I love ripple effects, as a paddle boarder, engineer, investor and serial entrepreneur. A ripple effect occurs when an initial disturbance in a system spreads outward, disturbing an increasingly larger portion of the system. Like ripples expanding across the water when an object drops into it. The ripple effect is often used colloquially to mean a multiplier and is commonly used to explain why a butterfly created a Tsunami.
I got involved in diversity in 2013. My name is Carlos, born and raised in Mexico City in a lower-middle-class family. And for most of my life, I've felt like an outsider.
The Outsider
(If you don’t care about my background, skip this section)
A large earthquake in 1985 in Mexico City destroyed my neighborhood and started the exodus. Growing up, I changed schools four times. I was the new kid on the block, but fortunate enough to go to private schools. Thanks to my hardworking parents (who won’t be reading this, since they don’t speak English) and government aid, I attended great schools where my top grades didn’t match my parents’ low income.
In middle school, my backpack and sweater sometimes ended up in the toilet or with names written all over. My shoes weren't a fancy brand and I was ashamed of where I lived. My way to get revenge was getting the top grades. College wasn’t any easier. We could not afford the books and being in the “top” school, among the heirs of the most influential people in the country, was challenging. All those experiences gave me what I needed. I dropped out. Dropping out is a fancy way of saying you are starting up; it was a failure.
My whole life I was a straight-A student, right up to college. My classmates made me realize that I wasn’t the smartest 18-year-old in the world. I was just an average student with a terrible background and even worse studying habits. My escape was to start working part-time. Dreaming of getting rich fast, I started a company that failed miserably and was thrown out of school for lack of payment. Like I said, I was an outsider.
Ashamed, broke and with a feeble network, I started all over again. With my new startup, for the next couple of years, I climbed the professional services ladder up to a livable salary. In 2007, I partnered with the Sm4rt Security Services founders, scaling the cybersecurity company until we were a brand in the space and industry leaders. In 2013, Kio Networks acquired it, becoming the leading IT company in the country and one of the largest in Latin America.
I am a donkey!
(If you don’t care about my company, skip this section)
In 2013, with Sm4rt, we explored selling a fraud prevention spin-off company to BBVA. During my first trip to San Francisco, we saw several VC funds, including VISA and other great companies. I immediately fell in love with the scale, the depth, and the wealth of technical knowledge and expertise to scale companies that could make a dent in the universe. We were trying to sell the fraud prevention engine. Our technology was good, but we were far away from what I understand now as a product. After KIO acquired Sm4rt, I moved permanently to San Francisco. I got married in Half Moon Bay and started to live the American “tech” dream.
In San Francisco, I explored California, played golf, and had coffee with various founders and VCs, or really just anyone who wanted to hear my story. It was a bittersweet experience, full of contrasts. No one had an idea of the size of Mexico as an economy, no one was able to measure what it meant to have Bimbo, Televisa or Banorte as clients. No one had ever heard of ITAM (my college) or the name of my company. Even BBVA, one of the largest banks in the world, didn’t ring a bell. However, people were engaged in how Sm4rt grew, got acquired, and how the lessons learned applied to a different ecosystem.
I checked over 200 startups and found a pair that I wanted to put my money into. I wanted to build something that, in the long run, created equity. After a year of thinking about it, and more than 20 people asking me to join their funds or to open one, I did it. I started a small syndicate.
My friend Mike Davis says: “When someone says that you are a donkey, dismiss it. When two people suggest that you are a donkey, think about it. But, when three people believe you are a donkey, buy a saddle”. The saddle's name is Alpha Impact 8.
That’s when I faced diversity.
You don’t look Mexican – Circa 2018
(If you don’t care about my social life, skip this section)
Once again, I was different. I didn’t go to HBS or Stanford. I didn’t realize how brown I was until most of the social conversations would go like this:
- Where are you from? – Mexico City – You don’t look Mexican.
- But where were you raised? – Mexico City – (They probably thought - Oh, he didn’t cross the border young)
- Ok. How long have you been in the US? – Almost five years – You just arrived.
- Did you come to school? What college? — No, I went to school in Mexico City at ITAM – (Question mark face)
- So, you were relocated by your company. Which one? — No, my wife had been living in the US for a while; when we got married, we decided to stay here. – (they probably thought I married her to get a green card)
Most times, this was the breaking point. Either they got interested or excused themselves.
- What do you do? – I am in Venture Capital. I do impact investing.
If this happened in Silicon Valley or NY, no explanation was needed; elsewhere, I would need to elaborate.
-How long have you been doing it? – I started investing in 2015. I was an entrepreneur before that.
-Ah, you were a startup “founder”. What was the name of your company? I am assuming it was successful. — Sm4rt, a cybersecurity company, also we had a video games company and a fraud prevention engine. I stayed in San Francisco when the Cybersecurity company was acquired.
-Who acquired it? – KIO Networks – ah, never heard of it. – Do you know Corona? The beer– sure, the cheap Budweiser – the same group owns KIO and Corona.
It might seem like a joke, but some conversations changed to Carlos Slim. Sometimes, unable to find common ground, they would walk away.
You are too smart to be a Mexican
(If you don’t care about biases, skip to this section)
2018 was a strange year. We (Alpha Impact 8) joined the NAA, where everything was about Latino Asset Managers and pushing allocators to invest in diverse and women-owned companies. By that time, I had been told many times “you don’t look Mexican”, enough times that I was able to live with it. My rehearsed answer was, “sorry I left my sombrero where I parked my burro”. I still, however, am unable to cope with “you are too smart to be a Mexican.”
I believe most people are not ill-intended. As my good friend, Jason Lamin (Lenox Park Inc. founder) will say, they have many blindsides. My son’s teacher assumed for a while that I worked in construction. She never asked, until I one day suited up for a NY trip and was picking my son up from school. She is Egyptian, an immigrant, and one of the nicest people I have met in the US. She also was blindsided. We don’t know what we don’t see (stolen from Edrizio de la Cruz – Arcusfi founder). She and most Americans have never heard of a Mexican investor or a Mexican entrepreneur. They've seen Mexican construction workers, Mexican cooks, Mexican busboys, Mexican housekeepers, and Mexican nannies.
When I am at the park with my son speaking to him in Spanish, people assume I’m the nanny. Some other diasporas have successfully changed the American perception of their people, at least in Silicon Valley. Being from India means you are in tech, being Chinese means you are hardworking and if you are from Puerto Rico, wearing an expensive suit in Manhattan, you might be an investor. Some Mexican guilds like movie directors are perceived as the best. Mexican cooks and food are also perceived as the best. Mexican and Hispanic investors, however, not so much. I believe that fixing that perception is my purpose.
This is the real Silicon Valley motto
(If you don’t care about making the world a better place, skip to the next section)
We've always had a strong bias toward minorities in our fund. Our favorite investment target markets have had diverse or female founders. Up until 2018, we had invested in 10 companies, all US-based. 80% of our portfolio company founders at that time were either diverse or female. In 2018, we updated our mandate. Since then, we ONLY invest in diverse and female founders and ONLY invest in companies with a social impact purpose. We have invested in 13 companies, 12 US-based and one in Singapore. Our current diversity ratio through all our investments is 85%. Our new fund is completely diverse.
The founder's passion, grit, and understanding of the problems they are trying to solve are off the charts. Most of our companies are performing. When our social purpose-driven founders with diverse backgrounds are successful, they not only create wealth for themselves and our investors, but they also create wealth and inspiration within their communities. Providing tools to increase social mobility in underserved communities across the US and Latin America. Thanks to them, our fund is 7X, our SPV is 13X, and they are making the world a better place with their technology and services. This should be the real Silicon Valley motto. Do well by doing good.
1%
(If you don’t care about top performers, skip to the next section)
A couple of months ago, I was furious and frustrated with the assassination of George Floyd, Breonna Taylor, and some others (I get furious all over again just writing about it). The NBA halted playoffs, there were protests everywhere. I wanted to do something, had to do something. Every day I received requests to fund companies, people, ideas. Those months were frankly excruciating, some people acted as nothing had happened, others included racial slurs in their communications, asking for funding, mentorship, or trying to sell something.
In my frustration, I wanted to be loud and tell them all to fuck off, have a huge ad saying no racists were allowed in my networks. Again, Jason saved me. He helped me understand what a privilege it was to speak about the subject and what a privilege it was to be able to show my outrage. He guided me into writing a positive blog (though I am not sure if he will approve), to create the desired ripple effect that can continue for generations. What we aim to create is a non-confrontational ripple effect, using the tools that we have on hand. We don’t know what we don’t see and when we don’t see, we should listen.
We need to commit to challenging our biases, to transform companies’ culture when hiring, investing, partnering, connecting, or even speaking with people who don’t look like us. If they don’t fit in your company’s culture, challenge your company’s culture, be critical. Don’t miss an opportunity to have fresh and original ideas, different thought processes. Just don’t fucking miss the opportunity to have better returns, better investments, better business outcomes, and, honestly, a more prosperous and more fulfilling life. According to INC., Companies With Diverse Boards Outperformed Their Peers During The Pandemic. Read this Mckinsey report for more information.
We are living proof of it. How many 7X Venture Capital funds have you heard of? We are in the top 1%.
Here are 8a points to create a diversity ripple effect:
(If you don’t care about doing something, skip to the next section)
1. Place people of color or women in positions of power—board seats, C Level positions where decisions are taken.
2. Challenge your company culture. If a person’s culture doesn’t fit your company, challenge it. Change your and your company’s culture.
3. Level the playfield. Equal pay for equal work. If the job is the same, pay the same regardless of where the person doing the job comes from.
4. Hire the best people from different backgrounds, they will bring their friends, and suddenly you have access to different skillsets, thought processes, and even conclusions.
5. This is the hardest one, check your biases. It is hard mainly because our biases make us part of a community. Meaning that you don’t only have to check your own, but also your whole community’s biases.
6. Check your language, start with micro-aggressions. This one's also hard, I should know. In the macho-filled Mexican business community, being language-inclusive wasn’t my forte. I still check myself every day.
7. I frankly believe that ESG will be mandatory at some point, for every company, investment, and fund. Start now. Do good, do well.
8. When investing, invest in what you believe in (which I really hope is diversity). Invest in the top-performing companies, funds, and indexes. Be colorblind, and soon you will realize that the top is very colorful.
a. Ask for help, we are here to help. Let us help you change the world.
If you skipped every section, care about this:
Donate toward our foundation, 8 LatinX Foundation, fighting wealth inequality in LatinX communities. It is tax-deductible.
Un abrazo.
Carlos (Ocho) Ochoa