Early-stage venture capital

Thomas Mucha, Geopolitical Strategist
Frederik Groce, Deal Lead, Wellington Access Ventures
2023-10-26T12:00:00-04:00  | S2:E16  | 20:24

The views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk.

Episode notes

Frederik Groce, Deal Lead for Wellington Access Ventures (WAV), joins host Thomas Mucha to discuss the state of the early-stage venture capital market. Fred shares his latest insights on growth efficiency, outlines the challenges and opportunities for historically overlooked founders, and spotlights how WAV partners with portfolio companies.

2:00 – Fred’s path to early-stage investing

2:40 – Conscious capitalism

3:55 – Early-stage venture capital environment

5:25 – Challenges for underrepresented founders

6:30 – Partnering with early-stage founders

8:00 – Early-stage VC opportunities

9:35 – Leadership diversity

10:50 – Market inefficiency in venture capital

12:50 – Collaboration across asset classes

14:25 – The future of early-stage VC

16:20 – Personal observations


GROCE: At the core of venture, ultimately it’s about networks, and making those networks operate effectively to not only source deals but source talent, source insights, to support founders at the end of the day. And a collaborative firm like Wellington has this unique opportunity to extract that and support these founders in really incredibly differentiated ways.

MUCHA:    According to a 2020 study by the Pew Research Center 58 percent of Black American adults say that supporting Black-owned businesses is an extremely important means of achieving equality, yet just 3 percent of US companies are today Black-owned. Now joining me today is someone determined to get that number up. Frederik Groce is a member of Wellington Access Ventures or WAV; that’s our private equity team focused on investing in early stage companies run by Black, Latino, female, and other underrepresented founders. Frederik was named to the Forbes 30 Under 30 list in 2021, impressive, as was Jackson Cummings, another WAV colleague. Frederik joins us today here in Boston to discuss the early stage investment landscape, the importance of conscious capitalism, and how his team helps diverse founders achieve their goals. Frederik, welcome to WellSaid.

GROCE: Thanks for having me. I’m excited to dive in and discuss some of these topics.

MUCHA: It’s great to have you here. So let’s start at the beginning and first, tell me about your background and, you know, what got you here to Wellington.

GROCE: Yeah, so I’m the youngest of four, I’ve got a twin sister, obviously, you know, two peas in a pod growing up, spent most of my life on the west coast, and then sort of made my way over to the Midwest in Ohio for high school where I spent four years. And then found myself back on the west coast again for college where I ended up going to Stanford and actually meeting Jackson Cummings, the head of Wellington Access Ventures. And so it’s been a quick ride but it’s been a lot of fun. It’s been great to be able to see some of the past come into the future and kind of join me on this journey here at Wellington.

MUCHA: All right, so let’s jump into the meat of the conversation here so in your view why is conscious capitalism, supporting underrepresented company founders, so important?

GROCE: Yeah, so, for me conscious capitalism is really just a framing. Of sort of how we in markets can both make upside for those partners that are coming to us but also at the end of the day doing good work out there and not having to find a middle ground between making upside and doing good, right, so finding that direct alignment fundamentally. And that permeates through everything that I’ve certainly done throughout my career and is at the core in many ways of what we’re doing here at Wellington. So from my perspective I think one of the key things to think about as it relates to venture capital is the fact that at the end of the day not all things are equal. So much of this industry is dependent on networks, particularly personal networks with respect to getting access to the capital, mentors, or hiring. And so a lot of what we try to do is think about how do we as investors provide that to a differentiated set of founders out in the market.

MUCHA: Yeah, as my research on geopolitics determines, economic inequality is a major factor in destabilizing societies in the United States but all over the world and so I do think that this is a really important tool in addressing some of those root causes. But let’s get into sort of the state of the early-stage venture market. And I’m curious, Frederik, what changes are you seeing in terms of how companies are approaching growth especially in this current market environment?

GROCE: Yeah, so maybe before jumping into some of the things that we’re seeing that drive growth, and some of the evolution that’s happening in the companies, I think it’s important for us to frame out just the landscape, right. What’s some of the data saying here? And one of the big things we spend a lot of time looking at is just what’s going on and try to put numbers and so, two data points that I want to throw out there. One, we saw that less than 1 percent of venture dollars went to Black-led companies. And similarly last year we saw less than 2.4 percent of dollars go to women-led companies in the United States. That’s a problem in our view.

MUCHA: Those are terrible numbers.

GROCE: Absolutely, absolutely, and so when we think about then, what are the changes happening given the macro, on an early-stage perspective, first of all we’re seeing that it’s taking longer to get rounds done. Second, we’re seeing that some of the underlying metrics that sort of govern the inner workings of a business in the early stages are becoming much more important. Metrics like growth efficiency. Metrics like net dollar retention are becoming more front and center. Even more importantly we’re seeing actually unfortunately a decline in dollars going into these diverse and underrepresented ecosystems and so some of that data that I mentioned, those are all declining data points unfortunately year over year from 2021 where we saw some of those numbers be incrementally larger and so the fear that we have is given the macro is that we’ll continue to see another decline this year unless you continue to see efforts like Wellington Access Ventures in market really being focused on going after these underrepresented founders and supporting them in a different way.

MUCHA: What are some of the specific challenges that are leading to these declining numbers?

GROCE: Look, ultimately it becomes where are investors spending their time and focusing, right, I think in the post-George Floyd sort of period we saw a lot of investors, corporate America thinking more acutely around hey, what can we be doing to support underrepresented demographics across the United States and sometimes even globally. Now unfortunately as a shift towards fundamentals within a business start to come more front and center the ability to think about some of these other, sometimes considered extraneous components start to fall off. And so, it’s our view fundamentally that, you know, these shouldn’t be thought of as extraneous, that these are fundamentally important, and that what these underrepresented founders really actually represent are markets that have just been uninvested in so far. And sort of set up a huge opportunity for future growth and as we look at venture becoming more and more global, the reality is the world is globally diverse. The world is gender-diverse. And so not thinking about what are the founders that could come out of those different pockets, what they could be building, is just us leaving opportunity on the table.

MUCHA: So what are some of the specific things that WAV does to help founders overcome some of these big structural challenges?

GROCE: Yeah, well, so first of all we provide money. Which isn’t trivial.

MUCHA: That helps.

GROCE: But outside of the capital we’re providing, our team is giving founders advisory services, right? We’re supporting them in terms of thinking about how do they need to set themselves up to be able to raise the next round. And a firm set up the way Wellington is set up both on the private and public side, we’re able to provide a lens and perspective that goes much further down the road than what you might be able to get from a traditional Sand Hill firm. Outside of those networks and perspectives on what’s happening in the ecosystem we’re also able to provide introductions to next round investors. You know, I mentioned earlier that one of the big issues is networks and having the ability to be able to get introduced into a firm. We’re able to do that, right, the entire team and the entire privates platform is filled with venture capital investors that’ve been doing this for decades and so we’re able to lean in to those networks fundamentally. And then I think the really unique Wellington component is we’re able to connect our founders into folks like our global industry analysts and experts and public market investors that deeply spend their entire careers effectively focusing on very specific problems or areas within the market. And that gives us a unique ability to support these underrepresented founders in a way that quite frankly didn’t exist before.

MUCHA: It’s a lot of tools in that toolbox.

GROCE: A lot of tools in the toolbox. That’s right.

MUCHA: So Fred, let’s dig into sort of the opportunity set of early stage and diverse-founded venture companies, here. What strikes you right now as some industry or thematic tilts to where you’re sensing these opportunities?

GROCE: First I think it’s important to realize that diverse individuals work in every industry and every type of company that’s out there, certainly if you think about that from a gender perspective that tends to be very true and so because of that we see founders in as diverse set of companies building as exist in the market fundamentally. Now that isn’t to say we don’t see more types of sub-vertical types of companies here and there and that tends to sort of represent the unique challenges or pains those founders are experiencing in their lives.

MUCHA: What are some of those?

GROCE: So some of those can include digital health for instance. We see a lot of female-led companies and diverse-led companies going after different parts of the health care system to get access to medical care because they’ve had themselves poor experiences or the data shows declining rates of care.

MUCHA: So these life experiences are leading to business ideas and opportunities.

GROCE: Exactly, and then I think outside of that, we see a lot of companies increasingly in fintech trying to support these communities because they’ve historically been underbanked. And so, you know, those are two examples but really push us to realize that the reality is because these founders exist, you know, potentially working in any industry and company, the opportunity set is much larger than just fintech and digital health for sure.

MUCHA: Great, so, investment cases, Fred, are made obviously on a company-by-company basis. But, you know, generally speaking what’s the business case for minority-owned and managed companies? I mean specifically how is leadership diversity a difference maker for a company? We just mentioned experiences leading to ideas. But how do you think about that?

GROCE: I think you’re absolutely right – obviously the types of businesses being founded can be differentiated given the type of founder experiences the founders we’re hunting and looking for and partnering with. Outside of that, we see that they tend to hire incredibly diverse management teams and teams themselves as well. Particularly if you were to compare them to the standard Silicon Valley thought company which tends to be male-dominated and people that they went to school with essentially or were maybe in a section together, right? And so those diverse sort of management teams and companies create a more resilient culture that can navigate many of the ups and downs that come with start-ups, right, I mean the average start-up is going to pivot a number of times before it really achieves its ultimate product market fit and so that resiliency matters fundamentally. And outside of that there’s lots of data that’s increasingly been hitting the market that showcases that diverse teams outperform and so it’s certainly our belief that we’ll see that play out across our opportunity set as well.

MUCHA: So Frederik, I’m on the macro team here. So I’m going to ask you a macro question. And it seems to me that expanding opportunities for underrepresented entrepreneurs can create economic value. You know, growing the pie while enabling the capture of a bigger slice of that economic pie. So to what extent is let’s call it appreciation of market inefficiency driving WAV here?

GROCE: To an extent it is, right? I think it’s us observing that there is an inefficiency in the market and our desire to invest against that. But I think it’s also sort of a recognition that venture itself is becoming a global phenomenon and again, you know, I’ve said this and you’ll hear me say this over and over, the world itself is diverse, the world itself does not mirror what the last generation of Silicon Valley-based companies has looked like in terms of the founding groups. And so, we look forward we expect as the industry continues to globalize that we’re going to see new stakeholders engaging and that creates a huge opportunity that again just hasn’t been as focused upon. And so our view is our focus allows us to efficiently just sift through the thousands and thousands of companies that are being created every single year globally.

MUCHA: When we think about this globally are we seeing the same kinds of disappointing numbers, in terms of minority representation outside the United States? Or is the US, like, really bad in this area?

GROCE: No. Unfortunately, we see these dynamics play out everywhere. And, again, unfortunately, the US is at the epicenter of a lot of the global business and trade, right? And so these dynamics that have played out here and Silicon Valley, a very tight-knit community that has really been the lion’s share of determining where dollars move. As that evolves, one of the things we’ve continued to be focused on is making sure there is equitable access to these pockets fundamentally. Now, I will say, what is underrepresented can evolve fundamentally as you look in global markets, right, but certainly the gender composition, we continue to see that play out similarly, and if you look into the broader call it, like, African diaspora that has existed, you will see the same underlying dynamics playing out, where there’s an inability, oftentimes, to access that capital.

MUCHA: So more work, more opportunity for you and WAV.

GROCE: That’s right. That’s the way we see it at the end of the day.

MUCHA: Cool. All right, so, we talk a lot on this podcast about Wellington’s culture of collaboration. You hinted at that before. So since joining the firm, what’s your experience here with this collaboration culture?

GROCE: You know, it’s so funny: I remember being almost hit over the head about it when I was interviewing and about to join the firm.

MUCHA: Yeah, it comes up a lot.

GROCE: It comes up so much, and I didn’t know what to think about it, and it has been the most incredible surprise, which is to see it play out in every deal that we look at. And what does that mean for us, right? It’s collaboration, not only with the public market investors and research teams that we have, global industry analyst, global industry research, but also across some of the other private teams that we have, that also have incredible investors, with incredible vertical expertise in different areas. And so, we’re leaning into that. It enables us to go deep much faster when we’re doing diligence. But after we’ve invested, it enables us to create a network to support our founders. And it’s one of the things I continue to be the most excited about because, again, at the core of venture, ultimately it’s about networks, and making those networks operate effectively to not only source deals but source talent, source insights, to support founders at the end of the day. And a collaborative firm like Wellington has this unique opportunity to extract that and support these founders in really incredibly differentiated ways.

MUCHA: That works both ways. Since we’ve been growing our privates business, our VC business, I’ve learned a ton from the new employees that we’re bringing into Wellington on that side. So it’s a two-way street, and I agree: the collaboration aspect, it’s not just marketing. We do it every day.

GROCE: That’s right. No, it’s core to the DNA of the organization, and every single individual that gets hired into the firm has that collaborative bone.

MUCHA: So let’s talk about the future here, and as the market increasingly values diversity, and if you’re successful at WAV and we have more Black leaders building more networks, more communities, what are your expectations for the next five to ten years here?

   GROCE: So I think of it as a tale of two cities right now. On one hand, we see more focused capital allocated to support these underrepresented founders than we’ve ever seen in market. But I also see it becoming more challenging, which is to say the amount of capital moving into these corridors to focus on these issues that’s evolving quite a bit. And so, our hope is we’ll continue to see more support for these underrepresented founders in market, but also that as the macro sort of works itself out, that more capital does get reallocated to the venture ecosystem, again, to these underrepresented funds that are focusing on a different part of the broader ecosystem.    

MUCHA: So the macro backdrop matters to the direction of this.

GROCE: Yeah, the macro matters quite a bit, because the amount of capital moving from limited partners into venture right now is sort of evolving in real time, as we have denominator effect hitting the ecosystem.

MUCHA: How closely do you follow, like, the machinations of the Fed?

GROCE: A lot more today than ever before, I’d say.

MUCHA: Yeah, you and everybody else.

GROCE: That’s right. And to be frank, you know, it’s been one of the really incredible components of coming to Wellington and doing venture here is that we have these macroeconomists and perspectives that help us sort of connect the dots and the reality is, yeah, venture capital’s highly impacted by interest rates, as we’re watching it work itself through the system itself. Now, the good news is where Wellington Access Ventures plays, at the early stages. That’s where innovation is happening at the beginning, and the innovation economy hasn’t slowed down. There are people trying to build companies all over the US and globally, and so that continues to make us excited, because it’s that innovation that will drive upside for, you know, the public markets, investors, but also will make the world a healthier, safer, and more efficient place at the end of the day.

MUCHA: Love that spirit. So, Frederik, we like to end these discussions with a bit of personal information, try to get to know the person behind the professional here. And, you know, I understand you play the saxophone, the tenor.

GROCE: I do.

MUCHA: I’m a trumpet player, so we could go deep on this if you want. But tell me about that, and then, from an investment perspective, how does music help you de-stress and focus your mind?

GROCE: Yeah, so I’ve been playing music since I was in third grade, and I picked up the tenor in fifth grade, and it’s been a big part of my life.

MUCHA: You’re a Coltrane guy, right?

GROCE: I’m a Coltrane guy, absolutely. I mean, if you love jazz, Coltrane is one of the GOATs. And it’s been a place for me not only, I think, you know, to destress and vent things that you can’t put to words in different ways, through soloing and engaging with others in jazz combos over the years, but it’s also been an interesting place to think about sort of similarities to the venture world, right? You’ve gotta be able to be listening constantly to things happening around you, while staying focused on what you’re doing. It’s about being creative, and not being scared to go on your own beat, down a path that others might not have gone through, but also the knowledge that there is gonna be a safety at home. There is always going to be a chorus, a melody you can come back to, a set of chords that are at the core of the piece that give you that true north. And I think of that as business fundamentals, right? The fundamentals of looking at a company are sort of that true core north for us, in many ways, even if the companies, you know, may go off in different strategies, and may pivot four times from the initial investment. And so it’s definitely got a lot of similarities. I think it’s made me more open to being able to just deal with anything being thrown at me, and not being scared to do that, you know. Because, as you might know, there’s nothing more fun than a jazz combo playing around and just throwing a solo at somebody that wasn’t expecting it, and seeing what happens, and how they navigate on the proverbial stage.

MUCHA: I completely agree. I’ve always thought of jazz as the ultimate collaboration.

GROCE: Absolutely.

MUCHA: You have to listen to everybody. You’re all on the same page, but everyone has their own thing, and you listen, and one thing reacts to another thing.

GROCE: There are rules, but you can break ‘em.

MUCHA: You can break those rules, but you gotta know where the rules are, and where the lines are.

GROCE: That’s right.

MUCHA: So I think you and I need to start the Wellington jazz quintet.

GROCE: We just need a drummer and a bass player and then we’re ready to go.

MUCHA: All right, my friend. Well, thank you so much for spending the time here with us Frederik. Once again, Frederik Groce, a member of Wellington Access Ventures. Thanks for joining us.

GROCE: Thank you so much.


Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For  professional/institutional investors only. Your capital may be at risk. Podcast produced October 2023.

Wellington Management Company LLP (WMC) is an independently owned investment adviser registered with the US Securities  and Exchange Commission (SEC). WMC is also registered with the US Commodity Futures Trading Commission (CFTC) as a  commodity trading advisor (CTA) and serves as a CTA to certain clients including commodity pools operated by registered  commodity pool operators. WMC provides commodity trading advice to all other clients in reliance on exemptions from CTA  registration. WMC, along with its affiliates (collectively, Wellington Management), provides investment management and  investment advisory services to institutions around the world. Located in Boston, Massachusetts, Wellington Management also  has offices in Chicago, Illinois; Radnor, Pennsylvania; San Francisco, California; Frankfurt; Hong Kong; London; Luxembourg; Milan;  Shanghai; Singapore; Sydney; Tokyo; Toronto; and Zurich.     This material is prepared for, and authorized for internal use by, designated institutional and professional investors and their  consultants or for such other use as may be authorized by Wellington Management. This material and/or its contents are current  at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written  consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the  solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date investment  services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views  expressed herein are those of the author(s), are based on available information, and are subject to change without notice.  Individual portfolio management teams may hold different views and may make different investment decisions for different clients.  In Canada, this material is provided by Wellington Management Canada ULC, a British Columbia unlimited liability company  registered in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia,  Ontario, Prince Edward Island, Quebec, and Saskatchewan in the categories of Portfolio Manager and Exempt Market Dealer.   

In Europe (excluding the United Kingdom and Switzerland), this material is provided by Wellington Management Europe GmbH  (WME) which is authorized and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für  Finanzdienstleistungsaufsicht – BaFin). This material may only be used in countries where WME is duly authorized to operate and  is only directed at eligible counterparties or professional clients as defined under the German Securities Trading Act. This material  does not constitute investment advice, a solicitation to invest in financial instruments or information recommending or suggesting  an investment strategy within the meaning of Section 85 of the German Securities Trading Act (Wertpapierhandelsgesetz).   In  the United Kingdom, this material is provided by Wellington Management International Limited (WMIL), a firm authorized and  regulated by the Financial Conduct Authority (FCA) in the UK (Reference number: 208573). This material is directed only at eligible  counterparties or professional clients as defined under the rules of the FCA.   In Switzerland, this material is provided by Wellington Management Switzerland GmbH, a firm registered at the commercial register  of the canton of Zurich with number CH- This material is directed only at Qualified Investors as defined in the Swiss  Collective Investment Schemes Act and its implementing ordinance.  In Hong Kong, this material is provided to you by Wellington Management Hong Kong Limited (WM Hong Kong), a corporation  licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities), Type 2 (dealing in futures contracts),  Type 4 (advising on securities), and Type 9 (asset management) regulated activities, on the basis that you are a Professional  Investor as defined in the Securities and Futures Ordinance. By accepting this material you acknowledge and agree that this  material is provided for your use only and that you will not distribute or otherwise make this material available to any person.  Wellington Investment Management (Shanghai) Limited is a wholly-owned entity and subsidiary of WM Hong Kong.   

In Singapore, this material is provided for your use only by Wellington Management Singapore Pte Ltd (WM Singapore)  (Registration Number 201415544E). WM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets  Services Licence to conduct fund management activities and is an exempt financial adviser. By accepting this material you  represent that you are a non-retail investor and that you will not copy, distribute or otherwise make this material available to any  person.   In Australia, Wellington Management Australia Pty Ltd (WM Australia) (ABN 19 167 091 090) has authorized the issue of this  material for use solely by wholesale clients (as defined in the Corporations Act 2001). By accepting this material, you acknowledge  and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available  to any person. Wellington Management Company LLP is exempt from the requirement to hold an Australian financial services  licence (AFSL) under the Corporations Act 2001 in respect of financial services provided to wholesale clients in Australia, subject to  certain conditions. Financial services provided by Wellington Management Company LLP are regulated by the SEC under the laws  and regulatory requirements of the United States, which are different from the laws applying in Australia.  In Japan, Wellington Management Japan Pte Ltd (WM Japan) (Registration Number 199504987R) has been registered as a  Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. WM  Japan is a member of the Japan Investment Advisers Association (JIAA), the Investment Trusts Association, Japan (ITA) and the  Type II Financial Instruments Firms Association (T2FIFA).  WMIL, WM Hong Kong, WM Japan, and WM Singapore are also registered as investment advisers with the SEC; however, they will  comply with the substantive provisions of the US Investment Advisers Act only with respect to their US clients.  

©2023 Wellington Management Company LLP. All rights reserved. 




Frederik Groce
Deal Lead, Wellington Access Ventures