[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]





 
                      COMBATTING TECH BRO CULTURE:

                        UNDERSTANDING OBSTACLES

                           TO INVESTMENTS IN

                         DIVERSE-OWNED FINTECHS

=======================================================================

                            VIRTUAL HEARING

                               BEFORE THE

                   TASK FORCE ON FINANCIAL TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 30, 2022

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-92
                           
                           
                           
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]          
 
 
 
                           ______
 
              U.S. GOVERNMENT PUBLISHING OFFICE 
48-336                  WASHINGTON : 2022 
 
 
                           
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois                ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts       JOHN ROSE, Tennessee
RITCHIE TORRES, New York             BRYAN STEIL, Wisconsin
STEPHEN F. LYNCH, Massachusetts      LANCE GOODEN, Texas
ALMA ADAMS, North Carolina           WILLIAM TIMMONS, South Carolina
RASHIDA TLAIB, Michigan              VAN TAYLOR, Texas
MADELEINE DEAN, Pennsylvania         PETE SESSIONS, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   RALPH NORMAN, South Carolina
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                   TASK FORCE ON FINANCIAL TECHNOLOGY

               STEPHEN F. LYNCH, Massachusetts, Chairman

JIM A. HIMES, Connecticut            WARREN DAVIDSON, Ohio, Ranking 
JOSH GOTTHEIMER, New Jersey              Member
AL LAWSON, Florida                   PETE SESSIONS, Texas
MICHAEL SAN NICOLAS, Guam            BLAINE LUETKEMEYER, Missouri
RITCHIE TORRES, New York             TOM EMMER, Minnesota
NIKEMA WILLIAMS, Georgia             BRYAN STEIL, Wisconsin

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 30, 2022................................................     1
Appendix:
    June 30, 2022................................................    23

                               WITNESSES
                        Thursday, June 30, 2022

Abbey, Wemimo, Co-Founder and Co-CEO, Esusu......................     7
Abramson, Jenny, Founder and Managing Partner, Rethink Impact....    10
Haque, Maryam, Executive Director, Venture Forward...............    12
Krawcheck, Sallie, CEO and Co-Founder, Ellevest..................     5
Michel, Marceau, Founder, Black Founders Matter..................     8

                                APPENDIX

Prepared statements:
    Abbey, Wemimo................................................    24
    Abramson, Jenny..............................................    27
    Haque, Maryam................................................    32
    Krawcheck, Sallie............................................    42
    Michel, Marceau..............................................    46

              Additional Material Submitted for the Record

Lynch, Hon. Stephen F.:
    Written statement of Affirm Inc..............................    48


                      COMBATTING TECH BRO CULTURE:

                        UNDERSTANDING OBSTACLES

                           TO INVESTMENTS IN

                         DIVERSE-OWNED FINTECHS

                              ----------                              


                        Thursday, June 30, 2022

             U.S. House of Representatives,
                Task Force on Financial Technology,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The task force met, pursuant to notice, at 12:03 p.m., via 
Cisco Webex, Hon. Stephen F. Lynch [chairman of the task force] 
presiding.
    Members present: Representatives Lynch, Himes, Lawson, 
Williams of Georgia; Davidson, Emmer, and Steil.
    Ex officio present: Representative Waters.
    Chairman Lynch. Good morning. The Task Force on Financial 
Technology will now come to order.
    Without objection, the Chair is authorized to declare a 
recess of the task force at any time. Also, without objection, 
members of the full Financial Services Committee who are not 
members of the task force are authorized to participate in 
today's hearing.
    Welcome. Today's hearing is entitled, ``Combatting Tech Bro 
Culture: Understanding Obstacles to Investments in Diverse-
Owned Fintechs.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    The explosion of fintech in the fintech space in the last 
decade has been made possible because of massive amounts of 
venture capital (VC) investments that have been made to startup 
companies. Fintech companies rely on capital to turn their 
innovative visions into reality. The largest players in this 
space, including Andreessen Horowitz, Sequoia Capital, and Y 
Combinator, are responsible for the growth of many of the large 
fintech players that we know today. Venture capital firms 
invest in hundreds of companies each year, hoping that just one 
of those investments will pay off.
    In 2021, venture capital firms invested $35 billion in 
fintech startups, up from $18 billion in 2020. When we look at 
the founders of companies that received this investment 
funding, there is an obvious trend toward White males. While 
lack of diversity is a trend in almost every industry that 
venture capitalists invest in, it is particularly troubling in 
the fintech space, where a significant number of fintechs 
specifically target underserved communities, which we know are 
disproportionately made up of women and people of color.
    The largest fintechs, including digital banks, payment 
processors, and cryptocurrency providers, actually market their 
products to women and people of color. Yet, when we look at the 
founders and the leadership teams, they clearly do not reflect 
the communities that they claim to serve. Only 2 percent of all 
venture capital funding goes to women founders, 1 percent goes 
to Black founders, and less than 2 percent goes to Latinx 
founders. These numbers may also be reflective of the lack of 
diversity generally in the venture capital firms themselves 
because research does indicate that investors are more likely 
to invest in founders that they relate to, who look like them.
    While it may be easy to assume that there is simply a lack 
of founders who are women and people of color, our witnesses 
today will demonstrate that there is no shortage of diverse 
founders with thoughtful and innovative, substantive ideas. 
Additionally, women- and people-of-color-owned startups have 
repeatedly outperformed White-male-owned startups. Measurement 
and data have shown that companies with diverse founders earn 
30 percent higher multiples on invested capital, and almost 70 
percent of top performing U.S. funds included women in 
decision-making roles. Venture capital firms continue to gamble 
on poor investments such as cryptocurrency companies like 
Celsius, which recently froze all customer deposits, while on 
the other hand, women and founders of color with well-thought-
out, substantive business plans remain in the waiting room.
    Funds like Black Founders Matter and Rethink Impact are 
specifically working to address the diversity gaps, but it 
shouldn't solely be on these funds to pick up the slack. Large 
venture capital firms need to diversify their investments and 
their workforces to reflect this country which consumer fintech 
companies claim to serve. Additionally, investment into diverse 
fintech founders should not be limited to impact investing or 
performative diversity efforts when it simply makes financial 
sense to diversify.
    In the past, when faced with pressure to diversify, 
industry advocates have argued for looser regulatory 
requirements, claiming accredited investor requirements are the 
barrier to diversity. Quite frankly, the entrance of retail 
investors is not the answer. And I welcome policy approaches, 
such as reporting requirements or an SEC scorecard, that would 
push venture capital to abandon the sort of old boys club 
culture, the exclusive culture to determine where and in whom 
they invest.
    As we approach the prospect of a slowdown in economic 
growth right now, and venture capital funds seem to be drying 
up in some spaces, how will we ensure that women and founders 
of color are not further left out of the fintech space? I worry 
about that. I do thank each of our witnesses, whom I know from 
their experience and their work care deeply about this issue, 
for their willingness to share their perspectives.
    I now recognize my friend, the ranking member of the task 
force, Mr. Davidson, for 5 minutes for his opening statement. 
Thank you.
    Mr. Davidson. Thank you, Chairman Lynch, and I would also 
like to welcome all of our witnesses today. We appreciate your 
time and your testimony.
    The ability to raise capital is the cornerstone of any 
growing economy. America, home to less than 5 percent of the 
world's population, holds roughly 50 percent of the world's 
invested capital, but I am highly concerned that America is 
losing the edge that gives us nearly 25 percent of global GDP. 
It has given us the best markets for goods, services, capital, 
intellectual property, and more. America has dominated the 
agricultural and industrial revolutions, automobiles, aviation, 
aerospace, computing, the internet, and more. But now as we 
look at fintech, we see inaction by Congress and over-action by 
the SEC, in particular, driving capital formation offshore. In 
fact, 75 percent to 90 percent of the liquidity in this space 
is offshore.
    So, we really need to look at, how do we get more of that 
capital here in the United States of America? Even though a lot 
of the founders are either Americans or operating companies 
from America, we are seeing that kind of drive off. This 
hearing is certainly timely. We must do all we can to ensure 
that that talent is paired with capital here in the United 
States, to avoid having it migrate elsewhere.
    The fintech sector, broadly speaking, is attracting some of 
the most brilliant and talented people in this generation. In 
the last decade, we have seen this industry improve efficiency, 
decrease cost, increase financial access for underserved 
communities, and more. For that reason, venture capital firms 
are seeing it, and we know fintech was the leading sector for 
venture capital firms to invest in last year. However, despite 
being a popular investment, there remains a lack of diverse 
founders within the fintech industry.
    The numbers speak for themselves, and it is important to 
note that there remains a lack of diversity in venture capital 
firms as well, not just in terms of race or ethnicity, but 
geographic diversity. A lot of it is concentrated on the 
coasts. And I don't think sitting here and criticizing the 
investors does much to enhance or improve capital formation 
within the economy, but I do think that we will have a great 
discussion today.
    It is vital to ask ourselves why fintech founders must be 
dependent on venture capital firms. As we will discuss today, I 
think we can agree that this has had negative consequences. The 
fact that three-quarters of venture capital goes to founders in 
just three States--California, Massachusetts, and New York--
likely contributes to the lack of diverse founders that receive 
funding due to this geographic concentration, and also kind of 
the existing networks. So, what are the downstream effects? We 
see that founders outside these traditional VC locales struggle 
to raise Series A capital, usually $3 million to $10 million, 
propelling them to more easily secure Series B funding from 
investors focused on growth and scale. This only compounds the 
lack of diversity in the long run.
    Committee Republicans have introduced various bills that 
would enhance capital formation so that more minority- and 
women-owned startups can get off the ground. Some of these 
ideas include: first, the Improving Capital Allocation for 
Newcomers (ICAN) Act from Mr. Timmons. This bill codifies the 
recommendation from the SEC Small Business Capital Formation 
Advisory Committee and would increase the cap and number of 
investors to help funds invest in more entrepreneurs in their 
own communities, many of whom are women and minorities.
    Second, the Developing and Encouraging our Aspiring Leaders 
(DEAL) Act by Mr. Hollingsworth would expand the scope of 
qualifying investments, allowing large VC funds to deploy more 
capital to smaller funds.
    Third, the Small Entrepreneurs' Empowerment and Development 
(SEED) Act by Ranking Member McHenry would create a new micro 
offering exemption to allow broader access to capital for 
emerging entrepreneurs and small businesses.
    And Congressman French Hill and I both have bills to deal 
with the accredited investor rule, which basically says that 
you can't make investments in these companies unless you have 
already made a lot of money.
    People are barred, because we know that people with money 
do skew with less diversity as you see more accumulation of 
wealth. Giving retail investors more options would be one of 
many remedies we could supply. Importantly, I would like to 
note that one of the most important things we can do in this 
accredited investor space remains undone, and is unfortunately 
a partisan issue in Congress, where it is not in the founder 
community.
    I look forward to hearing from our witnesses today, and I 
applaud those on the panel who have worked incredibly hard to 
build successful businesses. With that, I yield back.
    Chairman Lynch. The gentleman yields back.
    At this time, I would like to recognize the Chair of the 
Full Financial Services Committee, the gentlewoman from 
California, Chairwoman Waters, who has been a longtime advocate 
and champion for both racial and gender equality during her 
time in Congress.
    Chairwoman Waters. Thank you so very much, Chairman Lynch. 
This is a very important hearing that we are having here today, 
and I thank you so much for your leadership.
    Research shows that companies led by diverse senior 
leadership outperform those that are led primarily by White 
male leaders, and yet venture capital funding for new fintech 
companies goes overwhelmingly to those funded by White men. In 
fact, only 2 percent of venture capital funding went to women 
founders, only 1 percent to Black founders, and only 1.8 
percent to Latinx founders. Venture capital can mean the 
difference between success and failure for new fintechs, and we 
can all benefit from promoting diversity in our future fintech 
industry leaders. And so, I look forward to hearing from our 
panel about the challenges that exist in promoting diversity in 
venture capital funding, and I yield back. Thank you very much.
    Chairman Lynch. Thank you, Madam Chairwoman.
    Today, we welcome a panel of distinguished witnesses, and 
we are thankful for their presence: Sallie Krawcheck, the CEO 
and co-founder of Ellevest; Wemimo Abbey, the co-founder and 
co-CEO of Esusu; Marceau Michel, the founder of Black Founders 
Matter; Jenny Abramson, the founder and managing partner of 
Rethink Impact; and Maryam Haque, the executive director of 
Venture Forward.
    Witnesses are reminded that their oral testimony will be 
limited to 5 minutes. You should be able to see a timer that 
will indicate how much time you have left, and I would ask that 
you be mindful of the timer so that we can be respectful of the 
witnesses' and the Members' time.
    And without objection, your written statements will be made 
a part of the record.
    Ms. Krawcheck, you are now recognized for 5 minutes to give 
an oral presentation of your testimony. Thank you.

  STATEMENT OF SALLIE KRAWCHECK, CEO AND CO-FOUNDER, ELLEVEST

    Ms. Krawcheck. Thank you. Chairwoman Waters, Chairman 
Lynch, Ranking Member Davidson, and members of the task force, 
thank you for the opportunity to testify today. I am Sallie 
Krawcheck. Having spent my career on Wall Street as CFO of 
Citi, and CEO of Merrill Lynch and Smith Barney, I am today the 
CEO of Ellevest.
    Ellevest is the investing and financial planning platform 
for women with a mission to get more money in the hands of 
women. We are a diverse company. In an industry in which 
leadership teams are 23 percent women, we are 84 percent, and 
in an industry in which the leadership teams are 11 percent 
people of color, we are 50 percent, with a similarly diverse 
board. We proudly count among our investors Rethink Impact, 
which is represented here today, Melinda Gates' Pivotal 
Ventures, Penny Pritzker's PSP Capital, Sarah Kunst's Cleo 
Capital, as well as women-run angel investing groups like Astia 
Angels.
    Ellevest has just completed a $53 million Series B capital 
raise, making us the very rare women-run fintech to reach this 
milestone. You have gone over the numbers, but they are 
actually sort of worse than you say, because women raise just 1 
percent of Series B dollars across industries and just 1 
percent of fintech dollars across all stages. That math means 
you can count the number of women-run fintechs who got this far 
on your fingers, literally on your fingers.
    The good news is there has been an influx of capital from 
women investors into early-stage funding, some specifically 
targeted to underrepresented founders. The bad news is this 
hasn't translated into later-stage funding in fintech, and this 
matters because fintech can be capital-intensive.
    In my experience, it is because few women investors are 
enrolled today to write bigger checks, and also because, and 
this is actually pretty gutting, raising early-stage capital 
from women investors can sometimes make it harder for women 
CEOs to get the next round of funding. The research indicates 
this is pure bias, on the assumption that you weren't good 
enough to get funding from the guys. This despite the research 
you have indicated that women-run businesses provide as good or 
better results than all male teams on less capital. The 
implication is significant given that financial services is our 
economy's lifeblood.
    First, though, I will just give you a thought experiment. 
Do you think it is a coincidence that with 98 percent of mutual 
fund assets managed by men and 86 percent of financial advisors 
being men, that women report they are not well-served by the 
industry, or that when I was running Merrill Lynch, men trusted 
their financial advisor more than their doctor, but women 
closed their accounts after their spouse's death? Low product 
market fit there.
    Is it a coincidence, do you think, that Ellevest is the 
only wealth tech app with most of its downloads by women, at 
about 95 percent, versus in the 20 percents and 30 percents for 
the others? And, no, this isn't because women aren't good at 
math or they do not like to invest or they are risk-averse. 
There is zero evidence of that. It is simply a story we tell 
ourselves to explain why women aren't engaging.
    The real issue is that few fintechs center on women's 
needs, and as a direct result, women entrepreneurs are starved 
of funding. As a result your, women constituents invest less of 
their money than men do, losing out on historic market returns 
and costing them hundreds of thousands, and for some women, 
millions of dollars over the course of their lives. And it is 
one reason why the gender wealth gap is at $0.32 to a White 
man, and $1.01 for Black women, and it has been widening.
    It means some of your women constituents are caught in 
toxic relationships that they can't leave or dead-end jobs that 
they can't quit. They are not starting their dream businesses 
because they simply don't have the money. I don't think that 
any of us here want that for our daughters. It also means lost 
economic growth incalculable in size, the dollars not spent 
with small businesses in your hometown, the non-profit 
contributions not made, the political contributions not made.
    Now, let's be clear: The solution is not for women 
entrepreneurs to work harder. If we raise 20 percent, 2 percent 
of venture dollars, that means 50 times more investor meetings, 
50 times more earnings models sent out, and 50 times more time 
away from the business. At Ellevest, we got here by doubling 
and tripling down on women, raising some of our round from 
accredited women investors investing together through special 
purpose vehicles, often sponsored by existing women investors. 
They got access to a later-stage deal in a strongly-performing 
fintech they wouldn't otherwise have, and we furthered our 
mission, a win-win even more so because 70-percent-plus of our 
new investors are from underrepresented groups, probably 
unheard of at our stage. And we at Ellevest live to fight 
another day working to get more money in the hands of women.
    Thank you.
    [The prepared statement of Ms. Krawcheck can be found on 
page 42 of the appendix.]
    Chairman Lynch. Thank you. That was exactly 5 minutes.
    Mr. Abbey, you are now recognized for 5 minutes to give an 
oral presentation of your testimony. Welcome.

    STATEMENT OF WEMIMO ABBEY, CO-FOUNDER AND CO-CEO, ESUSU

    Mr. Abbey. Thank you so much. Chairwoman Waters, Chairman 
Lynch, Ranking Member Davidson, and members of the task force, 
thank you for this opportunity to appear before you today. I 
also want to express my deepest gratitude to the staff for your 
tireless efforts. My name is Wemimo Abbey. I am the co-founder 
and co-CEO of a Harlem-based fintech unicorn called Esusu 
Financial. Esusu was founded in 2018 and is one of the few 
Black-owned fintech startups in the world to be valued at a 
billion dollars, raising a total of $144 million in financing.
    But my story started in the slums of Lagos, Nigeria. I lost 
my father at the age of 2, and my mother and my 2 sisters 
raised me. In 2009, I immigrated from 80-degree weather in 
Lagos, Nigeria, to negative 22 degrees in Minnesota. Seeking a 
way to pay for college, my mother and I were turned away from 
major banks because we did not have a credit score. My mother 
pawned my father's wedding ring, took out a 400-percent 
predatory loan, and borrowed money from church members to 
afford my first year of college. Inspired by these experiences, 
I co-founded Esusu on three core premises: where you come from, 
the color of your skin, and your financial identity should 
never determine where you end up in the wealthiest nation the 
world has ever seen.
    You see, credit is fundamental to financial stability and 
upward mobility, but financial exclusion makes the American 
Dream unattainable for millions. Data released by the Consumer 
Financial Protection Bureau (CFPB) in 2015 confirmed that 
approximately 45 million Americans are credit invisible and 
unscorable. Every month, over 109 million Americans spend, on 
average, $1,100 in rent. That is over $1.44 trillion annually, 
which is often their largest monthly household expense. Over 90 
percent of renters do not get credit for paying rent on time, 
leading to financial exclusion. Esusu helps bridge this gap by 
reporting on-time rental payments to the three credit bureaus, 
thereby helping renters across the nation establish and improve 
their credit scores, which will help them unlock quality 
financial products. When renters encounter financial hardship 
and can't afford to pay rent, we also pay them with zero-
interest microloans to help keep them and their families in 
their homes.
    Today, we are here to discuss the obstacles to investment 
in diverse-owned fintechs. According to Forbes, U.S. fintech 
billionaires are worth a combined $162 billion. More than a 
dozen fintech billionaires were created over the past year. 
None of these multi-billionaires are Black or people of color. 
In 2021, venture capital investments reached $35 billion. 
White-male-led startups receive over 70 percent of investments 
compared to 1 percent for Black founders in fintech. These 
staggering facts shine a light on the realities of investments 
in the fintech landscape, and it points to another reason why 
the racial wealth gap persists and is growing today.
    I offer three thoughts on why obstacles persist in diverse-
owned fintechs. First, investors tend to co-invest in people 
they know and with whom they are comfortable . For example, 
over 75 percent of Esusu investors are women or Black venture 
capitalists. They understand Esusu's mission and also generate 
outsized unrealized return from being with us since day one.
    Second, due to the implicit or unconscious bias, many 
seasoned investors do not consider people of color to be 
successful entrepreneurs. Personally, my co-founder and I had 
to speak to 326 investors before we got one to bet on us.
    Third, investors may struggle to relate to the problems 
that entrepreneurs of color, immigrants seek to solve. For 
instance, a well-paid venture capitalist may not have personal 
experience being credit invisible or underbanked, so a startup 
that seeks to address these problems is likely to be of less 
interest to them.
    With that, I would recommend asking institutions under the 
purview of this committee to implement three solutions: first, 
create tax incentives to establish banks and main credit 
bureaus to work with and adopt technologies developed by 
minority-owned fintech startups; second, create tax incentives 
established by venture capitalists to place more investment 
bets in minority and immigrants' fintech startups; and third, 
instruct agencies tasked with regulating the financial services 
sector to engage proactively in minority-owned fintech startups 
so that founders can share their perspective on challenges.
    In closing, I fundamentally believe investing in minority 
fintech companies can generate outsized returns and have a 
profound impact in the lives of many. Esusu is a perfect case 
study. A company founded by the sons of immigrants is now 
valued at a billion dollars, and is working tirelessly to keep 
families in their homes. Our story is only possible in America. 
There is an African saying, ``If you want to go fast, you go 
alone, but if you want to go far, you fundamentally go 
together.'' True change will take both sides of the aisle 
working together to make this union more perfect. So, let's be 
caught trying. Thank you.
    [The prepared statement of Mr. Abbey can be found on page 
24 of the appendix.]
    Chairman Lynch. Thank you, Mr. Abbey. You have a remarkable 
story.
    Mr. Michel, you are now recognized for 5 minutes to give an 
oral presentation of your testimony. Welcome.

  STATEMENT OF MARCEAU MICHEL, FOUNDER, BLACK FOUNDERS MATTER

    Mr. Michel. Thank you Chairman Lynch, Ranking Member 
Davidson, Chairwoman Waters, and Ranking Member McHenry. My 
name is Marceau Michel, and I am the founder of the Black 
Founders Matter fund. I am a passionate advocate for the 
underrepresented founders and fund managers, and it is my honor 
to share my thoughts and observations on this very timely 
matter.
    Much like the legal end of slavery, racial integration and 
affirmative action, our society needs measurable and 
accountable methods to facilitate positive change. And even 
though we have seen the change, even though we have seen how 
those--excuse me, I am nervous, it is really nerve-wracking to 
talk in front of all of you--even though we have seen these put 
into place in our society, they haven't created parity for all 
of us. However, it has pushed social progress forward. We need 
measurable intentionality to be able to do that.
    So, what I am asking that you consider is holding the 
venture investment industry accountable to finally integrate in 
a meaningful way. We haven't seen integration in this space. 
There have been many empty valves to improve the abysmal 
statistics that we see in diverse investment. However, there 
has been no significant movement where they have truly brought 
women and Black, Indigenous, and people of color (BIPOC) 
founders into their portfolios. This is unacceptable.
    In this month, June of 2022, I decided to take action. I 
launched the 25 by 25 Pledge for venture funds to make a real 
and measurable commitment to change. This pledge entails 
investing 25 percent of their current fund in startups led by 
BIPOC women, and to hire within their fund 25 percent BIPOC 
women as well, because what we need in order to see significant 
change in this space is representation both in the portfolio, 
but also within the firms themselves. This was done with the 
clear objective for all funds to work toward. Without this 
measurable intentionality, we won't see any change.
    The classist tech bro culture has weakened our economy and 
limited the solutions that diverse founders are creating. And 
the importance connected to that is really there are lived 
experiences that diverse founders have that they are able to 
bring to the companies that they create, and they are able to 
have their communities specifically in focus when creating such 
products and services.
    I know in my experience running my own fund, I have learned 
the importance of why you have to be intentional. After making 
the first five investments from my fund, we realized that we 
had only made investments in Black men. And so, we made a 
specific effort to only see deals by Black women, and this led 
to some of the biggest deals that we were able to get into. We 
were able to invest in Olympic legend, Allyson Felix, and other 
incredible women, we have been able to invest alongside Serena 
Williams, and this all came from making a concerted effort to 
focus on female founders.
    Our communities have very little choice in the financial 
institutions and companies that serve us. Fintechs that claim 
to serve and target our communities without any level of 
representation or connection to our communities really is a 
form of financial manipulation, and without any accountability, 
will continue to occur. We have repeatedly seen BIPOC founders 
be more capital-efficient and yield higher returns. This should 
increase interest in such ventures. However, working with set 
founders exists outside of the comfort zone for venture capital 
(VC) funds because VC funds benchmark based on what they 
already know, based on what already exists. So, when you bring 
in diverse founders who are approaching problem solving from an 
entirely different direction, it really doesn't benchmark for 
them.
    Much like when cities and municipalities want to revitalize 
districts and neighborhoods, they provide incentives to attract 
investment. And I agree with the previous speaker about 
creating incentives in order to bring more investments 
specifically to founders of color and also to emerging fund 
managers that are working to solve this gap specifically. In 
recent years, we have seen there are more emerging funds that 
have the specific focus on the immense opportunity zone that 
has underrepresented founders. These funds need more capital, 
more investors, and incentives to bring them all together. So, 
are there ways to incentivize funds who are focusing on this 
gap? Is there funding that can be created for emerging funds 
that are investing in BIPOC women? I believe that it takes 
multiple approaches to tackle this disparity.
    I know this committee of esteemed leaders has the ability 
to put forward policies that will transform not only what can 
happen now, but for generations to come. By creating metrics 
for VC funds to meet, funding for emerging funds that are 
focused on this space and incentivizing investment in these 
funds will push the needle forward. What makes our country 
remarkable is our ability to push forward and continue to grow. 
I yield back.
    [The prepared statement of Mr. Michel can be found on page 
46 of the appendix.]
    Chairman Lynch. Thank you, Mr. Michel.
    Ms. Abramson you are now recognized for 5 minutes to give 
an oral presentation of your testimony. Welcome.

  STATEMENT OF JENNY ABRAMSON, FOUNDER AND MANAGING PARTNER, 
                         RETHINK IMPACT

    Ms. Abramson. Thank you. Good afternoon, Chairwoman Waters, 
Chairman Lynch, and esteemed members of the Task Force on 
Financial Technology. As the founder and managing partner of 
Rethink Impact, the largest venture capital fund in the U.S. 
investing in female and non-binary CEOs, many of whom are in 
fintech, I am honored to be here with you today.
    To give you brief context, before I became a venture 
capitalist in 2015, I was a tech CEO, and often the only woman 
in a given room or on a given stage. As a data nerd from 
Stanford, I researched the numbers and learned that only 2.3 
percent of venture dollars went to female-founded teams that 
year. What shocked me about this was that my own mother ran the 
first venture capital fund investing in female leaders 25 years 
ago, and the percentage of dollars going to female founders has 
actually gone down since then. I decided the best way to change 
this pattern was to start a fund that could drives 
institutional-scale dollars to female tech CEOs. And my 
partner, Heidi Patel, and I were fortunate to get the backing 
of major banks like UBS Investment Bank, as well as 
foundations, university endowments, and prominent individuals.
    With that context in mind, I will address three key areas 
of my testimony today. First, why is there a lack of investment 
in diverse fintech companies? Second, what is the missed 
financial and societal opportunity from this deficit? And 
third, how can we reverse these trends?
    On the first, people often assume this lack of investment 
is a pipeline issue. This is not the case. We experience 
diversity of flow firsthand at Rethink Impact. Our firm reviews 
600 to 1,000 startups each year, and we, like many funds, only 
need to invest in a handful. The real reason that diverse 
fintech CEOs don't get these dollars relates to the fact that 
women and diverse leaders control a very small percentage of 
the $330 billion venture capital dollars spent just last year. 
Broadly speaking, 86 percent of investment decision-makers are 
men. Given that venture capital is very much a pattern-matching 
business, investors often back companies and people who are 
most like themselves. COVID has only exacerbated this problem. 
Diverse founders already had a challenging time breaking into 
longstanding funding networks, but shutting down live events 
and in-person meetings made this worse.
    During COVID, despite an increase in venture capital 
funding, investments in female-founded companies went to the 
lowest levels since 2016, and the current economic downturn is 
already being disproportionately felt by diverse founders. In 
quarter one of this year, VC funding dropped 26 percent across-
the-board, but investment in female-founded companies dropped 
by 34 percent. What is the missed financial and societal 
opportunity from this deficit?
    Estimates indicate venture capital opportunity costs from 
withholding investment to diverse founders may be as high as $4 
trillion. Venture-backed teams of diverse founders, both in 
terms of gender and ethnicity, have better financial outcomes, 
including 30-percent higher multiples on invested capital when 
companies are acquired or go public. And when you couple that 
with the fact that women drive 70 to 80 percent of all consumer 
purchasing decisions, and that both women and men and people of 
color disproportionately experience the inequalities that many 
fintech businesses are tackling, not including these groups in 
leading fintechs is just a missed opportunity.
    So, how can we reverse these trends? First, sharing the 
data in forums like these is key, given that many are unaware 
of this information.
    Second, we must share individual success stories that bring 
this data to life. Four fintech examples in our portfolio 
include: Candidly, led by Laurel Taylor, which is tackling the 
$1.7 trillion student debt crisis through a financial wellness 
platform; Icon, led by Laurie Rowley, which is innovating on 
the outdated model of 401(k)s for working Americans; Morty, led 
by Nora Apsel, which is democratizing access to home mortgages; 
and Ellevest, led by Sallie Krawcheck, whom you heard from 
today.
    Finally, we need to diversify who controls investment 
dollars. Female venture partners invest in twice as many female 
entrepreneurs as male ones. We must, therefore, find ways to 
enable a more diverse set of leaders to make investment 
decisions. Limited partners, the money behind funds, have the 
power to change this, since Cambridge Associates data shows 
that new and developing fund managers, who often are more 
diverse, rank as some of the best performers.
    In conclusion, getting more dollars in the hands of diverse 
fintech owners is great for consumers, and for investors in our 
economy. I started this testimony by sharing my mom's 
experience 25 years ago, and while the numbers have not 
improved on many fronts, I would like to believe that, 
together, the people in this room can ensure that my own 
daughters are not sitting here in 25 years repeating this 
testimony. Thank you.
    [The prepared statement of Ms. Abramson can be found on 
page 27 of the appendix.]
    Chairman Lynch. Thank you, Ms. Abramson.
    Ms. Haque, you are now recognized for a 5-minute 
presentation of your oral testimony. Thank you.

 STATEMENT OF MARYAM HAQUE, EXECUTIVE DIRECTOR, VENTURE FORWARD

    Ms. Haque. Chairman Lynch, Chairwoman Waters, Ranking 
Member Davidson, and Ranking Member McHenry, thank you for the 
opportunity to testify today on the important topic of 
diversity, equity, and inclusion (DE&I) in the U.S. venture 
capital ecosystem. My name is Maryam Haque, and I am the 
founding executive director of Venture Forward, where we focus 
on diversifying, educating, and empowering the VC investor 
class to help the industry to reach its full potential.
    I want to start by taking stock of where the industry is 
today with respect to DE&I. The VC industry historically has 
not been diverse, equitable, or inclusive, and this is evident 
from a growing body of data. To hit on a few stats, females 
constituted 16 percent of investment partners in 2020, up from 
11 percent in 2016. However, there has been little progress in 
the equitable representation of Black professionals, who 
represented just 3 percent of investment partners, or Hispanic 
professionals, who represented just 4 percent. This data also 
highlights the importance of intersectionality and why Venture 
Forward approaches DE&I through this lens. While the percentage 
of investment partners who are women has steadily increased, 
the percentage of investment partners who are women of color 
has not. These statistics are collected in a biannual survey 
that Venture Forward has conducted since 2016 to track and 
measure the industry's DE&I progress. VC has also lacked 
geographic diversity. Three States--California, Massachusetts, 
and New York--account for 84 percent of where VC assets under 
management are based.
    So, how did we get here? VC is a risky, long-term 
investment, and the likelihood of success is low. As you know, 
VC investors provide risk capital for high-growth, innovative 
startups. VC is actively engaged with the founder to grow their 
businesses, but these equity investments are essentially 
illiquid until a company reaches a liquidity event, like an IPO 
or acquisition, which can happen a decade after the first 
investment.
    VC investors raise funds from limited partners such as 
pensions, foundations, or endowments, and the VC also has to 
commit a portion of their personal capital. For someone without 
financial security or personal wealth, like connections to 
wealth or to limited partners, the barrier to entry for someone 
starting their own fund can be high when the upside is risky, 
and it can take years to realize. Existing firms tend to be 
small, and there is low turnover. This means there are also few 
available opportunities for new entrants. Other challenges to 
DE&I progress include limited access to education on VC, and 
investors relying on existing networks or relationships.
    What is Venture Forward doing about this? As we see from 
the data, women and people-of-color investors and founders 
based outside of a few geographies are underrepresented. 
Venture Forward's mission is to change that. We focus on the 
investor base because investors control where and how capital 
is deployed to founders. The data shows that more diversity 
amongst check-writers leads to a more diverse set of founders 
raising capital.
    To hit on a few of our initiatives and impact, we co-lead 
VC University, which has educated 2,200 aspiring investors. We 
have provided more than 360 VC University full scholarships to 
aspiring investors from underrepresented backgrounds to help 
democratize access to quality education on VC. We have matched 
more than 190 scholarship recipients with investors in a 
mentorship program, and we have facilitated more than 500 
meetings for 175 underrepresented fund managers to meet with 
limited partners, inexperienced VCs through LP office hours.
    Despite these stark stats, there are some reasons for 
optimism. The demographic composition of junior investment 
professionals reflects greater diversity, which suggests a more 
diverse pipeline for tomorrow's senior investment partners. 
There has also been a wider adoption of firm DE&I strategies, 
and we have collected this data through the survey I mentioned. 
This intentionality translates to improved diversity outcomes. 
Firms with dedicated DE&I strategies achieve greater gender and 
racial diversity amongst investment partners. Prioritizing DE&I 
has the potential to unlock more innovation, unlock 
opportunities for greater economic impact and unlock better 
financial performance and returns for the industry.
    Thank you again for your time and attention on this 
important topic. As you can see from the data, there is still 
much more work to be done, and Venture Forward remains 
committed to its leadership role on this issue. I am happy to 
answer any questions you may have. Thank you.
    [The prepared statement of Ms. Haque can be found on page 
32 of the appendix.]
    Chairman Lynch. Thank you very much, Ms. Haque. And I want 
to thank all of the witnesses for your wonderful testimony.
    There is a real dichotomy here that it is ironic that in an 
industry and in an area where we see so much, the velocity of 
change in fintech, it is unmatched. You see the enormous 
change, the innovation that is going on in that space, but that 
is on the technical side, right? You look at the social side, 
and we are at a veritable standstill, as both Ms. Haque and Mr. 
Michel have pointed out, with exceedingly small numbers of 
women and people of color actually working at high levels.
    I have been on this committee now for over 20 years, and we 
had a grave problem in the mortgage and banking area, and one 
of our solutions, and it was only a partial solution, but it 
seemed to work in some regard is, with the banks, we adopted a 
protocol under the Community Reinvestment Act. And what we did 
in part was we gathered data on the banks, we looked at the 
investments they were making in minority areas, and then we 
graded them publicly and held them accountable so that their 
depositors and their investors would know how they were doing 
with progress in investing in areas that were previously 
redlined.
    And that exposure did a lot, I think. It didn't fix 
everything, but it certainly moved the needle. It made banks 
more socially aware of their actions and their investments, and 
I think it caused the general public and, like I say, the 
investors and depositors to get on those banks and judge banks 
based on how they were graded in that regard. Is there a role 
for that? Would it help? And I am thinking specifically of 
legislation that we would proffer to the SEC to say, can we 
build a scorecard, a report card on these venture capital firms 
and grade them on how they are meeting that goal, those social 
goals that we would like to see those firms attain? How many 
people of color? How many LGBTQ founders? How many women are 
now the object of their support?
    And I am also disappointed in some regards where there is 
so little information at the very beginning of some of these 
startups, where it is simply a White Paper. The substance is 
very thin on some of these ventures. And yet, those are getting 
funding, maybe because of relationships with fintech, while 
Black founders, people-of-color founders, women founders, and 
LGBTQ founders are sitting in the waiting room or going to 30 
different meetings to try to get the same level of support. So, 
I am just wondering if we if we make that scorecard, is that 
something that might help? I know, Ms. Krawcheck, you have had 
some experience in this area. I wonder how you would feel about 
that?
    Ms. Krawcheck. Yes, I think more information and more 
sunshine is always a positive thing, and people can choose what 
to do with the information once they receive it. But I do know, 
in part of this raise, I did try to go to original sources of 
capital such as endowments, foundations, et cetera. And they 
seem to truly believe in the power of diversity, but they tend 
to put their funds in managed vehicles. And if we were able to 
do this, we could then give then that information for some of 
whom it is still opaque that could help them direct their 
capital in the direction that they want to.
    Chairman Lynch. Thank you. Mr. Abbey, any thoughts?
    Mr. Abbey. Yes, sure. Chairman Lynch, I think you bring up 
a very important point from a disclosure standpoint. I think 
when it comes to measuring impact--on Wall Street, we measure 
how our stock markets perform on a quarterly basis. We look at 
what is going on in the Dow. We look at what is going on in the 
NASDAQ and the S&P 500. If we start implementing metrics, and 
holding these investors accountable, and saying diversity 
matters, but take it a step further and saying not only having 
diversity in your janitorial staff, but looking at your board 
members, looking at your executive team, that is when we start 
having change. And if they can report back to the SEC, I think 
we are going to have a profound impact, and we are going to be 
closing the gap from an investment perspective.
    Ms. Abramson. Mr. Chairman, may I add one quick point to 
that?
    Chairman Lynch. Sure. Please do.
    Ms. Abramson. I think data is a powerful thing, and I 
really like your idea of doing this at the fund level. I think 
one other idea to supplement that would be to do it at the 
limited partner level, the institutions that are investing in 
funds, and to do a scorecard, especially for large pensions and 
other significant institutions, to see where their dollars are 
going in terms of the diversity of the fund managers they are 
backing, given how much that diversity at the fund level 
impacts who gets the dollars at the fintech level.
    Chairman Lynch. Okay. Thank you very, very much. I now 
yield to the ranking member of the task force, my friend and 
colleague, the gentleman from Ohio, Mr. Davidson, for 5 minutes 
for his questions. Thank you.
    Mr. Davidson. Thank you, Mr. Chairman, and I appreciate the 
opening testimony from the witnesses. And I will say, Mr. 
Abbey, I am impressed with the business that you and your co-
founders have built, and congratulations for identifying such 
an important niche to establishing a more robust credit 
reporting system. I think I would just be interested in your 
perspective in terms of how your own lived experience helped 
you identify the problem, and maybe solve it?
    Mr. Abbey. Thanks a lot, Ranking Member Davidson, and I'm 
really humbled by your kind words. When my mother and I came to 
America, we didn't have a credit score and had to go borrow 
money from a predatory lender. And that experience really 
inspired me and my co-founder, who had the same experience, to 
create a product that creates a win-win-win construct. The 
product we created at Esusu is one that doesn't point fingers. 
Landlords win, the residents win, and society at large wins 
because we are not solving homelessness backwards.
    And what really perturbed me was when you pay your 
mortgage, that data is reflected in your credit profile, but 
when you pay rent, for the 109 million Americans, in an 
average, spending $1.44 trillion to their landlord, that data 
is not visible. And that is what essentially led us to build 
this billion-dollar business, making sure we can pave a 
permanent bridge to financial access and inclusion for those 
who have been predominantly left behind. I think we still have 
a long way to go, but like my grandmother always says, you have 
to build a doghouse before you build the White House.
    Mr. Davidson. Thanks for sharing your story, and 
congratulations on your success. And I just think, thank God, I 
am so thankful for the country that I got to experience, but I 
was born here. Thanks for coming here and making a difference, 
growing your business here and, frankly, helping solve a 
problem for a lot of people. And from a personal view, I am 
sure your own personal experiences helped you, but 
fundamentally, you just had a really big idea that solves a 
problem. And I am glad that you found the capital. Thanks for 
your persistence in doing it.
    Ms. Haque, you have focused on helping people find capital 
in your own path. Would you describe how Venture Forward as 
well as the industry is taking the initiative to address some 
of the kind of broad issues, maybe from a broad perspective, 
but specifically, what are some of the initiatives that you 
have seen address the testimony today?
    Ms. Haque. Ranking Member Davidson, thank you for the 
question. I want to hit on a few programs that we have found to 
help meet some of the needs of the industry, and the first one 
I want to mention is VC University, to which I briefly alluded. 
And what we recognized a few years back was a recognition that 
talent is not a pipeline problem or diversity and talent is not 
a pipeline problem. However, in the industry, because it has 
traditionally been small, it has run as an apprenticeship 
model. And if you don't know someone in the industry or live 
within a few miles of a few cities in this country, the 
recognition or the understanding of venture capital can be 
hard. And that initially is just a barrier that we felt that we 
could play a role in, to scale some of that education more 
broadly.
    And so, VC University, in which we partnered with UC 
Berkeley, has now grown over the past 4 years to have more than 
2,000 aspiring investors across the country come through this 
program. Many of them are underrepresented, and we offer them 
education to really understand the nuts and bolts because we 
don't want just purely the education or information on VC to be 
a barrier. But we recognize that just education is not enough, 
and so we have added in additional elements of making sure 
investors in today's industry are supporting these up-and-
coming investors through a mentorship program, through a 
scholarship program that we offer to underrepresented and 
aspiring VCs across the country. We have seen a lot of 
diversity within these cohorts. For example, our most recent 
scholarship cohort was 90 percent people of color, 60 percent 
women, 60 percent based outside of California, Massachusetts, 
and New York, 20 percent identified as LGBTQ, and 7 percent 
were active military or veterans.
    Mr. Davidson. Yes, thanks for the background. I will say 
that I have seen quite a bit of diversity in the industry, and 
have personally been involved extensively in trying to push 
legislative clarity for the space. I am thankful for groups 
like the Women of Color in Blockchain. They have invited me 
numerous times to speak with them, and they, of course, are 
focused on women, but in particular, women of color. There are, 
of course, a lot of White males in the industry. It is male-
dominated, but it is also encouraging to see the diverse folks 
who are involved in terms of heavily next probably Asian and 
certain areas of the Middle East. But I look forward to 
providing regulatory clarity for the entire United States 
because, again, a lot of the liquidity is moving out of our 
economy because Congress hasn't taken action, and the action at 
the SEC, in particular, has frightened a lot of capital law.
    With that, I look forward to the rest of the testimony, and 
I yield back.
    Chairman Lynch. The gentleman yields back. The Chair now 
recognizes the Chair of the Full Committee, the gentlelady from 
California, Chairwoman Waters, for 5 minutes for her questions. 
Welcome.
    Chairwoman Waters. Thank you very much.
    Mr. Michel, venture capital's investments in 2021 reached 
well over $35 billion, yet most of the investment has been 
directed towards White- and male-funded companies. But multiple 
studies have found that companies with diverse leadership, 
specifically with more than one gender, and/or one race, or 
ethnically represented are more innovative and make more money. 
The Harvard Business Review found that venture capital 
investing teams limited to any one gender or any one race do 
much worse. I assume that venture capital firms are heavily 
profit-driven, but it seems they are ignoring clear data on how 
to boost those profits. Why do you think this is the case, and 
what are the ways we can help businesses with high growth 
potential to have a fair shot in receiving venture capital 
funds?
    Mr. Michel. Thank you, Chairwoman Waters, for such a 
considerate question. I believe that it is because of the 
outdated model connected to how venture capital evaluates 
companies. I brought this up in my testimony, but there is this 
thing of benchmarking, which really is about sameness. It is 
really about, how does something match up with something that I 
already know, something I am already comfortable with, 
something that already makes sense to me, right? In an industry 
that has been built predominantly on White male culture, it is 
really about benchmarking how does this female founder, how 
does this Black female founder benchmark with someone that I 
know, benchmark with someone that I went to school with, 
benchmark with someone who is already in my social network?
    These are biases that implicitly end up locking out people 
of color, and locking out women, because they don't benchmark 
in the same way. They don't have the same lived experiences. 
And so, funds like mine have emerged to close gaps like these 
to ensure that there is funding that is very specifically going 
to certain communities. And people have asked, is that too 
exclusive, but really, it is really about the fact that there 
is an immense need for more funds and more organizations in 
general that are focusing on closing this gap. Not only do we 
need to hold venture capital accountable, and I really agree 
with what Chairman Lynch said about having a scorecard for 
ventures so that it is really transparent how well a fund is 
doing when it comes to how they are diversifying, and how they 
are when it comes to their staff from within and when it comes 
to their portfolio, but it is also important to create more 
funding structures to go to diverse fund managers, but who have 
authentic--
    Chairwoman Waters. If I may just interrupt you for a moment 
here, when you talk about benchmarking, if you have venture 
capital companies whose leadership has never met, or interacted 
with, or know very many Black people, and come with the belief 
that we are not good entrepreneurs, how do you deal with that 
kind of attitude and those kinds of feelings? You are talking 
about how important it is, and we are talking about how 
important it is to have people inside your firm who have to 
make these decisions. And if they don't have people who are 
making decisions that are inclusive, and are particularly 
interested in diversity because they don't know anything about 
the cultures, anything about interaction, they have never been 
in Black communities, they have never seen young Black 
businesses that work very hard to be successful, how do you 
overcome that?
    Mr. Michel. I know my way of overcoming that was starting 
my own fund, because I was the founder who was experiencing 
this. I am a first-generation American. My parents immigrated 
here from Haiti, and I come from a culture of figuring out how 
to liberate myself. I was a founder who started my own company, 
and got an incredible amount of traction, but I was being given 
the runaround by venture capitalists. I was taking meetings, 
and those goalposts kept getting pushed out, and that is why I 
started Black Founders Matter, to call out the elephant in the 
room. I believe that it is important for funds to have 
representation within, because that is how you get authentic 
connection to the actual communities, because it is also hard 
as a Black founder to be able to trust.
    Chairwoman Waters. So you think that what Mr. Lynch is 
saying in terms of how we take a look at first to ask, how many 
people of color do you have in your firm in leadership--
    Mr. Michel. Yes.
    Chairwoman Waters. --in addition to how many companies or 
startups have you funded? We are going to try and do everything 
that we can. We thank you for being here today and the others 
who are giving us some ideas about what we can do. We are going 
to work very hard to open up these opportunities. And thank 
you, Mr. Lynch, for allowing me time today to interact with you 
on this most important subject. Thank you.
    Chairman Lynch. Thank you so much, Madam Chairwoman. Thank 
you for spending time with us. I really appreciate your 
leadership.
    The Chair now recognizes the distinguished gentleman from 
Wisconsin, Mr. Steil, for 5 minutes for his questions. Welcome.
    Mr. Steil. Thank you very much, Mr. Chairman. I appreciate 
you holding today's hearing.
    Ms. Haque, we have talked a lot about different ways 
diversity is impacting us in the financial services sector. I 
think one area that we haven't touched on is geographic 
diversity. We continue to really see VC funds building up in 
San Francisco, New York, and Boston. I am here in Wisconsin. We 
are in a remote hearing. I am at home. And I recommend that 
everybody come to Wisconsin in the summer. It does not get 
better than summer in Wisconsin. I see some smiles, as some of 
you guys are probably dealing with the heat and an actual 
garbage fire in D.C. today, but I want to dive in on geographic 
diversity. Ms. Haque, if I read your resume correctly, you are 
from the great State of Mississippi. Is that accurate?
    Ms. Haque. I am. Yes, I was there for the first 18 years of 
my life.
    Mr. Steil. Spectacular. Do you meet a lot of people in the 
broader VC space from Mississippi and similar States?
    Ms. Haque. I would say in my 15 years in the venture 
capital industry, I have met one venture fund manager in the 
State of Mississippi. And I think that speaks to why I am very 
passionate about this topic, which is the fact that I didn't 
get exposed to venture capital until I moved to San Francisco 
15 years ago. And I do think that is what our program, like VC 
University, is trying to address is to just make it more 
accessible to understand that venture capital is a viable 
career opportunity as an investor or as an entrepreneur, to 
just demystify that. One specific program related to this that 
we have seen a lot of interest and success with is VC 
University Live, where we have actually partnered with 
universities across the country--the University of Michigan, 
Tulane, SMU, and UNC-Chapel Hill--to hold these types of 
educational workshops, bring together the local ecosystem, 
shine a spotlight, and then just provide more education on 
really the nuts and bolts of VC and how it works.
    I do think that what we have seen from a positive aspect of 
the pandemic has been a bit more dispersion of talent across 
the country. But I think it is really important to think about 
how are you opening up local capital that is not just the seed 
or the earlier-stage capital, but really those later-stage, 
local capital that may be helpful for companies along their 
growth cycles.
    Mr. Steil. I appreciate that, Ms. Haque, because I totally 
agree. I think when we look at what happened with the Volcker 
Rule, the impact of that consolidating capital into some of our 
largest cities, particularly San Francisco, New York, and 
Boston, I think it is to the detriment of some of our smaller 
communities, whether or not that is in the State of 
Mississippi, where you spent the first 18 years of your life, 
or in the great State of Wisconsin. I think it is something 
that we have to explore. You commented nicely about the impact 
that you can have in relationships with schools.
    I want to shift gears slightly in my remaining time to 
thinking about the way that early-stage investors are playing 
an active role in their portfolio companies, different than 
more late-stage, possibly passive investors in the way that 
these investors can really actively mentor in these early-stage 
investments. How do you see the importance of that early-stage 
mentorship in the entrepreneurial ecosystem?
    Ms. Haque. At the really earliest stages, a founder pretty 
much could have just an idea, and so the investors are really 
working with founders from day one to help provide strategic 
and operational guidance. They are connecting entrepreneurs 
with customers, other potential investors, taking board seats, 
hiring employees, et cetera. And so, they are really helping 
and working actively with that fund manager to help build this 
business from the ground up, and the investor is going to see 
no upside from that investment until the company is successful.
    And I do think that there is a lot of this active 
management that has been really core to the venture business 
model, and venture investors have multiple founders in their 
portfolio. So, it is not that they are just dedicating their 
time to one founder, but it could be dozens, and venture firms 
are typically small. The median size of a venture firm in this 
country is six employees, and so it is a matter of time 
management. But I think there is just a lot of alignment of 
interest for those investors to see the founders be successful.
    Mr. Steil. Absolutely. In my remaining time, I would flag 
that I think one of the things we should be looking at as a 
committee is ways to limit the regulatory burden in some of our 
early-stage companies. When we think about these emerging 
growth companies with amazing potential, often, great 
entrepreneurs are stepping up. It is really a point in time 
where we could look to be encouraging more entrepreneurs to be 
entering this space if we look at the regulatory burden that 
the Federal Government is often placing on many of these 
companies.
    Cognizant of the time, Mr. Chairman, I will yield back.
    Chairman Lynch. Thank you, Mr. Steil. The Chair now 
recognizes the distinguished gentleman from Florida, Mr. 
Lawson, for 5 minutes for his questions. Welcome.
    Mr. Lawson. Good afternoon to everyone, and I would like to 
welcome all of the panel. This has been a great discussion. And 
my question is going to be sent out really for the whole panel 
because from what I have heard this morning, you all are very 
interested in where we stand.
    The Federal security regulation restricts the type of 
investors that can gain access to private investment 
opportunity, including certainly venture capital investments. 
And accordingly, what it requires for an accredited investor is 
that the investor must have particularly high income, a whole 
wealth of at least a million dollars beyond the value of their 
primary residence. Only around 10 percent of the households in 
the U.S. will meet this threshold. How do we balance the need 
to protect prospective low-income investors from risky 
investment with the high bar to enter the CV space? And this is 
for the whole panel.
    Mr. Abbey. I am happy to go first. Thanks a lot for that 
question, Congressman Lawson. When we think about getting 
everyone involved, I do strongly believe there is a balance. We 
need to have the right disclosures to make sure folks know what 
they are getting themselves into. Venture capitalist investment 
is extremely risky, but also has high returns. So, making sure 
we have those edge language and we are incredibly clear about 
the kind of investments in the vehicle would be helpful. And 
getting folks involved, limiting things like accredited 
investors, creating more opportunities, and letting more people 
engage from an investment standpoint is encouraging. But we 
need to just be very, very balanced in our approach because we 
are one of the rare cases where we became a billion-dollar 
business. Most times when you invest in this vehicle, you can 
lose everything. We just want to have a balanced approach where 
we are educating potential investors, accredited or not 
accredited, about what they are getting themselves into.
    Mr. Michel. I would like to add to that. I think this is 
also a question of scale, because if we are talking about the 
general population and their ability to be able to invest in 
ventures like this, it is quite risky. But it is about what 
level of exposure makes sense based on where someone is 
financially, right? We have seen a lot of efforts in recent 
years for crowdfunding, where communities are able to come 
together and put together--put in $500, put in $1,000, put in 
what is reasonable.
    Usually, the general population is excluded because venture 
funds are so large and the barrier for entry is so high in 
terms of having to put in a check for $50,000, $100,000, up to 
millions of dollars. But having opportunities where people who 
don't have as much to be able to put into funds at that scale 
are able to still be able to participate in the returns, that 
can come from investing in venture capital. So, I think that 
there is an opportunity when it comes to being able to just 
scale what that amount is so that people aren't exposed and 
don't lose a lot of money, because you can lose money in this 
space.
    Ms. Abramson. Congressman?
    Mr. Lynch. Go ahead.
    Ms. Abramson. I will just quickly add that, yes, we can ask 
funds to lower their minimums that are required to be part of 
the funds, which is something we did at Rethink Impact to allow 
investors from 39 States, 67 percent being women, to invest. 
That was a big thing. And the second thing is there are 
companies like Ellevest--you heard from Sallie Krawcheck 
today--who give investors an opportunity to take part in this 
type of investment vehicle and in a broad type of vehicle that 
can be safer and be better aligned to their broader investment 
portfolio and to what they can actually do, but lowering the 
risk as well. I think the other piece is to not think 
exclusively about individual venture funds, but buckets of 
investment.
    Ms. Krawcheck. And I will chime in. I think you may be 
trying to run, when we may be trying to crawl a little bit. 
When I think of women investors today, the majority of their 
money remains in cash, which was bad enough when it was earning 
zero percent, and now with inflation, means they are going 
backwards. And so, we are focused in the first instance on how 
do we make sure they are taking their money and investing it to 
earn the returns before they get into the higher-risk venture 
type of investing.
    Mr. Lawson. My time is running out. Those were some great 
answers. I am still concerned, as I yield back, about the 
million dollars beyond the value of their residence, because 
residence carries a lot of value today, and we can talk about 
that another time. I yield back, Mr. Chairman.
    Chairman Lynch. I thank the gentleman. At this point, I 
would like to just ask my friend and colleague, Mr. Davidson 
from Ohio, if he has any closing remarks as we conclude this 
hearing. Thank you.
    Mr. Davidson. Thanks, Mr. Chairman, and thanks to our 
witnesses, and I am just appreciative that, frankly, we have a 
diverse group of people here. You have all been successful. I 
think the strength of America is we have been able to attract 
people from around the world. I think we should celebrate the 
fact that in a normal year, we bring about a million new 
Americans into our country legally every year.
    We certainly have many challenges, but I look forward to 
working with my colleagues to solve them, and I hope that we 
can do that in this space by providing some regulatory clarity. 
We are seeing real challenges for even keeping the capital and 
keeping the ideas inside the United States of America, because 
we haven't provided regulatory clarity for a large portion of 
this market. And I hope we can do that--crawl, walk, run, but 
let's start moving, and I just appreciate collaborating with 
you, Mr. Chairman. Thanks again for holding the hearing, and 
thanks for the witnesses, and I yield back.
    Chairman Lynch. I thank the gentleman. Thanks for your kind 
words. This is a very timely hearing. We see what is happening 
in the VC space. There has been a certain retrenchment because 
of the economy. So, it makes us doubly concerned that founders 
of color and women founders--we don't want to see the situation 
grow even worse for them in a tight economy. So, we are very, 
very appreciative of the perspectives that have been provided 
by the witnesses here today. I am very happy with the questions 
that were asked as well. They were very evocative and brought a 
lot of good thoughts here that I think might result in 
legislation at some point, and I would like to thank our 
witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for these witnesses, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    That concludes our hearing. Thank you all, and enjoy the 
day.
    Mr. Abbey. Thank you.
    Ms. Abramson. Thank you so much for having us.
    Mr. Michel. Thank you. This was an honor.
    Ms. Haque. Thank you.
    Chairman Lynch. Thank you.
    [Whereupon, at 1:14 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             June 30, 2022
                             
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