Mitch Kapor and Freada Kapor Klein on Philanthropy’s Responsibility to Diversify Tech

Back in the 1980s, software developer Mitch Kapor, cofounder of Lotus Development Corporation, was among the two or three best-known names in the then-nascent personal computer industry. His company’s flagship software package, Lotus 1-2-3, an electronic spreadsheet, was the original killer app, transforming the underpowered desktop computers of the day into indispensable financial and data graphics devices.

Sales of Lotus 1-2-3 rocketed instantly, earning the company $53 million in its first year, and it’s not an exaggeration to say, altering the computer industry forever. Ironically, despite having invented a favorite tool of companies everywhere, Kapor didn’t like working at a big corporation and chose to leave Lotus in 1986. He relocated to Silicon Valley with his wife and business partner, Freada Kapor Klein. As venture capitalists, the Kapors went on to make early and canny investments in tech and internet startups that made them wealthy.

But a lot about that world didn’t sit well with the couple. It was their inside experience of the overwhelmingly white and male technology industry, as well as the venture capital ecosystem that launches new tech companies, that set the stage for much of the Kapors’ work and giving. Over the last three decades, Mitch and Freada have made racial and social equity a primary focus of their philanthropy as well as their investing.

The Kapors, who are white, operate from the Oakland, California-based Kapor Center, which they cochair, working “at the intersection of racial justice and technology” to create “a more equitable tech sector, economy and society.” I wrote in December last year about the center’s recently launched Equitable Technology Policy Initiative, the latest example of how it’s seeking to bring more of the benefits of the technology industry to women and people of color.

I spoke to the Kapors recently about their philanthropic efforts to knock down the barriers that have prevented people of color from fully participating in the technology industry and sharing in its benefits — whether as students, employees or startup entrepreneurs and leaders. They also shared their belief that philanthropy is falling short of its stated principles by failing to apply them where most of the money lies: its investments.

Diversity and equity as ingredients for financial success

The Kapors’ just-published book, “Closing the Equity Gap,” released this week, describes what can be called their unified field theory of venture capital investment, business, public policy and philanthropy. It’s what was behind their decision, for example, to commit to invest $10 million per year for 10 years in a venture fund that centers equity in its investment DNA. Their goal: to show that far from being at odds with profits and products, diversity and equity are ingredients and accelerants for success.

One takeaway from my talk with the Kapors is their belief, born of experience in tech and venture capital, that the whole tech ecosystem and pipeline of education and venture investment is strengthened by equity and inclusion practices, and that philanthropy can and must follow the same principles. Another takeaway: The Kapors are a bit frustrated with philanthropy as a sector, in which they see too little risk-taking and too much willingness to continue to invest foundation assets in industries and systems that harm the same people philanthropies are ostensibly aiming to help.

Successful venture capitalists themselves, Mitch and Freada challenged one of the most conventional pieces of conventional wisdom in the tech investment world. “The myth is that if you invest with an impact lens or a diversity lens — if you invest with any lens besides greed — that your financial returns will be lower,” Freada said. “And our experience couldn’t be further from that.” Studies confirm, the Kapors said, that companies led by women and people of color actually have above-average returns and efficiency.

Their book details how the Kapors made their venture investments through this holistic lens, and — not to put too fine a point on it — that their investments made money. Over the last 10 years, the Kapors wrote, Kapor Capital’s internal rate of return has been 29%, which puts them in the top quarter of all similarly sized venture funds, regardless of diversity goals. And 60% of their first-time investments have a founder or CEO who is a woman or has a racially underrepresented background. Compare that with an industry average of just 1% of venture-funded firms with a Black founder or 3% headed by a woman or a person from an underrepresented background. Additionally, nearly every decision-maker at Kapor Capital is a person of color.

And the tech industry remains deeply inequitable despite the billions spent by corporations on diversity and inclusion. Wrote the Kapors: “We can say, objectively, that money has been largely wasted. Fewer than 5% of big tech employees are Black or Latinx. Women are also lagging. It’s been that way for decades.”

“It makes no sense on any level”

That disconnect between diversity, equity and inclusion principles and how money is invested holds just as true in philanthropy, Mitch said. It’s not just unfair, he said, but counterproductive.

The Kapors have found that investment officers at philanthropic organizations rarely, if ever, work with program directors. They decry this disconnect not just as an inherent contradiction within philanthropic organizations, but one that works against philanthropy’s goals to address pressing needs and solve real problems.

“If you think that all you’re doing is investing for returns, you’ll invest in things that harm people, that harm the planet, that further gaps, whether they are racial wealth gaps or other kinds of inequality,” Freada said. “And somehow, people have decided that it makes sense to only invest with a greed lens, and then you take a whopping 5% and you try to solve the problems that the other 95% caused. It makes no sense on any level.”

Philanthropic programs at the Kapor Center have been focusing on strengthening the tech ecosystem for underserved groups in three regions: the greater Oakland area, where the Kapor Center is based, as well as greater Atlanta and Detroit. They’re addressing the ecosystem as a whole, from technology in schools and education to employment and tech companies — both established companies and startups. Mitch and Freada said their Kapor Center team continues to seek nonprofit partners.

“We have always had a perspective that crosses our philanthropy and our investing, which is, all of our work is at the intersection of tech and racial justice,” Mitch said. “The book is the story of how we came to do this radical experiment in venture capital of deciding that you could invest in companies that produce great financial returns and have great positive social impact.”

None of the problems around fairness and inclusion in the tech industry are easy to solve. But that’s where the Kapors’ approach suggests that philanthropy should take more lessons from venture capital — particularly around a willingness to actually take chances.

“If you’re trying to bring about change, everything that we have learned from the world of startups is you have to take risks in a very fundamental way, and you have to be prepared to fail,” Freada said. “It’s a journey where you fail in order to learn, you try things, and hopefully, you learn enough so that you wind up having an impact. But if you’re not systematically building your process of risk-taking and adaptation, then you’re not going to succeed. And that style of thinking is just so alien to the world of philanthropy.”

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