Interview by Polina Hanin, Principal, Aequitas Partners
In 2019, Tuoyo Louis, Jason Robart and Pete Sally founded Seae Ventures, a fund dedicated to building and investing in early-stage healthcare technology and services companies primarily founded by Women and people who identify as Black, Indigenous and People of Color. Prior to starting Seae, Jason was Blue Cross Blue Shield of Massachusetts’ Chief Strategy Officer as well as the President and CEO of Zaffre Investments, a wholly owned subsidiary of BCBSMA. He also served as the organization’s Senior Vice President of Organizational Effectiveness and Chief Human Resources Officer. Tuoyo helped found Blue Cross Blue Shield of Massachusetts’ adjacency growth strategy, which included acting as the Chief Operating Officer and Managing Director of Zaffre Investments. Following a successful career on Capitol Hill where he focused on the ACA and the HITECH Act, Pete joined Blue Cross Blue Shield of Massachusetts’ Government Affairs group, and soon thereafter joined the founding team of Zaffre Investments.
After they each left Zaffre over a 12 month period, Pete, Tuoyo and Jason recognized that there was more to be done, and more that they could do, to move the diversity agenda forward, so they regrouped and founded Seae Ventures.
As 2020 opened up the industry’s collective consciousness of underfunded founders, together, they’re building a community of other like-minded investors and founders who push the traditional boundaries of what it means to be an entrepreneur in healthcare.
Polina: What led you to start Seae Ventures?
Tuoyo: A lot of this is born out of frustration. Over the course of a decade, we interacted with a lot of venture funds and I think a few things happened. One, I didn’t see anybody who looked like me at the Managing Partner level. I also didn’t see a lot of women at the Managing Partner level. When you don’t really see a lot of familiar faces, sometimes you question, ‘do I belong? Should I be here?’ And then as you also know, the industry invests billions annually and the majority of those dollars are invested in white, male-founded companies. So I didn’t want to continue to watch that. We don’t pretend to solve the problem, but we’re a part of the solution. And so that is really why we started this fund because we’re passionate about helping people and the rest is history.
Polina: For those not familiar with the fund’s mandate, can you share more about your thesis?
Pete: We are focused on investing primarily in women and people of color, who are developing solutions for healthcare and FinTech. Our goal is to have a meaningful impact on diversity throughout industry — founders, management teams, Boards, etc.
Polina: This past year saw a lot of conversations start around underrepresented or underfunded founders, as well as diversity in teams in general. How much of this wave is a fad / phase or is it actually a long-lasting trend?
JR: 2020 has heightened awareness for some, and for others heightened a call to action to do something. The ultimate question will be how sustained that call to action is, and does it really lead to progress that addresses some of the root causes of what we’ve seen. Clearly the number of political and business leaders who have talked passionately about the need to do something to address racial and gender inequality in the country is certainly there. And that’s great. Private equity and venture capital firms have made those same types of comments, but we haven’t quite seen the words transforming into actual action. Real progress will happen once the investment community incorporates gender and racial equity into its core business operations. To date, the focus on equality has been done off to the side of their strategic business plans. It hasn’t been an integral component of their plans going forward. This approach can lead to broader awareness of the issue, but it’s unlikely to lead to sustained progress.
Tuoyo: To be blunt, there is a little bit of fad. Folks are posting “Black Lives Matter” and so forth, but you look at the Boards, you look at executive teams, you look at the diversity across the organization and it’s just not there. We’re in the early innings here. There are times that I question how genuine organizations are.
Pete: The conversations that we had pre George Floyd included folks who told us to essentially “go pound sand” and then post George Floyd, it was “Hey, let’s talk one more time.” For example, a large publicly-traded company made a commitment to diversity, to diverse managers, to diverse entrepreneurs. And when we talked to them, they said, “Hey, we just wanted to get a statement out there. We don’t really have a strategy, we’re not sure what we’re doing.” So organizations like that, I’m going to track what they’re doing and hold their feet to the fire and check in and say, “Hey, where are you?”
Polina: What are your thoughts on the many funds that are devoting sidecar capital towards underrepresented founders, rather than weaving that funding into a holistic capital deployment strategy?
Pete: If it is something that firms believe they have to set up as a separate initiative or fund to address the issue, that tells me it is a reaction to a point-in-time event and not something that is integral to their overall investment strategy going forward. Otherwise, why would you have to do that? If diversity is how you assess value, then it should be across every investment vehicle that they have. When you set up something separate and distinct from where all of your other money is today, it makes me question how much religion have you really got?
Tuoyo: Every dollar counts. So if it’s a sidecar first, and when you burn through that, are you doubling that commitment? So while some of these large firms are dedicating small amounts of capital, it’s a start. And that’s going to go to an entrepreneur that we hope is going to make good use of that capital.
And even on the venture capital side, there’s some pressure when you’re making some of these decisions, because you have to think about folks coming before you or coming after you. What we’re doing has long-term implications, and I do think about that next wave of venture capital, that next wave of entrepreneurs. So we need to be smart about our strategies, our approach, and how we’re helping others.
Polina: What activities have you seen investors or founders take that are much more integrative?
JR: There are companies that are taking a step back and looking at it holistically. They are evaluating and addressing their own supplier diversity, the composition of their Boards and management teams, or looking at advertising and marketing and community engagement. To ultimately be successful, organizations will need to ask, how does it all tie together? It can’t be one-off initiatives. One-off initiatives will be sustained as long as there is an individual champion in that role. But as soon as that person moves on, if it’s not integrated into the fabric of how they operate as a company, it’s likely to stagnate.
Polina: For those who are just becoming aware of these issues, there are oftentimes defensive reactions like, “I have a Black man on my Board. I have a woman in my C-Suite. My company is diverse.” They’re able to put those pictures up on the website, so onlookers see some people of color. How do you guide leadership within your portfolio companies and others you’re advising to think beyond tokenism?
JR: I don’t want to pretend that we know the inner workings of every single portfolio company. But I do know that if we ask certain questions, we can help leaders think through this. For example, there’s a company that we’re looking at right now that is in the payments space and is a woman-founded company. I asked them to tell me about their current users of the platform. And they gave me an answer that was based on the number of transactions and their value. So I pressed a little bit. Now tell me the makeup of that group. And what came out of it was a realization that they were thinking about users and value from a purely transactional perspective. And what I was trying to get was an understanding of who those users are. What’s the socioeconomic, racial and gender makeup of that group to ensure that the product is serving a diverse population.
Polina: What do you look for and how do you evaluate a senior leadership team before you invest?
Tuoyo: First, we want to work with smart people. Then second, is the vision and understanding the importance of the problem that they’re tackling. For example, we just invested in a company called Hurdle. We’d known Kevin for two years and really developed a great relationship with him. When we were negotiating the deal, there was another fund in the mix, and I sent Kevin a picture of my hooded sweatshirt that said “Henry Health,” [the previous name of the company]. I said, ‘yeah, but do they have this? No, I was there from day one!’ We’re thankful for the time that we got to spend together and get to know each other and we try to spend as much time with the entrepreneurs as we can before making an investment.
JR: We want to work with people who feel really connected to what they’re doing. And who really believe that they can make a difference.
Polina: As Board members, what do you think is the mark of a great relationship between you and the CEO / Founder?
Pete: We see ourselves as an extension of the team. It’s important for us to challenge the entrepreneurs, stretch goals, test some of their assumptions. But it can also stretch into sales, helping to recruit talent. Ultimately, we want the entrepreneurs to win, so that it’s win-win for everybody. We’re pretty hands-on, available around the clock, and we’re going to grind just like they do.
JR: We also want to be a safe space for the leaders and the CEOs who can come out and say “I don’t know what I’m doing here because I’ve never done it before,” as opposed to that fund that requires CEOs and Founders to have definitive, buttoned-up answers for every question or issue. We recently had a conversation with a young CEO who had some challenges with some of his existing investors. It was painful for him but he had the trust in us, and we had the trust in him to have a very open and honest conversation based on our own experiences.
Tuoyo: For some first-time founders, there’s a level of paranoia, like am I getting screwed? So we’ve had a number of those conversations, which I appreciate, because it also lets me know that entrepreneurs trust us. We try to structure terms that are founder-friendly, because this is hard. Raising money is hard. We know it. Building products, finding clients, finding talent, competing, it’s difficult, and you really need help. And, you know, when we posted the announcement about Hurdle, I quoted Muhammad Ali – “You. Me. We.” I say that all the time. You. Me. We. That’s the only way it’s going to get done.
Polina: That brings up the notion of patience. Patience in raising capital, hitting revenue numbers, bringing in talent. All that takes time. And particularly if you are trying to be really conscientious in making right decisions. How do you work with entrepreneurs and other Board members to balance hitting goals with not making rash decisions?
JR: For Type A personalities patience often isn’t a virtue in great abundance – particularly in this space. While we work with our portfolio companies to set aggressive – and achievable – goals, we will also stress the need to resist the temptation to chase revenue as it often can compromise long-term value. We invest in companies in large part because we align with their long-term strategic vision and believe that that vision is a financial winner. So we do whatever we can, within reason, not to make/encourage near-term decisions that run counter to achieving that long-term vision. Having said that, we obviously need to hit certain milestones. But there has to be balance.
Tuoyo: I think it’s hard in this industry to be patient when everyone’s like, go, go, go. Now, now, now. Exit, exit, exit. But I also think healthcare is particularly hard because there’s no such thing as a fast decision in healthcare. So the big thing really is judgment. When you work with many companies, you see a lot of different scenarios, so you’re able to develop judgment and really practice and preach that with the Board and entrepreneurs when to push, when to hold back. But it’s challenging.
Polina: Aequitas just recently published the inaugural Digital Health Executive Compensation Study. And one of the things we uncovered, was that 49% of our survey respondents negotiate their salary. And when they do, 88% of those people will get an average increase of 12%. But, women get 10.6% vs 12.4% with men, and BIPOC people get an average 8.7% increase versus a 12.6% increase for white people. One of the responsibilities of the Board is to evaluate compensation. As your companies mature, how involved are you within the compensation process to make it equitable?
JR: I was blown away when I saw the data. I think that is something that we all anecdotally knew, but to actually see the numbers and to see that negotiation is leading to 30%, 35% more for a certain group is striking. The way you asked the question is a great way to ask it, because historically we see a lot of information on pay equity either at a specific point in time or when a candidate starts. We actually don’t see the progression very often. With Seae, many of the companies are at the seed stage and there’s a less rich data set to take a hard look at. But as the company grows, this data will make me think about the issue differently.
Polina: We talked a lot about making sure that DEI efforts are actually taking hold for the long-term. You’ve positioned this question to us, so I’ll throw it back to you: What do you think that Founders and investors can do differently tomorrow?
Tuoyo: I’ve asked this question before: ‘Why not?’ I think that’s very important. I think we just need to be honest about where we are. I think we need to be honest about asking for help and guidance. I think we need to be receptive to a different perspective, a different approach to business, to talent management, to partnerships.
Pete: We’re seeing new communities and ecosystems develop over the last 12 months, new funds that are really pushing the envelope on diversity and trying to make an impact, and that’s super encouraging. So I think finding the right people to connect with, building your own network of folks that are like-minded and who really want to make a difference. There’s no secret sauce to any of this at the end of the day. The word for me that comes out is “hustle.”
JR: For investors, I would say what you need to do tomorrow is question your traditional orthodoxies – how you think about management teams, how you think about opportunity and, and growth. Question the traditional approach because the traditional approach has led to a vastly overlooked segment of the population that from a business perspective, you cannot afford to overlook any longer.
For CEOs and entrepreneurs, be deliberate about who you want to work with from a colleague, investor and customer perspective.