Arjun Sahgal:

Welcome to the Future Fountain, a podcast dedicated to the conversation about the tech ecosystem, brought to you by Orrick and NYU Future Labs. My name is Arjun Sahgal of NYU Future Labs, and we’re excited to have Mario Ruiz as our guest on this episode. At the time of this episode recording, Mario was at PayPal Ventures, but has since co-founded a new firm and is now Partner at Infinity Ventures. Thank you for joining us, Mario.

Mario Ruiz:

Absolutely. Thank you so much, Arjun.

Arjun:

Before we get into the meat of the questions, I want to start off with the basic question: Tell me about yourself. How did you get into technology? What drew you to venture?

Mario:

Absolutely. I always feel like my career introduction into venture started off very circuitous and then became a lot more linear over time. I’m actually a native New Yorker, grew up in the Bronx. I spent my entire life up to this point really in New York. Went to Baruch College for undergrad. But my first foray into “venture and startups” was actually in middle school. I grew up a huge basketball fan, like a massive Michael Jordan fan, love the NBA. And for me I’ve always had a passion for sneakers. So back when I was in middle school, I did the routes of trying to find any good job so I could just scrape up some money. I went to retail stores or grocery stores and tried to find a job, but it was a little bit of chicken and egg situation where I didn’t have any experience, so no one hired me. So I would spend some of my afternoons on my computer looking up sneaker message boards and looking up shoes and even in a lot of ways I started to draw them. I think at some point in my life I thought I’d be a sneaker designer. But one thing that clicked for me was, being in New York, there’s a huge opportunity actually to make money from reselling shoes. And so I would wake up in the morning at 4 or 5 a.m., go to my local mall and buy whatever the hottest release sneaker was from my local Footaction or Footlocker, and then I would go online on actually and, coincidentally enough, eBay, because of PayPal’s connection today, and I would sell the shoes to someone who was maybe in the Midwest and didn’t have access to the shoes. But I pretty quickly realized the power of understanding a market and understanding a differentiated view on an asset. And so all through middle school and high school I’d resell shoes. I’d do this every weekend and actually paid for my entire college education from reselling shoes. It pretty quickly showed me the power of being an investor and knowing an asset, investing into it, putting the capital down, and then making a return from it. That was me at 10, 11, 12 years old. No, I was not someone who was like, “Hey, I’m going to be a VC investor in 10-20 years,” but it was something, I think, that continues to resonate with me, and a memory that I have to this day. That was the circuitous path of my foray into venture. And I think the more linear part was, I went to Baruch College in New York for undergrad, participated in a program called Sponsors for Educational Opportunity, which is a pipeline program to help underrepresented students go break into Wall Street. I started my career in investment banking covering financial services companies right after the financial crisis, then moved my way into a later stage investment firm focused on fintech, then decided to go to business school, and then have now landed my way into PayPal, where I’m on the corporate venture team investing in fintech companies across the world.

Arjun:

That is an amazing story and I will definitely be talking to you after this because I’m slowly getting into shoes, but I have no clue what I’m doing because I’m on StockX and I’m definitely overpaying for pretty much everything.

Mario:

I got some tips for you.

Arjun:

Hey, I would love that. Thank you, Mario, that’s amazing. So, I think you hit on this in the previous answer you were talking about. But venture has traditionally been – just to put it nicely – the least diverse industry out there, right? But now, at least, there’s a concerted effort to increase that diversity. What I would love to know about is what are some of the ways you see that that’s actually happening and some of the firms that you come across that are actually propelling this forward and making that shift in a meaningful way?

Mario:

Yes. Absolutely. It’s a great question. I have, in some ways, mixed views about this because I love that this is a topic of conversation now, but I also wish this was topic of conversation for years that had happened before this is. I think it’s a very timely conversation given, you know, the social events that transpired last year around the murders of Ahmaud Arbery, Breonna Taylor and George Floyd, but I think that now it’s really propelled into this topic of conversation on Twitter, within venture capital firms, within the industry at large, and I think that there’s a few things I like to break it into. There are really three key stakeholders. The first one is the venture capital firm, as you mentioned, and I think that VC firms need to make a more concerted effort of 1) hiring more diverse talent within their ranks but also then making a concerted effort in finding and identifying amazing talent – founders who are underrepresented that they could support and back as well. I think, historically speaking, Silicon Valley has been the bubble for innovation and inspiration with venture capital. And I think, particularly now with COVID, people quickly realize that it’s very easy to meet folks through a conversation like we’re having right now. And so, you don’t need to have a course through the Stanford library to find the next hot startup. You can get on the phone with them and quickly identify them and actually also break down some of the barriers for other underrepresented founders also getting access to these venture investors. And so that’s the first pillar of it. The second pillar is around – in my view – the firms that have been doing this for a while, and they need to kind of give them their flowers while the moment’s here. And so, I think, to answer your questions before, firms like Kapor Capital out on the West Coast, has been really supporting underrepresented founders for years now. More recently, Harlem Capital in New York has been doing a lot of work in this effort as well to help bring more venture capital to underrepresented founders. But there’s been, tons of tons of investors that have been doing this for a while, and I think now is the opportunity to really highlight them, amplify them. And as part of that, the third pillar is: What can corporations do about this? In my work at PayPal, along with being a direct investor and investing in fintech companies, an initiative that we launched back in June of last year is around investing in emerging fund managers who are underrepresented founders themselves. And so, through this work we’ve been identifying great managers out there who have been doing this work for years and decades, providing them with the capital to raise their fund, being a lighthouse for them to raise more capital, but they themselves also have the resources and ecosystems in place to identify these amazing founders. But they just never really had the capital to do so. And so kind of powering them with the capital and resources to make sure that they could go out there and find these amazing founders.

Arjun:

No, that is awesome. I definitely agree on all three pillars, especially the first one where it was definitely just a bubble. And I think COVID, in all the negativity, at least this is one silver lining out of everything. I know you guys at PayPal made a commitment of $530million. Is this a kind of new initiative that you’re leading, is that part of that commitment around it?

Mario:

It is. It’s a $100 million commitment within venture more broadly, but the $530million is actually broken up into four different parts. The first one is $30million that we’ve given out in the form of grant funding to either small businesses or nonprofits that have been just forcefully impacted by COVID. I think the unfortunate reality is that it’s mostly Black and Brown communities that have been hit the hardest. And so $30million in grant funding, and another $400million, and what I’ll classify is more like a treasury. And so today PayPal holds our deposits at a large financial institution, and we’re actually moving our deposits to either CDFIs or more public finance-oriented institutions where our dollars could be more equitably allocated to other underrepresented communities to help with economic development, with affordable housing, with areas where we could really help communities at large that are underrepresented. The third one is the venture pillar that I mentioned. And the fourth one’s more actually looking internally at ourselves and saying, “Hey, what can we do at PayPal to really help support our underrepresented employees?” And so from affinity groups to investing in different programming where we could help support both the recruitment as well as the promotion and retention of our employees at PayPal. Ways where we could really be a leader from within and showcase that we’re not only talking the talk but we’re also walking the walk as well.

Arjun:

I think internal introspection is as critical as much as it is as externally. I think that’s phenomenal. A question that I think that comes up for me is, if I’m an emerging fund manager – and if you go on VC Twitter, this is the new hot topic – how does one actually reach out to you? And second, conversely, how do you scout these fund managers that you’re like, “this is someone that fits with our mission” but also gets you the return? How do you do both of those?

Mario:

I love the question because I think that the topic of conversation, particularly when we initiated this strategy, was like, there’s probably 30 funds out there that fit this mandate; well, I want to pick 10 of the 30 and that’ll be it. But, we quickly realize it’s a lot more than 30. At this point, we’ve spoken to about 150 fund managers who fit within this investment mandate who have been doing this for years and who have track records who have established networks. And so it’s a very hard and difficult evaluation process when a remain is with these managers. And I think to answer your question about how do we identify them and find them is from a bit of a mix of resources. And so we started out doing the most easiest form of search which is just Googling.

Mario:

Kind of checking in to find out if there’s any lists or kind of air tables out there of people who’ve put together lists of funds that we should be reaching out to. So that was the first step. The second step is we actually put a Microsoft forum together when we made the announcement for anyone to actually apply and learn more about our strategy as well. And so we had several people reach out to us via that announcement. And then, to be honest, the bulk of it has come through either word of mouth or people reaching out to us on LinkedIn. Almost on a daily basis I have a fund manager reach out to me on LinkedIn and say, “Hey, I either heard from someone else or I saw that announcement directly, would love to learn more about it.” And I respond back. I think a part of our role at PayPal is to have that transparency and an opportunity for anyone who’s interested to have that 30-minute introductory call. And so I’ll have that conversation and have them as part of our pipeline of opportunities that we’re reviewing and make sure that everyone has an access point to PayPal to learn more about what we’re doing.

Arjun:

If I’m a fund manager reaching out, what are some key criteria? How do you factor in diversity, equity and inclusion and, in a larger scale, also sustainability of that fund and turn their mission into this entire conversation?

Mario:

Another great question. I would say as far as the mission, it’s a core part of the reason we’re doing this as well. And I would say that I’m a firm believer that just because you’re underrepresented venture capitalists, you shouldn’t have to be investing 100% in underrepresented founders yourself. I think that you don’t see that within other kind of groups as well. I never want to put someone in a bucket or pigeonhole them in a certain situation. And so the way that we’re looking at this is that there are some funds that are 100% exclusively focused on underrepresented founders, but there are also other folks who have demonstrated a strong track record of investing in these communities as well. The baseline right now is a paltry 1% of the industry, or sub that. And so there’s a pretty low bar, but a lot of fund managers that we’re speaking to, 30-40-50% of their fund historically has been invested in either women or other underrepresented groups. And so really kind of proving out through historical context, what is the commitment, have they done this before? And be honest in investments. What have they done outside of just investing? Do they participate on podcasts or panels? Are they mentors and judges in the community? Are they actually putting in the work and the effort outside of just in investment dollars to help support these communities as well? And that’s something that we definitely take into account of as part of our evaluation of beyond just the investment part but their character and their purpose and what they’re looking to do with their fund strategy as well. And so that’s, kind of, part of it as well. And I apologize, the second part of the question was what?

Arjun:

I think you got it. But I’m going to switch it up a little bit, something that I’m more familiar with, which is startups. I know you guys also make direct investments as well out of this commitment. How do you seek out founders, underrepresented founders, and vice versa, how do they seek you out?

Mario:

Yeah, I think it’s a lot of this same process or kind of methodology as our fund investments, which is 1) by being an active participant in the market and within supporting underrepresented founders. People know who we are, and we’re a call away or we’re an introduction away or we’re a LinkedIn message away from having that conversation. And we view ourselves as trying to remove as much friction as part of the process at all. And so, we’re not monitoring our LinkedIn inboxes and saying, “Hey, we’re just talking to this person, not this person.” I try, as best as possible, to have a 100% communication rate when people reach out to me. And if it doesn’t fit within our mandate and it isn’t a fit for our venture fund, I’ll be upfront and honest with them. But if it is something where they are maybe too early and eventually could be of interest to PayPal Ventures, I’m happy to have that initial conversation to 1) introduce them to the work we’re doing, but also 2) to find ways where we could be supportive of their business so that when it gets to that point of raising, through Series A or later, we’re top of mind for them as well as someone who’s been a trusted partner with them along the journey.

Arjun:

That’s great to hear because I can definitely attest to that, doing in the warm up LinkedIn intros and getting that, it’s a pain for everyone.

Arjun:

So a question is, you guys are obviously a very active investor, but apart from investments, how do you, as a corporate venture capital, also help a company that you’ve invested in? I would love to know a little bit more about that.

Mario:

I’ll break it up into two parts. One is, I think, very relevant to the conversation around diversity, equity and inclusion that we’re having right now, but then I’ll also talk a little bit more about the work we do on a lesser part of the corporate venture arm. But as part of our work, and I think you made the point as well, that introspection around our internal portfolio and our portfolio founders and management teams. We’ve also realized we’re better than the market, but the market, as I’ve said before, has a very low bar when it comes to diversity across portfolio companies.

Mario:

One thing that we’ve instituted is a diversity pledge within our side letters. For every new investment that we have, kind of retroactively back since June of last year, we’re asking for our founders to make a commitment to help improve their diversity and inclusion practices through recruitment, promotion, retention, and also making a pledge on our own side of PayPal of being supportive and helpful to our portfolio companies in that process. And so helping with building up frameworks and institutionalized processes to improve diversity at their firms, helping with recruitment if that’s an issue for them. And also making sure that it isn’t one side of the street, that we’re also two-sided and we’re helping to support them through this initiative as well. That’s one thing we’ve done on the direct investment side to help support our portfolio founders. And then more broadly, with being a strategic corporate venture arm, our relationships with our portfolio founders really run the gamut of how we want to be, how we could be supportive and helpful. On the more immediate side is if you’re raising capital, they’re raising a new round, we have a lot of introductions and connections into other venture firms that we can help and support them with when they’re raising capital. Being within PayPal, introductions to subject matter experts on topics and areas of domain expertise, where they are highly relevant for them as they build their companies, and being able to plug in them into the PayPal ecosystem to be connected with these subject matter experts. On a commercial deal side, we have an operating partner, Peggy Mango, on our team who is helping really liaise the conversations between our portfolio companies and internally within PayPal to broker commercial deals. I think, lastly, is the brand equity that comes from an investment at PayPal where it’s a little bit more of an intangible, but when people hear that name of PayPal, they think of a trusted brand partner that is deeply respected in payments, fintech, and has a high level of security. I think that goes a long way with raising capital, winning RFPs with potential customers, but it helps a lot with building a company at the early stages.

Arjun:

No, I think that’s phenomenal. And I wish I had you guys when I was running my company. That would’ve been great. One of the questions I had is, we see all these changes, but what is missing, right? What else should the tech community – not just venture, not just founders – what should the tech community as a whole be doing to make the ecosystem more inclusive in your eyes?

Mario:

It’s a great question, and to be quite honest I don’t know if I have a holistic answer for it, but I could share with you my perspective. I think a part of it is really two-fold. One is listening. I think I view, maybe, some of the drawbacks of ventures – it’s become this echo chamber of Twitter conversations where people are speaking but not really listening as much. I think within building empathy with underrepresented founders and understanding their trials and tribulations of building a company, raising capital – I think speaking less and listening more is a huge part of that. I think ways where conversations can be brokered within these communities, where founders can just speak about their experiences raising capital and venture capitals hear it and listen about, “Okay, I’ve done these things wrong, you know, whether it be consciously or subconsciously, and how can I reframe my mindset when thinking about investment decisions to make sure that I’m not leaving or excluding anyone out from that conversation?” I think more of these conversations and dialogue is going to be more helpful for the venture community as people share that aspect and are listening more than speaking. I think amazing organizations like BLACK VC or like Linux VC or La Familia – all these organizations that have been emerging really over the past couple of years I think are helping a lot with that conversation because it’s building coalitions of communities within venture capital that are kind of powering together and kind of sharing a lot of these shared experiences, but through a unified voice.

Arjun:

No, I think that is super critical. I personally have seen a lot of conversation on Twitter about just people just listening and sharing stories, and I think even just the ability to share stories is super powerful.

Mario:

Absolutely.

Arjun:

It’s super powerful, yeah. My final question for you is broader than the last one. Are you optimistic? Do you think there’s actually going to be a change, or this is going to be like, we’re doing this for two years, when we go back to normal, everything where we’ve made this awesome progress then is going to go down. Are you optimistic about this?

Mario:

I am, I am. For those who know me best, I have a fairly high dose of skepticism in general, and I think for me saying I’m optimistic – it’s a big statement for me. And I think that we’re at this watershed moment from turning this from more of just a conversation but instead into an actual dialogue. I think that we’re nearly a year into from what the point of a lot of these conversations have been happening, and we’re still having it, which I think is already a big improvement than what we have historically seen, and I think there’s a lot of advocates and voices out there that continue to make sure that this is top of mind and the topic of conversation within venture capital, but I think also more broadly around the startup ecosystem. And so I’m optimistic that these voices, and these conversations like we’re having today will continue to carry the conversation to the next day, to the next day, to the next day until we continue to see progress. And I think that there’s a lot of folks around the table, whether it be VC firms, corporations like PayPal, founders themselves – we’re all joining the conversation. And once all these folks start to talk with one another, that’s really when change can really happen. And I think we’re seeing that happen right now.

Arjun:

I could not agree more. I am hopeful. I’m very hopeful for the future. Mario, thank you so much for joining us today. It was such a pleasure. I learned a lot. It was really fun talking with you. And thank you for sharing your experiences with Orrick.

Mario:

Absolutely, thank you so much, Arjun.