down, but the progress we've made and the kind of companies that are in the portfolio, and we've got made 120, 130 investments, are so good that we think it will actually help to show, hey, we have some results here. And so we're planning in 2019 and figuring out how to talk about that publicly. We're very inspired by Generation Investment Management, which doesn't do VC, they do, this is the investment firm started by Al Gore and David Blood in early 2000s. Global large cap equities originally, but all built around sustainability, very broadly speaking, not just environmental. They were the real pioneer in that. Total skepticism when they started, we were founding investors. Cover of Institutional Investor Magazine on their 10th anniversary, they were one of the three top performing funds in the world of any kind in their category. Now $20 billion under management and they keep turning people away because they can't handle more. That's where I learned sooner or later you have to have results, you can't just be talk. So that's what we have to do. I mean, how do you look at what's your, you're committed to impact in the good sense? How are you going to sort of advance the cause and prove the case in your fund? We're limited partners by the way, so I have a little bit of self-interest here. Yeah, so we have a more specific mandate that we think about as democratizing prosperity in the United States. And so we're interested in investing in largely financial services, what we call fintech type companies that are serving people who don't have easy lives. We don't particularly care about the Henry's of the world. We care more about the Alice's of the world, right? The asset, light, income constrained, employed people. A lot of middle America and a lot of people in California, of course in the coast. And we measure two things. Our objective, our mission, is no compromise mission in margin. And so if we're doing our job right, we're a top-decile venture fund, where our competition is Sequoia, not another impact investment fund. And we're delivering tangible, measurable results about the externalities of our work. That's the tricky part, because I feel like if you don't measure it, you don't know if you're achieving it. And if you do measure it, and it becomes too much of an external metric, you start whitewashing stuff. And you start getting perverse incentives to inflate your numbers and these kinds of things, as people do frankly with their TVPI and MOICs, you know, kind of markups. So our approach is generally to be to be discreet about it. You know, we measure them, we don't publish them so that we don't feel compelled to pump them up. But our goal, I'll tell you what our goal is, in the next 10 years, we want to see a connection from core portfolio companies to something around a quarter trillion dollars of financial savings or income or wealth creation go to everyday Americans, which would be actually like GDP moving. Yes. So that's kind of a very clinical way to describe it. And, you know, like at the floor, that means, you know, more mobility and more, you know, more protection against shocks and a better ability to, you know, lead a good life. What do you make of that? No, I think it's great. I mean, there are very few... It's very easy. You don't want to poke at that? Well, no, I don't want to... I mean, it's not an accident that the two of us are up here and Frida and I are fortunate to be able to have access to a very wide range of funds and I'm not just trying to butter you up, but there are two funds in the sort of VC world that are out and out competing with the mainstream that I think have a genuine commitment. Yours is one and the other is Reach Capital, which does ed tech investing and we wish that more firms were more hardcore about this. I mean, I'm an absolute believer in it and I'm willing to bet money that you're right. So, and we'll see. But I think it could reach a tipping point if one or two or three funds that are uncompromisingly impact do really well, particularly if they do well for more than one fund, it's gonna create a kind of a critical mass effect and tons of other capital will flow in after that. That's what happened with Generation. So, one of the reasons I actually do very little speaking is I think it's super difficult to convince people as a theoretical proposition, this is a good way to invest and so that's not time and effort well spent and my whole career was sort of- Present company accepted of course. No, I mean, you know, I'm not at a point in life pushing 70 where I'm not trying to prove as many things to as many people as I used to when I was younger. But having grown up in tech and spent 35 years at it, this is nothing new. I can remember, it was recently as the early 90s, when Wikipedia first came out and I was super enthusiastic about it, the scorn and skepticism of the knowledge community of publishers and people who worked in reference and scholars was profound. Yeah, I love that too. They would say, well, you know, there you've got more articles in this thing about Middle Earth than you do about the entire continent of Africa and you want me to take it seriously and you're telling me that if anybody can edit any article at any time, why should I ever believe anything? Now, all those people conveniently have amnesia and won't fess up to that, but I have the records of it and Wikipedia has evolved into something quietly and relatively quickly that is not only completely indispensable but is superior in any number of respects to conventional reference works like it tends to be up to date in the way that Encyclopedia Britannica never was. But my point is that I have lived through multiple waves where the conventional wisdom was wrong and was overturned. That's the entire history of tech. Nobody wanted personal computers to begin with except a few crazy people. Nobody thought that the internet was ever going to amount to anything and so now when it comes to the lens I have and looking at impact investing and this idea that look what we're doing, it's not a sideshow, it ought to be the main show and it ought to be the case that anybody who's running a business that doesn't have social purpose embedded in it, I hope future generations will look at those people the way we look at our ancestors who were slaveholders. Like barbaric. Fine. I'm ranting. That's why I'm interrupting. So social purpose embedded in it. Like isn't my social purpose your social degradation? Like how, what is, I can, like, you know. Yes. Well of course people will disagree but a world in which it was just assumed that business ought to have social purpose would be a different and better world in the same way that the world in which it's just assumed that every individual has basic human rights even though we don't agree about what those are is a better world than the world that came before that when people had no right. So it's not going to be a panacea but there are ways in which civilization could advance. Yeah but some of these are actually really challenging matters, right? So for example, so my domain is fintech and so in the whole sprawl of finance credit is an important component and when you think about serving the underserved there is a, I think, unstated presumption that everyone should have access to credit which I don't think is necessarily right and so people are doing all kinds of things to make credit available to people who are not in a position to repay it in some way or another or take the housing crisis, right? Like we've been promoting as part of the American dream putting everyone into a house and promoting home ownership. Now, you know, there were issues with that, right? Like that led to problems. You bet. So where are you going with that? Well, so how do we know what's good? Well, let me put this one. Who gets to decide? Well, there are very large issues of problems with civic engagement and our democracy that not the subject of this panel but they are inextricably linked to the kinds of things we were talking about. There is no way fully to have the conversation about sort of what's positive impact without also talking about what's our vision of social well-being? What does it mean? What's flourishing? What is everybody entitled to? And that stuff is also broken. Maybe even worse than it used to be and so ultimately in the fullness we can't just go about our jobs whatever we do in case investors or entrepreneurs and not worry about, oh, I don't understand politics. No, because we run into exactly the problem that you talk about that. What is the social consensus about what everybody is entitled to? And how do we achieve that? But that's not, that's a social and political issue and we can't walk away from that. I would just like to see our lives and business as investors be in harmony with whatever our vision of the social good is and we will have disputes and differences in my view as I'd like to have a real and functioning democracy where those kind of issues get settled. Let's talk about technology. So every tool is a weapon when you hold it right, right? And almost all technologies are propagated by people who are tremendously hopeful and idealistic and want a better world and often don't consider adequately the downside, the dangers of technology. You've been in tech for a couple years. Like how do you think about that? And what do you tell your entrepreneurs to think about your more high tech stack, deeper tech technology entrepreneurs to consider the downsides? Well the interesting thing is for the kind of investments we make and probably you make, the entrepreneurs tend to come in the door having a view of how they want the world to be in some regard or some sector of education or healthcare. So they're not agnostic about this. So which is a good thing because Silicon Valley is sick. That the dominant ethos of well it's technology and it scales and we want the world to be a better place so I'm just gonna go do it. Look at the effing message made and no sign out of it. I mean Facebook's entire business model is based on exploiting people. Even if they wanted to fix it, they can't without killing their business model and destroying hundreds of billions of dollars of market cap and there's no sign that people in the upper echelons in Silicon Valley are yet, I'm still hopeful, but no signs that they're yet serious about, let's say ethics. I mean the idea of appointing chief ethics officers which is now the kind of- Yeah, Kara Swisher was writing about that. Yeah, in the times. Well, did we fix diversity in Silicon Valley by appointing chief diversity officers? No, not exactly. And so I don't know how and where the comeuppance will be but it's clear that the romance of our society with tech is just about over and I actually think that's a good and wonderful thing. You think so? Yeah. A few years ago Warren Buffett didn't own a share of Apple. He owns a lot now and is buying even at a trillion dollars. I think that's a sustained romance. He has unusual and arguably superior taste. I'm talking about people, kids wanting to grow up to be the next Bill Gates that was back in the day or Mark Zuckerberg and being sort of or Elon Musk, global icons of that is our view and vision of success in the world is to be like that. I think it's not dead but I think people in general are looking much more carefully at that. There's a reassessment long overdue, much needed. All right, your message to the impact investors out there, how would you challenge the field to do better? Well, I think I would ask people to spend a bunch of time assessing their own situation, particularly if they come from any kind of position of privilege or affluence or advantage to fully assess how they got where they got, how we got where we got and what kind of advantages we had and to try to see ourselves, because typically people with assets to deploy are not sometimes started from nothing but often not the case. And I think understanding that this idea of meritocracy that we got if we're successful where we got by being the best is a very self-serving idea. And I think if we can see ourselves more clearly in all of our foibles, we're in a better position to empathize and understand the genuine problems that other people have and to identify as investors, the entrepreneurs whose lived experience is going to lead them to have the kind of passion that can really solve some of these problems and that we stop looking, again, and my examples are investors at who's coming out of Stanford with a CS degree, stop looking at credentials and pedigree and start looking at who really has the vision and the resilience to take on the hard problems of building businesses that are gonna make a difference. But so it starts with self-assessment. That's what I think. Mitch, I am genuinely so pleased that I get to sit on the stage with you and to arguably call you a friend. When I first learned about you when I was in college and I was hacking up a storm and I read about you in Mondo 2000 and the Electronic Frontier Foundation that you were doing with John Perry Barlow. So I've been a fan for several moons and this has been a real delight. Thank you so much. Thank you for suggesting we do this. I hope it's been valuable. Okay, thank you.