Q&A with Human Ventures' Heather Hartnett

Heather Hartnett is the CEO and Founding Partner of Human Ventures, a New York City-based venture capital fund backing, building and scaling industry-changing technology companies through a startup studio model. Hartnett has been recognized for creating one of New York’s premiere startup studios and for the unique approach and fresh perspective she’s bringing to investing by publications such as “The Information,” which has referred to her as the “new breed of VC.”

Since launching three years ago under Hartnett’s leadership, Human has invested in and co-built more than 20 companies. Those companies have grown to a combined $150M+ in enterprise value and have gone on to raise $80M+ in additional capital from notable later stage investors.

What drew you to venture capital and working with startups?

I come from a long line of entrepreneurs. My father challenged me from a young age to solve problems. What he started cultivating in me was a desire to address challenges and get comfortable taking risks. Being an early stage investor and company builder involves muscle memory and a lot of trusting your instincts. It’s a different way of thinking that requires persistence and training, and I see now, that my father’s encouragement ingrained that in me.

I’d always been curious about technology and how companies were built from having grown up in a family where that was very much built into our vocabulary. So when I graduated from college in 2005 I moved to the Bay Area. I was exposed to a whole new side of the company building business: investing. What I saw then -- and continue to see now -- is that investing is an innovative way to make impact and give resources to people who have the desire to create change.

You’ve worked at places like City Light Capital and The David Lynch Foundation, where you’re now a member of the Board of Directors. What did you learn in these roles about building companies that led you to create Human Ventures?

The David Lynch Foundation was very analogous to a startup in that we had a small but mighty team. I joined the organization very early and experienced rocketship growth trajectory. While I was working in philanthropy I saw a generational shift around creating impact in general. The next generation philanthropists weren’t people who worked for 70 years and then started to give back. This next generation wanted to align their work with what they cared about early in their lives. It showed me that young entrepreneurs were thinking deeply about the impact their companies were going to have on society.

My role at City Light brought together philanthropy, company building and investing and introduced me to this new world of impact investing. What I learned most from being an entrepreneur-in-residence and building platforms for a fund was that early-stage investing was colliding with the formation of businesses.

When we started Human Ventures, we created it as a platform to help builders build. How do you attract and retain the most talented founders at the beginning? We called it Human because we didn’t necessarily want to focus on areas of impact but on finding the right people to build companies. If you bring people with grit and passion - who also have the desire to build hugely successful companies - they will by nature have a strong impact. The high growth companies that we’ll see over the next 5 - 10 years will have a strong mission behind them. It’s a product of the time we’re living in.

What drove you to found and launch your own firm?

There are very few women in venture capital. It's growing and I'm optimistic but I would be remiss if I didn’t constantly reevaluate the numbers. 76% of VC firms don’t have any women. 5% have gender parity. 9% of women in the space are investment decision makers. I looked at it this way: I’m starting this career a little later. In doing that, where do I want to spend my time and catalyze the most change? It’s just like being a founder. I wasn’t going to wait for someone to tell me to do it. I knew I could create value in the ecosystem especially where I saw a big gap. I’m a founder at heart — while some people don’t equate the two, starting your own firm is absolutely an entrepreneurial endeavor.

Walk me through the process of bootstrapping Human Ventures from the beginning to where you are now, three years later.

The lifeblood of the venture industry is founders. I started conceptualizing Human Ventures during interviews with founders whom I respected. I would ask them what they needed to found a company with Human instead of just launching themselves. I compiled a list.

Experienced entrepreneurs were looking for a few key things across the board -- the ability to tap shared business design services, hire faster, build-test-learn faster, etc. We built a team at Human with the expertise to support founders with these needs. And when we began attracting high caliber founders, that was the indication that we were onto something. It’s why we made the decision to be a startup studio as well as a venture fund.

During my founder interviews, one of the people I chatted with would end up becoming my founding partner: Joe Marchese. He’s a serial entrepreneur who sold his last 2 companies (one of them to Fox Networks). He and I resonated deeply on the core thesis of Human and he wanted to back me. Every successful person in the VC community has had a champion like that, ideally a founder or investor who is personally committed to you. Joe has shown great confidence in me and in turn has helped me grow as a builder.

What do you say to founders who say, “I want to be a part of Human but I’m also considering an accelerator or incubator?”

We have a phrase at Human called “the myth of the big idea.” People often ask where Human gets our ideas, and I think it’s an entirely romantic notion that it’s all about the perfect idea. For the most part, you know a space that has a massive opportunity and you have a hypothesis about how to tackle it with a unique business model. We partner with founders pre-concept — they don’t need to walk in the door with a big, brilliant idea. We don’t believe it happens that way. We agree on the problem area, come up with an approach to solving the problem together, and we’re there to accelerate the product as a true partner.

That’s very exciting. I’ve spoken to a lot of people in tech who describe having a partial idea but not thinking it's good enough and not knowing how to execute. Having a startup studio like Human would help with that initial legwork.

In my experience, the best founders want to get to a proof of concept fast so they can spend their time on the execution. Often times in front of investors, founders have to act like they have total conviction in their product and idea -- even if they’re still figuring out. That’s fine but you should also have some objectivity about whether there is a market need. The number one reason that startups fail is because the product is not needed.

We have a values guide that emphasizes self-awareness as a founder. We believe the journey involves growth, resilience, guts, collaboration, and gratitude. Do you know your strengths and your weaknesses? Can you find a co-founder and a team that complements you? I used this approach when I hired the first three people for Human Ventures. There’s a perception in the media that you have to be everything if you’re the founder. But it’s unrealistic and it truly takes a village. If you can hire for your deficiencies, surround yourself with the smartest people and focus on what you’re uniquely qualified to do, that’s the sign of a great founder.

How are you attracting that new talent? What are you doing to make Human’s portfolio companies accessible to new hires?

We have very defined founder persona types who work well with Human -- those people are self-aware, growth minded, rigorously curious and most importantly, generous. Successful founders know that no one does it alone, so we look for people who are collaborative and will be generous and helpful to the other founders in our portfolio.

We have pipelines that we’re proactive about tracking. We have algorithms that scrape to see who sold their last company and determine the companies that breed the right type of entrepreneurs. Our founder pipeline is about 50% inbound that we attract through our network and about 50% outbound that we recruit.

The biggest indicator of success is referrals from other founders. It continues to be the strongest lead source and rate of conversion — and if a Human founder refers another entrepreneur, that’s the best kind of endorsement.

Your portfolio companies cover a number of sectors including fintech, legal tech, education, and media. Are you investing in certain areas or is Human sector-agnostic?

It all goes back to being founder first. A lot of firms say that, but we really mean it because Human is nothing without the founder and their domain expertise. And that means we work with brilliant people across multiple industries — we follow their lead and walk through the logic of the market need and fit. Ideally, we’d like to back the next three things a founder does. So when we’re backing a company, we’re actually backing the founder and his or her ability to execute.

There are some things we don’t do because they don’t fall under our core competencies but for the most part, we work with companies that are consumer facing and in areas we know have an outsized market.

The human lens that we have across all of our companies is around observing life stages. From adolescence to old age, every generation looks at these stages in life through a different lens. As the generations shift into new life stages, we see big market opportunities unlock. Think digital parenting, Gen Z and money, empty nesting baby boomers, etc. I’m fascinated by these changes in psychology. It’s hard to pinpoint one thing but Human is looking at companies that affect everyday life. It has to have human insight, not just technology for the sake of technology.

As a founder yourself, I’m sure you’re thinking about what Human Ventures will look like 5 and 10 years from now. What are some of the things you see on the horizon for your firm?

We want to be the world's largest firm that can back, build, and scale high growth and industry-changing businesses. I don’t think you can view venture in a silo anymore. It’s becoming more sophisticated with more nuanced founders.

I’d like to see Human’s model transforming industries by bringing different types of talent into an early stage environment. That means changing the face of what founders look like by getting to more minority and female founders. Two percent of venture capital goes to female founders, and a fraction of that goes to female founders of color. We talk about these statistics all the time but it’ll only change when we redefine pattern recognition. So if Human could be known in 10 years for doing something, it would be for redefining that pattern recognition for the venture industry.

Have you faced any major challenges in venture?

It’s harder for women to have had long-standing relationships with limited partners (LPs), the people who actually fund funds. These relationships are generally built over years. Men have traditionally held most of this capital; the glass ceiling and lack of women at the top has stymied relationship-building. It’s held back a lot of female general partners (GPs). I’m passionate about unlocking capital to put in the hands of female general partners.

You can start to solve the problem by addressing the pipeline. Women, minorities, people from different parts of the country and the world naturally bring something different to the table. But you have to frame this in terms of returns, not altruism. We’re in a capitalist society and it’s our fiduciary responsibility as investors to return capital. So we want to make this accretive while creating a level playing field. Again, it’s redefining that pattern recognition in terms of investment managers.

People often cite studies that show the more diversity in a business and the more women on the board, the better the returns. Industry-wide, has that translated into getting capital from LPs?

Not yet. It’s starting to pick up and people are talking about it, but I would love to see some institutions really take that chance. People like Soraya Darabi of Trail Mix Ventures and I would rather start our own funds than have to waste time overcoming the existing bias that already exists in the industry. I do think we’ll see better returns because we have a diverse perspective on the industry. But LPs who invest in Human Ventures aren’t investing just because I’m a female fund manager. We have LPs because Human Ventures is positioned uniquely as a fund franchise. We're being thoughtful about our strategy, and we’re here for the long haul.

What advice do you have for young women who want to enter VC - on the investing, operations, or platform side?

The first step is to break down the components of venture to really understand why this is the place for you. It’s an industry that gets glorified more than it should. I see people who go into venture and it’s very different from what they thought it was. There are so many positions in venture, there are different stages, and you should have a strong idea of the skills you want to develop.

Do you want to work with founders on the portfolio or investing side? Do you want to find new talent? Examine your background as it translates to venture. And this advice is for everyone: figure out how you can add value to that ecosystem. You don’t have to come from the top school or top firm; the really smart people will find you if you’re standing out.