When Mallun Yen started Operator Collective last year, she wanted to build an investment firm for people who didn’t have a voice in Silicon Valley. That meant connecting women and people of color with operators who have been intimately involved in building companies from the ground up, then providing early-stage investment.
She then brought in Leyla Seka as a partner. Seka helped build the AppExchange at Salesforce into a powerful marketplace for companies built on top of the Salesforce platform, or that plugged into the platform in some meaningful way to sell their offerings directly to Salesforce customers. Through that role, she met a lot of people in the startup world, and she saw a lot of inequities.
Yen, whose background includes eight years as a VP at Cisco, and co-founder of Saastr with Jason Lemkin, wanted to build a different kind of firm, one that connected these operators — women like herself and Seka, who had walked the walk of running substantial businesses — with people who didn’t typically get heard in the corridors of VC firms.
Those operators themselves tend to be underrepresented at investment shops. The firm today consists of 130 operator LPs, 90% of whom are women and 40% people of color (which includes Asians). One way that the company can do this is by removing rigid buy-in requirements. LPs can contribute as little as $10,000, all the way up to millions of dollars, depending on their means, and that makes for a much more diverse pool of LPs.
While Seka admits they are far from perfect, she says they are fighting the good fight. So far, the company has invested in 18 startups with a more diverse set of founders and executives than you find at most firms that invest in enterprise startups. That means that 67% of their investments include people of color (which breaks down to 44% Asian, 17% Latinx and 6% Black), 56% include a female founder, 56% have an immigrant founder and 33% have a female CEO.
I sat down with Yen and Seka to discuss their thinking about enterprise investing. While they have a far more inclusive philosophy than most, their general approach to enterprise investing isn’t all that different than what we’ve seen in previous surveys with enterprise investors.
Which trends are you most excited about in the enterprise from an investing perspective?
We look for teams that are taking a differentiated approach to solving hard and often unsexy problems. This has become even more important in the COVID-19 era, as the need to run a company remotely, efficiently and collaboratively has become paramount to both effective business operations and employee wellness.
In a strange way, the pandemic has accelerated the move to SaaS like no other event in history. People need to be connected, not only to each other, but also to their work and their communities. This has ignited so much innovation around all sorts of areas in the business world.
Recently we’ve been investing in areas ranging from DevOps solutions, data science augmentation, strategic FP&A solutions and platforms to better enable business, revenue and growth. These are just a few examples of investment areas that we feel will change the game for companies moving forward.
How do you encourage diversity and inclusion in your investment philosophy?
Diversity and inclusion are a core part of our fund thesis. We started Operator Collective because the venture industry is controlled by a homogeneous group that doesn’t represent where the industry should be or people the companies should serve. So we intentionally and actively sought out a diverse group of limited partners for our fund. We had to make it accessible and comfortable, including educating them on the foundations of investing and creating a sliding scale for participation ranging from $10,000 to multi-million-dollar contributions.
As a result, our 130+ Operator LPs, who have founded, built and scaled companies like Zoom, Stripe and Cloudflare, are 90% women and 40% people of color; 70%+ of our Operator LPs had never invested in venture before. By bringing together networks that don’t typically overlap, we have a broad community with a range of perspectives that give us an advantage as we surface and support high potential founders from all backgrounds. There’s no finish line to making the technology and venture industries more diverse, so we’re prepared to fight for the long haul.
What are you looking for in your next enterprise investment?
Operator Collective focuses primarily on enterprise software and technology. It’s part of our DNA. We seek out teams who have not only vision, determination and leadership, but also the ability to execute and solve hard problems that face industries broadly. We especially love it when we meet founders who’ve experienced the problems directly and have enough conviction to quit their jobs to obsess over a solution — that’s drive and that’s fun!
How important, especially right now, is the pedigree, background and experience of the founders? How important is it that you know them already?
We look for high-potential founders who are humble, lifelong learners and share our belief that culture, diversity and operational excellence are a key part of building truly great companies. We back founders building the type of companies we’d want our children to work at in the future.
Of course we look at the backgrounds of our founders, but we have founders that have already had successful exits in the past and first-time founders running at a hard problem with unique solutions. We focus more on who they are and what they’ve done versus what their perceived pedigree may be or fitting into a cookie-cutter formula. Like our own team, they come from a variety of backgrounds, geographies, schools and experiences. (Mallun started her career as an intellectual property attorney, Leyla is a lifelong product builder and our Operating Partner Ambrosia comes from a people and operations background.)
While we’ve definitely invested in founders we knew already, we expressly built our fund to optimize for reaching people outside of our natural or immediate networks and for others to want to refer deals to us. As a result, a large number of our founders we first met in the context of a potential investment.
We’re fortunate to have a flywheel that’s working well — consisting of founders, operators and other investors with whom we actively collaborate. We’re also very fortunate to have a large community of LPs who are among the most successful in tech, and they connect us to so many opportunities. In fact, 57% of our investments to date have come through that network.
What parts of enterprise do you think are most in need of new technologies?
We look for scalable solutions to unsexy, pervasive problems and solutions that can become a platform on which other technologies can layer. Often these are areas where those teams have largely been left to fend for themselves with a combination of manual processes, spreadsheets and grit. In our new era of work-from-anywhere, it will be critical for all these systems to be centralized and accessible to the entire organization.
We also like category creators; we consider ourselves among them. Mallun built one of the fastest growing venture-backed startups, which pioneered a new approach for patent risk reduction. Leyla built the Salesforce AppExchange, the largest enterprise SaaS ecosystem in the world. We now pour all that energy and experience into Operator Collective, leveraging our own expertise plus that of our Operator LPs to help our portfolio companies succeed. We know a thing or two about going first, and we love helping founders who are doing the same thing.
Enterprise investors remain flexible as they navigate COVID-19
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