General Partner, Kelly Ford was recently the featured guest on Pitchbook’s In Visible Capital podcast with host Adam Lewis where she spoke about Edison’s commitment to Diversity & Inclusion (D&I), the firm’s journey from venture capital to growth equity investor and why discipline is a key ingredient for effective fund strategy and execution.
Listen to the podcast or read much of the transcript below.
[00:07:25] ADAM: It's great to meet you, Kelly, thank you for coming on and doing this; this is awesome.
[00:07:30] KELLY: Likewise.
[00:07:31] ADAM: You've had a lot of experience in this tech ecosystem and you've seen it all. Why don't you give us maybe your background? I want you to start with the fact that you are from a Polaroid family because I found that very interesting.
[00:07:45] KELLY: Oh, wow.
[00:07:49] ADAM: Way back.
[00:07:51] KELLY: I don't know where people find this little anecdote. I don't even know if it's on our current website or a page from our old website that search engines still pick up, but I, for sure, get my work ethic and my 'earn it' mentality from my dad who spent 34 years at Polaroid and he also really valued the stability and the big company in stable employment, and just that bread and butter for the family growing up and certainly expected me to follow in his footsteps. When I joined Lotus and IBM, he was delighted, but then when I got the startup bug in 2000 and never looked back—
[00:08:49] ADAM: You rebelled.
[00:08:50] KELLY: Yes, everybody was so confused in the family, and oh, my God, the risk, but so far so good. I've been working in tech since I graduated college and was really drawn to products and new roles and innovation and new ways of doing things, both functionally, in any role I held, but also in the products I worked on. I was really drawn to product and tech and I got the bug when I had the opportunity to go work with Ray Ozzie when he left.
IBM bought Lotus and then Ray went off and started his next thing, which was Groove Networks and it was total stealth when I joined. I was there for nine months before we even launched commercially, so one of the first business hires. I always said the only way you're getting me out of IBM, because I had such a great time there and tons of opportunity was presented to me and I think my development was just nurtured, I had incredible people around me at a really young age, so the only way I would leave was if Ray Ozzie called and he did.
That's where it all got started. I did five startups/growth companies there in total before joining Edison. Four of them were private capital-backed. I think I was probably involved in raising $175 million across those four, over my 20-year career prior to becoming an investor. Now I've been at Edison, as a general partner and one of the owners, one of seven partners and owners of the firm, and I've been there seven years.
[00:10:50] ADAM: Now, at Edison, would you guys classify what you do as more venture capital or growth equity? Because it just seems like the line is like, I was looking into some of your investments, the line just seems to be blurring a little bit. It's late-stage VC compared with PE.
[00:11:05] KELLY: We made a transition. The first seven funds were definitely a venture strategy. We wrote small checks for small revenue companies, had relatively large portfolios relative to the fund size. Fund seven was actually a transition fund where we had a founder succession and Chris Sugden took over as managing partner and we created this partnership that exists now. That was the beginning of an evolution into growth equity.
Fund eight was our first fund with a growth equity strategy with this current leadership team and we've been executing on that strategy, fund eight, fund nine, and now fund ten. We're really on fund three of the growth equity strategy, but because the firm has been around for 35 years, particularly geographically too, because we were heavily Mid Atlantic and Northeast and over time, we've expanded into other underserved markets between the coasts where Edison may not have been known, but in the markets where we had been known for 35 years, folks still call us Edison Ventures. I still get emails, people referencing Edison Venture Fund. That's like two decades old. Maybe we have some PR work to do.
[00:12:40] ADAM: Hopefully, the podcast will help.
[00:12:43] KELLY: It's growth equity. We are on the emerging end of growth. We do mostly minority investments but we will do control as well. We play above the venture and we don't take venture risk and below your mega growth buyout and PE funds.
[00:13:12] ADAM: Was the thought behind switching to, I guess, the growth equity strategy? Is that just because everything's getting bigger? It feels like the lower middle market, it's tough sledding for that type of investor right now with scale being everything in tech.
[00:13:29] KELLY: I don't know. There's certainly a lot of capital out there. I think for us when we made the change, it was really data-driven and there were two things. One was, what were the characteristics of our best assets? What was our entry point? How fast were they growing out of the gate? How long to exit? What was the optionality for our best assets in terms of achieving the best possible outcomes? We had 30-something years of data.
We looked at that. We also felt as a firm that we were probably a little too much inside-out versus outside-in in terms of our experience. It's a long-tenure team. Everybody mostly came up through investing. We knew that we were missing the operator point of view and we valued it because we tapped it through our director network and the independent directors we worked with.
We always tried to do a lot of peer activation and getting portfolio company executives together and things, but we were enabling and facilitating that, but we didn't have it on staff. It was looking inward or looking in the mirror and saying, how should we evolve based on what the data is telling us, and how do we need to operate and function as a firm and as a business to be most effective? What's worked and where do we need to evolve?
Then the other part of that, in terms of just the market and where we play in this lower middle market, even in this environment, we've observed, certainly over the last two funds, that while private capital is more accessible than ever, there's still a bit of a funding gap and really a shortlist of folks who play where we play between this venture and growth equity landscape and it's perpetuated by the megafund sizes and the amount of capital that's available.
We look at investment size. There really are few minority investors making $8 to $25 million initial investments without syndicate partners. The mega growth funds, they're certainly coming downmarket, but they're more typical bread and butter. They want profitable businesses; they are investing $50 million-plus. We also find that the type of founders that we are attracted to, and where our value proposition resonates, are often looking for smaller rounds.
Even with all this capital available, they're not taking the big check because they can't. Whether it's unnecessary dilution, it's just not their mindset. They have a more capital responsible, capital-efficient mindset. Then down in the VC layer, where the checks are smaller, those are getting bigger too, but they may not be adequately sized for the revenue stage where we invest.
VCs can't add the value at this growth stage, what it requires and what we offer. There's investment side, there's revenue stage. We still think there's a bit of a funding gap in the place where we play and really a shortlist of investors that compete, so to speak.
[00:17:27] ADAM: How have your portfolio companies fared over these past 18 months with the pandemic? There's a lot of tailwinds that have helped FinTech and the areas you operate in.
[00:17:40] KELLY: I think we had very little exposure. I think we expected maybe a little more of a negative impact. I'm on the board of a company called Bento For Business, where they saw some slow in its spending and expenses of small businesses because their revenue's driven all by the spend on their cards and on their platform.
I think we expected a bit more of a dip than we saw, which was great, but then it was almost like a short little cyclical impact in the supply chain space, which there are tons of tailwinds but in certain sectors like apparel and soft goods, it really hit hard and slowed down. Ultimately, for the first few months anyway, large enterprise buyers were paralyzed. For the most part, I would say, those were exceptions and I think we invest in markets that either saw great tailwinds, or like everyone else, hit pause and re-forecasted for a quarter or so, and then resumed in the back half of last year.
[00:19:12] ADAM: Hopefully, investors and the human race never really have to go through this past year again. I know that the pressures on private equity-backed companies were a lot on the investors I've talked to in the lower middle market, where for those first few months, were really scrambling; the ones who weren't as exposed to tech, especially, like applying for PPP loans and all that business.
[00:19:42] KELLY: We were all hands on deck and got everybody signed up for it. We told everyone to take it because we didn't know. Then some companies after a little time, it's like, "Oh, let's give it back, we didn't really need it." Anybody who appreciated it and had actually used it and legitimately took it, in small numbers, it was forgiven. Investors certainly, during that time, were all hands on deck with the companies trying to figure out the impact sensitivity, modeling. It was shoring up cash.
Then we had companies and exit processes, that we couldn't believe some of them had closed. Then next thing you know, it was everybody was just back at it. We also were just kicking off fundraising too or getting ready to with our new fund and we didn't know how LPs were going to respond. I think everybody adapted pretty quickly and now we're all back, right?
[00:20:57] ADAM: Yes. Were you fundraising on Zoom for the first time?
[00:20:81] KELLY: Yes.
[00:21:04] ADAM: Was that a new experience? Because it's all about relationships. That had to add a little bit of a layer. Technology is great, but it's not meeting person to person.
[00:21:13] KELLY: There are plenty of LPs that really do expect to know you and meet you in person before they invest. We also heard from others that they weren't going to slow down. They felt like they were having more Zoom calls and getting to know people maybe even better than they did from two days onsite over diligence period or something. It varied, but, well, certainly, you could have that many more meetings. It was efficient.
[00:21:43] ADAM: Yes, that's true.
[00:21:44] KELLY: We've had LPs begging us to come onsite for diligence like, "Are you accepting meetings? We need to get out of our houses, can we please come visit?"
[00:21:55] ADAM: If you wear a hazmat suit.
[00:21:59] KELLY: There were a handful of us. We followed all the right protocols, but there was probably six to eight of us in any given time since last May that were in the office and were just powering through. Then it was optional and we controlled capacity and mass in the common areas and all of that. We weren't inviting guests. LP's started to say, "Hey, we want to come onsite for diligence." We said, "Sure." Now we're back.
[00:22:28] ADAM: Are there any other innovations from the pandemic that you guys are going to be carrying forward?
[00:22:35] KELLY: Yes, well, everyone's excited to go meet people again and be in person, so I think there'll be a surge of that, and then it'll start to settle as a hybrid because folks have learned how to effectively get to know people, get to know teams and develop relationships online. Our view generally is you can't beat the in-person time. We were a show up to the office if you're not at a company or you're not traveling everyday culture, popping in people's offices. We're very team-oriented.
That's another thing that I think attracts the candidates we've been able to hire. There are two partners on every investment plus a junior investment professional, so three on every investment. We team across our Edison Edge operating platform team and our investment team. We are small group-oriented in everything we do and execute. The ability to just pop in and grab a conference room or play ping pong was very much our culture. For some of us like me, I get energy out of being around people every day.
Then there are others who realized that they can get the same energy and maybe some can get more work done remote. We've just come to the realization that we should go hybrid. We have "Together Tuesdays", and those are all the partner meetings, investment committee, portfolio review. That might be the day that companies come in to present. Then one other day a week, like two days a week, we expect folks to probably have reason to be in the office and otherwise work wherever you want, you're traveling, also getting back to events and the whole thing.
It will be an adjustment for us. We used to have a Boston office, a DC office, a New York office, and in 2015, we consolidated to Princeton. We were in Lawrenceville and we got rid of all those offices, people moved, and we're all in the Princeton area and we have an awesome space. We'll see how it goes. The last year or so, we've learned a lot and we've had a record year on so many metrics during the pandemic.
We can't say that productivity is falling down or we're any less of a firm because we are mostly remote. We think hybrid will be the way. I think probably half of our companies are doing the same thing. This is just a guess. We ran a survey a few months ago, I can't remember the exact number, but half hybrid, 25% got rid of their offices altogether, and the others, well, will be in-person all the time.
[00:25:52] ADAM: You guys have been successful in this market that you're operating in with the size and you're able to get really hands-on with portfolio companies. Have you felt pressure from LPs to get bigger as you've had success? Is there pressure there to keep getting the next fund, it's got to be 20% higher, the next one's got to be another 20%?
[00:26:17] KELLY: No. There are prospective LPs that would like us to be larger so they can get more to work. Maybe because they have a minimum check and they don't want to be more than a certain percentage of the fund. We've been very aligned with them on our strategy with this core fund. It scales up to, I don't think it gets over 600 million in fund size, and we've become more concentrated at putting more capital toward our winners from 8 and 9 and going into 10.
Our LPs have seen how we've managed and the discipline we have around that. They, like us, see that this fund and this strategy can only get so big. They are supportive of us starting to diversify and creating new products, vehicles for them to invest in. We're starting to chart a course for doing that, as well. I think it's less about making sure the strategy can scale with a single fund. Being a single fund firm, I think it's more, "stay in your lane", continue to do what you're doing.
The performance is great, but we've now built out an operation and a business model and a team that can scale our franchise, scale our platform greater. We're all excited to do that after these three funds of consistent performance. Luckily, we've got LPs with deep pockets who will, hopefully, participate in anything we do going forward.
[00:28:23] ADAM: Nice. Yes, because if you get to a certain point, your investment thesis, or a certain size, I should say, your thesis has to change, doesn't it?
[00:28:32] KELLY: Or you have no strategy anymore.
[00:28:34] ADAM: Or you have no strategy other than throwing more money.
[00:28:37] KELLY: You see all of these funds, they have so much capital that they're coming way downmarket from where they used to and having some success convincing smaller companies to consume these massive checks, but also what comes with that is a stage misfit in terms of the expectations of that business, and where the bar is from a PE firm and what their playbooks look like and the drains on an organization that's still quite lean and not really ready.
They're still growing, they're not really ready to tune for scalable growth yet. I think there can be a stage misfit when you're putting a $30 million check and do a $5 million revenue business. We've heard a lot of this from LPs, too, where they're just seeing a lot of strategy drift. They may stay in their lane from a sector perspective, but check size and maturity of the business is starting to vary. That scares LPs, they really want consistency.
I think things will start to normalize hopefully in this environment a bit. Valuations will start to come in line and maybe folks will start to look in the mirror a little bit and say, "Oh, was I staying true to my strategy?" We have opportunities to drift, but we try to stay really disciplined even in this environment, and LPs expect that.
[00:30:20] ADAM: Is Edison considering branching out a little bit beyond growth investing? You mentioned that maybe some LPs are like, "You guys are doing this so well, can you do this, too?"
[00:30:32] KELLY: Yes, we've talked about growth control. We wouldn't go down to VC, we'd stay in our growth lane and the scorecard of the companies where we invest will be consistent. Maybe relaxed top line grows a little bit from where we are and in favor of bottom-line growth, but give founders and entrepreneurs, CEOs, the option. We do it today, we're doing it in fund 10 where we'll do two to three control deals.
We've done them in the past and our returns on those, where we have marched up to our ownership over time, have been really strong. While it hasn't been a core part of the strategy, it's logical to perhaps raise a dedicated control fund. We have enough experience amongst the team and enough senior leaders and folks who have been inside companies before to really engage in the way that those types of deals require.
[00:31:46] ADAM: Would those deals require a little more debt? Like, would that be the leveraged buyout model or would it be controlled equity?
[00:31:53] KELLY: No, it wouldn't be heavy. Maybe a little bit. I don't know that it would require it. I'm working on two right now for $7 million, $6 million, not a lot.
[00:32:09] ADAM: Yes, because that can put more pressure on the companies themselves. If you've got that, and you're not pulling in revenue, which we've seen on the bigger end of the leverage buyout spectra, not really in the area as much you operate in, which I think people will get confused because I cover private equity, they're like, "Oh, gosh". There's certainly a reputation with some of the bigger investors for saddling companies with a lot of debt, but that's not what you guys do.
[00:32:44] KELLY: It's a lever, but it's a small one. These companies that never raised capital before, $10 to $15 million in revenue in markets, that you don't think of as tech hubs. Founders who took 10 years to get the momentum or really get them to a place where they say, "Wow, growth capital could really be helpful here." Taking a fair amount of chips off, maybe staying and going forward with the business, maybe not.
There's this profile of a company that has healthy, clean financials and cap tables, and sure, they've never taken on debt, and they don't want to do it now.
[00:33:35] ADAM: So, a small lever.
[00:33:37] KELLY: Yes, a small lever.
[00:33:40] ADAM: You could put that in your investment strategy, just small levers when I'm redesigning Edison partner's website. It's just a little bit of debt.
The last thing I wanted to touch on, Kelly, we've dedicated some resources to covering this on our website, is just that the lack of diversity in the private equity industry, especially when it comes to women in leadership roles. There are just not very many, but obviously, you've been able to climb the ranks through a really great career. I'm just curious, are you optimistic that there could be more women like you who are able to make their way up the ladder, or is there a reason for optimism there?
[00:34:27] KELLY: Yes, I have a few thoughts on this. One is, I spent 20 years in tech. I was always one of few women.
I don't even think about it. I don't know any different. Even with our firm and our hiring and the way we've designed the org and who we've invited in, our firm is roughly 50% women and 30% of our mid to senior investment professionals are women. Even the senior team, there are two women, a principal and a general partner, including me.
We're way above the industry average and we've always just hired the best people for the job. It was never a focus and we never set goals. It was just better lucky than good. I think the number now, I read somewhere, is like 12% of all senior roles globally and private equity are women, which is, I think, double than it was five years ago or something. I don't really think about it, we hadn't really thought about it as a firm.
We do have set goals now, quantitative goals for our boards, board diversity, including women. We've allocated capital in our new fund, $30 to $50 million minimum, hopefully, it's more to back women-led and African-American-led companies. We've done a bunch of things to make sure we're trailing the foundation to track to that. I just ran our first half numbers and 43% of our boards have women on them. That's a 34% increase since October last year when we set the goal.
We have other diversity metrics around the management team for the diversity of our portfolio companies. We're tracking them, and we've got lots of initiatives and different swim lanes to do it. We're focused on it generally. I think we've always done well and we'll continue to do what we've always done. Then when I think about women getting into PE, my path was not a direct one. I don't have an MBA, I never took a finance class in undergrad, I spent 20 years in operating environments.
[00:37:23] ADAM: Same.
[00:37:24] KELLY: I try to play a role where I can and I'm involved in various organizations encouraging women to consider private equity. I try to give time to this mentorship in these young women because I think they need to see that there isn't just one path and an MBA is not necessarily required, you don't have to be an investment banker first or work in consultancy.
Frankly, we have a couple of folks who were investment bankers before they joined our firm, but those people don't get the interviews, the management consultants, and the investment bankers. We want folks who are well-rounded, we love operating experience or some exposure to the stage of company, but if I can help folks understand that there are multiple ways in, I think that will open up the population and get women more interested and excited about joining.
Once you're in, I consider it a privilege. I never considered, throughout my 20 years in companies and working with investors and folks on my board, I never considered what it would be like to do their job every day, and maybe that would interest me. It was totally opportunistic, but it feels like my entire career led me here and it is a logical path when I really think about it, but I got in at a partner level, I didn't have to work my way up through an apprenticeship. It really isn't an apprenticeship business, and luckily, I was able as a partner to be an apprentice.
I had all these incredible experiences with these long-tenured partners around me who lend their time and I respected and learned from their experience, and frankly, they leaned on me for my operating experience. I think that is replicable for executives who've been operating or for young women who have maybe spent a couple of years in sales at a tech company or finance at a tech company. Go do the sourcing thing at a firm and work your way up.
Yes, it's getting better, I think it's bottom-up and top-down, it's board and management teams and partnerships, and it's finding the right feeders and encouraging college-age students, even if they are B school women who are not entirely sure what path they want to take. I think there are multiple paths to get there and multiple roles in a growth equity firm to play.
[00:40:21] ADAM: The great thing is early returns. Data has shown that when firms have more of a diversity of perspectives, that the companies themselves do better, right?
[00:40:32] KELLY: 100%
[00:40:33] ADAM: That's the way to get private equity behind something. At least on a bigger scale like, "Hey, look at your returns, things are going well when we do this."
[00:40:48] KELLY: Yes, totally, it makes sense.
[00:40:49] ADAM: I think that will be a big driver of it.
[00:40:52] KELLY: It will and it goes back to the LPs, right? We're seeing in recent fundraising experiences where the DDQ is starting to evolve and have a focus on diversity or there are specific data requests that are now coming in. The State of New Jersey in particular is very focused on the diversity of our firm and our portfolio companies, particularly the ones based in New Jersey.
Rutgers is running really interesting surveys and paying a lot of attention to this, and we have the data because we've set these initiatives and these goals for ourselves, so we wound up being a source. I hope we're able to help LPs start to set the expectations and I think new standards and maybe requirements at the firm level, at the company level, and at board levels. You see a lot of progress being made, but I think LPs will be the ultimate influencers on this.
[00:42:00] ADAM: It always comes back to the LPs. When they speak up, that is when you see, I guess, private equity firms, especially the big ones, they're like, "Okay, well, we'll change things, we'll do better."
[00:42:12] KELLY: Yes. We say to our companies, you can't respect which you can't inspect. You really have to understand your baseline, you have to put a stake in the ground and say we're going to get from A to B, we're going to get from here to there in some period of time. It could take half of the life of a fund to really move needles because we're all in a long game, but to just say that this is a real focus for us and try to check some boxes, is really not enough and there are too many people doing that.
[00:42:56] ADAM: You mentioned that you guys have maybe been more lucky than good, but what about Edison's culture has allowed you to beat the benchmarks when it comes to hiring women and making other diverse hires?
[00:43:07] KELLY: I think when we have open positions and we're running a search and selection process, what candidates see in our culture and the way we're structured is a few things. One is I think the mix, that we have a mix of expertise at our firm is attractive because not everybody looks exactly alike. This isn't necessarily a statement of gender or ethnicity, it's just their backgrounds and where they came from and now varying tenure.
They have access to that. We're fairly matrixed and while we have sector expertise, and folks are encouraged to develop a point of view around domains, you have access and you're working with the entire partner team on any given opportunities. The learning opportunity and the access to those different experiences and working with different partners and a broader group of partners is really a great learning environment and an environment to be able to grow your career.
I think regardless of where you're coming from as your background, coming into as an associate, an analyst associate, or a senior associate role and the more junior functions, I think folks can imagine what it would be like to develop in their career, and we laid that out pretty well and the best way to do that. We talked about being an apprenticeship, this industry is very much an apprenticeship model. You're not just learning from one or two partners because you're working on primarily FinTech investments.
I think the access and the diversity of experiences and just our general way of working and the way we're structured can accelerate the learning and the development if that makes sense. I think we're pretty fluid and it's a good learning environment. That's probably the main reason, outside of industry sector stuff or stage-specific interests that candidates might have in their career, I think our environment is a draw for sure.
[00:45:44] ADAM: I look forward to the day when I'm researching a firm's website and I go to the team section and it isn't just old white guy, old white guy, old white guy, old white guy, old white guy, old white guy, old white guy, and then like executive assistant, a young female. Not that that is a bad job, my wife is an executive assistant, but I'm like, "Could you guys be any more cliché?"
[00:46:06] KELLY: Yes, oh, 100%.
[00:46:08] ADAM: Come on, this is 2021.
[00:46:10] KELLY: That used to be our website once upon a time.
[00:46:14] ADAM: Yes, but no, it's good to see that hopefully, the industry is going to evolve and do better.
[00:46:22] KELLY: Yes.
[00:46:23] ADAM: That's all.
[00:46:24] KELLY: We can all do better.
[00:46:26] ADAM: We can all do better, exactly. That's all I got for you today. I think we hit on a great, number of subjects, all awesome stuff, Kelly. I really appreciate you taking some time out of your day here.
[00:46:40] KELLY: No, thank you.
[00:46:42] ADAM: I hope we didn't interrupt the dogs' walk too much.
[00:46:44] KELLY: No, I think they're gone. Somehow the walker snuck in here and off they went without additional barking, which is always nice.
[00:46:54] ADAM: Great, well, thanks so much.