Beta Boom co-founder Kimmy Paluch, MBA ’11, joins Christopher Reichert, MOT ’04, to detail her work taking on the racially biased venture capital model to help underrepresented entrepreneurs succeed.
Sloanies Talking with Sloanies is a conversational podcast with alumni and faculty about the MIT Sloan experience and how it influences what they're doing today. Subscribe and listen on Apple Podcasts, Google, and Spotify.
Christopher Reichert: Welcome to Sloanies Talking with Sloanies, a candid conversation with alumni and faculty about the MIT Sloan experience and how it influences what they're doing today.
So, what does it mean to be a Sloanie? Over the course of this podcast, you'll hear from guests who are making a difference in their community, including our own, very important one here at MIT Sloan.
Hi. I'm your host, Christopher Reichert, and welcome to Sloanies Talking with Sloanies. My guest today is Kimmy Paluch, the Managing Partner at Beta Boom, along with her founding partner, Sergio. Welcome Kimmy.
Kimmy Paluch: Thank you for having me, Christopher.
Christopher Reichert: Excellent to have you. So prior to Beta Boom, Kimmy founded a Silicon Valley innovation firm, which she ran for over a decade. She also developed and led the whitespace gaming division for LeapFrog Incorporated, and also served as Director of Digital Marketing for a 3D printing toy startup. She has a B.A. in computer science from Dartmouth College and an MBA from Sloan, of course. And while at Sloan, she was part of the Entrepreneurship and Innovation Club and the VP of Cross-Campus Initiatives. Great to have you for the podcast.
Kimmy Paluch: Excited to be here. Thank you.
Christopher Reichert: Kimmy is a strong advocate for impact investing, women, diversity, and inclusion efforts—in the tech space in particular. Beta Boom has a mission to find, fund, nurture, and support innovators with very diverse backgrounds, building tech products for massive overlooked markets. The portfolio includes startups in Milwaukee, Nashville, Kansas City, L.A., Boston, Calgary, Houston, Seattle, and of course, Salt Lake City, which is where you're based if I'm not mistaken. Is that right?
Kimmy Paluch: That's correct. Yeah, we left the Bay Area to start this fund, focusing on everything outside of the Valley.
Christopher Reichert: Interesting. So, what was your motivator for leaving what everyone thinks of as the “Tech Mecca,” (outside of Boston, of course)? But anyway.
Kimmy Paluch: Yes, good caveat! I really got frustrated with what was happening in the Bay, to be honest. If you look at who gets investments, for instance, certainly we know that it's a very homogeneous group, but beyond that, if you look up where capital flows, it's really trapped in primarily Silicon Valley—it's about 50% of capital is being invested there. And a lot of the innovations I saw getting funded were really serving the 1%. So for me, it was lack of representation and also just very, very narrow scope of who benefits from these innovations. That was the primary impetus.
Christopher Reichert: Yeah. I think you mentioned, maybe I read somewhere, that there was kind of a revelation when somebody was developing a $700 auto front door lock thing, right?
Kimmy Paluch: Yeah, a $700 lock. Really? That was a big push. And then probably just Juicero was the second. When Juicero happened we're like, "what are we doing here?"
Christopher Reichert: I remember that. I remember that. I mean, I guess the counter argument could be that, well, you know, ABS brakes only were on the most expensive cars initially, and then they kind of came down and trickled down, et cetera, et cetera, but let's not get into trickle down. I think that could be, that could be a bad topic. But I am excited to talk about a topic that's long overdue for correction. I really think that, or maybe I hope let's say, that as a planet or maybe more modestly as a nation, we look back in 10 or 20 years and see that we're experiencing an inflection point on race, on addressing climate change. And in this case, correcting fundamentally, I think, racially driven inequities. So let me just set the table here for a moment and then let's talk about that.
Now the pay gap is a topic that comes up perennially, but for me it's one side of the issue, but the funding gap, which is where you work, I think is another. And I think it really goes to the heart of that old adage, you know, “give a man a fish and he will be hungry again tomorrow and teach him to catch a fish and he'll be richer all his life.” And we could probably update that phrase, that adage alone with him and her and them and all that. But anyway, just a little bit further, the 12th century philosopher Maimonides wrote about eight degrees and the duty of charity and the eighth, which was the highest, was to anticipate charity by preventing poverty, namely to assist the reduced brother either by a considerable gift or a loan of money or teaching him a trade or by putting him, and I think this is the most relevant part for us, in the way of business so that he may earn an honest livelihood and not be forced to the dreadful alternative of holding up his hand for charity. So I feel like this is really kind of the core mission of Beta Boom's work. Does that resonate with you?
Kimmy Paluch: Extremely resonates. I think that's definitely the core and you touch on a lot of different points that I think are exactly what we need to be talking about. I love that now we are having more conversations about equity and what it means for our society. At the same time, I think we've put band-aids too much on things. To your point about philanthropy and charity, a lot is focused on that piece and not the fundamental ways that we attack preventing the need for charity, as you mentioned. So that absolutely is at the core.
The wage gap also continues to complete the cycle. We have a terrible reinforcing cycle because when you look at the opportunities that are for our economy right now, they're primarily being driven by tech, and those tech opportunities are typically then trapped from other persons that either don't have the means because of the gap, the wage gap, or they don't have access to the educational opportunities to re-skill and take those opportunities. So for me, yes, I think entrepreneurship is a major avenue for spreading the wealth and actually addressing those issues, both for the founders that may come from these underrepresented groups, and then the opportunities that they will open up for potentially a more diverse tech population. Tech has historically just been terrible. I have a PowerPoint presentation.
Christopher Reichert: Yeah, absolutely. I mean, I was looking at your education. One of the things also, I think I remember reading is that VCs and funders have this notion that if you don't tick a few boxes, they need you to go get those boxes ticked and then come back. One of the ones that came up was some sort of educational pedigree. So if you don't have an MIT or Harvard or Stanford person on your team, then go get that. And oftentimes that's just, well, if you don't have it, you don't have it, right? Fortunately for you, you've kind of ticked those boxes, even going back to high school—Loomis Chaffee is a quite esteemed educational institution, along the Exeter/Andover vein. And then of course, Dartmouth and MIT. So, does that give you confidence to really kind of go head-to-head in those rooms where you don't look the same, but you probably have a lot of the same intellectual, educational underpinnings as those around you?
Kimmy Paluch: Yeah, I think it does. I think at the beginning, what made me okay being in those rooms was really ignorance. I didn't pay attention to it. And I think, therefore, I didn't let it hold me back. Now I have awareness and now I realize that because I've been privileged and had so many opportunities, I have a responsibility to actually make sure that more people that look like me have these opportunities. And that was the nexus that led me on this journey, is that I could continue doing what I was doing in Silicon Valley or take my position of power and access and privilege and spread that so that I could be a bridge for people that don't have that opportunity.
Christopher Reichert: Yeah. Tell us about some of the stats on funding disparities that you've observed?
Kimmy Paluch: Yeah, they're pretty terrible. So, if you look at all female founded teams, the venture capital dollars that are allocated there are right around 2–2.4%. We had a high that we celebrated about three years ago of 2.8%. Again, we're talking about less than 3% going to these founders. For mixed gender teams, it's about 14%. And again, there's a large swath of capital. Then if you look at the opposite side of that, 85% are going to primarily a homogenous team. And you mentioned another one, which is pedigree. I think what's broken in the VC model is partly the selection process. The selection process has created this model or a founder that is typically white male from these elite colleges. And by the way, there's plenty of evidence that says that pedigree and that kind of access has no correlation to actual startup success.
So why are we filtering on that premise alone? What we think is more important is actually looking at the founders, especially at the earliest stages, and what are their actual qualities? Do they have the domain expertise? Do they have grit and hustle and focus? And then more importantly, how well do they execute? At the end of the day, like we said, ideas are a dime a dozen and what it comes down to is execution. So that's a key part of the model that I want to break in VC is for us to open up our minds of what a founder can look like and what qualities they should bring to the table that go beyond just checking boxes.
Christopher Reichert: Yeah, I agree. And you've said that writing a check is just not enough, even if that check gets written. So, tell us about your approach at Beta Boom?
Kimmy Paluch: Yeah. I think this comes back again to the founders that we're trying to serve. So, if you look at a lot of the founders that we invest in, they're first-time founders; a lot of them haven't worked at Google or Uber, again, they're mostly outside of Silicon Valley, so it's not that they have the same startup experience. And then the third thing, for sure, is they don't have the same networks—access to just operational experts. And so, I'm seeing a lot of existing venture funds come out, and also new funds, trying to target this new demographic, this rising majority founder. And they're just not well-equipped to do it because they're trying to place an old model, that hasn't been well-equipped to talk about this new risk profile. So, for me, when writing the check, that's great, you've solved one access problem, but then what about all the others? Have you actually set these founders up for success?
And so, for us, we work really, really hands-on with our teams. And I think more of the venture capital field needs to do this, is actually helping fill those gaps, helping to make sure that they're executing properly, that they're actually getting access to experts that can help them grow. And so that's what we do. We work with our teams with coaches and then also provide experts that can jump into anything from SEO to conversion rate optimization. And then afterwards, if they need that, we'll help place even advisors or team members that can continue to help them grow.
Christopher Reichert: I was thinking about when I said earlier that part of what you do is you find, fund, and nurture. So how was the find part happen for you?
Kimmy Paluch: Yeah, we're pretty broad. I think one of the good things that's happening in some funds is we've actually done open application process and that's what we do. And that allows us to cast a wide net. Again, that's another problem, is selection process for a lot of old VC models is that they're relying on a warm intro and the warm intro then is going to give you access to whoever you have in your networks. And those are typically people that look like you. And so if you don't have representation on your investment team, then you've already narrowed the top of your funnel. So we do an open application and I think our brand awareness is pretty strong now—we have about 32 states that are represented in our applicant pool, but a lot of it was groundwork.
In the beginning, we just started going to different ecosystems, talking to people, making the connections and saying, "hey, we're here and we want to invest in this rising majority founder". And that has allowed a lot of referrals to come our way as well. And so it takes work. If we talk about, even in hiring, it's the same thing. If you want to be hiring different kinds of founders, you go to the schools, you go to where they are and tell them “Hey, we are hiring.” And so that's what we do on our piece to reach more founders.
Christopher Reichert: Yeah. It was interesting to talk about the warm intro, that's in some ways the catch-22, right? I mean, I guess that could be perceived as the benefit of the pedigree stuff that we talked earlier is that it's possible that you could then rely on your network to make that warm intro. So, all of that education besides— getting a good education at Dartmouth or MIT or any other sort of places—is that you're building kind of a Rolodex and a network that you could tap in the future, depending on which path you take. Did you find that's the case for you both at Sloan and at your previous educational, and for that matter, your work experience? How much do you rely on that I suppose, for your network?
Kimmy Paluch: Oh yeah, I do. I have a very, very strong connection to my Dartmouth alumni. When I moved to San Francisco, that was my kind of my soft landing. I've just basically found all the people that were from Dartmouth then even on this adventure, I've benefited from having graduated from Sloan. Quite a lot of Sloanies also work in the venture capital industry and I can reach out to them and say, "hey, I'm starting this fund would love to connect". And then I can have them as potential deal referrals. So it does. And I do recognize then that even I have a selection bias in my own network. And so what do I do to compensate for that? And it's why we've been so intentional about broadening our network when we talk about trying to get access to founders.
Christopher Reichert: Yeah, absolutely. I sometimes take it for granted the network that I've built through Sloan, in particular. Like last night I happened to just call up someone who was a classmate of mine who happens to be the Chief Data Officer at the Consumer Financial Protection Bureau. There we were chatting. That's not common, right? So I think there are benefits to that. How did you choose Sloan when you were looking at graduate schools?
Kimmy Paluch: Yeah, great question. So honestly, I probably chose Sloan before even business school because I wanted to go there undergrad and didn't get in.
Christopher Reichert: So you slummed it at Dartmouth? Oh wow [laughter].
Kimmy Paluch: Oh yeah, my backup! But no, I've always loved this culture of MIT and how strong it is for innovation and just how much it can drive economies, especially the tech economy. But when I was applying, I remember what I wrote down, the things that I wanted to gain from this. And I wanted to get more analytical tools in my belt. That was a big thing for me because I had been doing a lot of design work, more on the innovation side, and what I really started doing more in my work was strategy. And I wanted to have more tools that would allow me to actually analyze things, do the decision trees that we learned in our first year and things like that.
And then marketing was the second thing and then always through all of that was tech and entrepreneurship. And so for me, it was a trifecta of having all of those things. A benefit I didn't expect it to have was actually on the impact side, because when I was in school, actually my last year, I had to finish my second year quickly because I had my first son. And so it was at that point, I wanted more meaning in my work. And so it was actually great to have had access to Legatum [Center for Development and Entrepreneurship] and all of the innovation that happens there around social entrepreneurship. And it opened my mind. I took one course on social entrepreneurship there, and I think it began to be that nexus of aligning what I want in life and what impacts I want to have with the work that I'm doing.
Christopher Reichert: That's great. If you had to have a do-over, a class you've missed or that you would want to do over, do you have any thoughts on that?
Kimmy Paluch: Yeah, I didn't get to take Luis Breva's I-Teams, I really would've wanted to do that and I've had the privilege to interact with him since, but I was very much about, and even today, I'm very much about collaborating and taking multiple disciplines and making a melting pot for great innovation. And I think that is the epitome course of doing those things. So that's the one that I really missed out on.
Christopher Reichert: I think one of the things that I admire, I guess I wonder, how you kind of find your way through it is, you're working with people who have an idea, maybe tested, maybe partly tested, maybe completely untested, and you're trying to work with them to envision the future with this integrated into our economy. How do you kind of sift through the vagaries of the future? How do you bring that into focus?
Kimmy Paluch: Any investor that says that they can see everything, they're lying because they all have the deal that they missed. And I think it's just a lot about trusting your gut, but also using data. I can't tell you how much I'm in spreadsheets. So thank you, MIT for that! And I think some of it is you have to trust. There's a little bit of trust, but you do the analysis. You need to look at where are the trends for that specific product? How big can that market get? So the fundamentals of evaluating a business opportunity have to be strong for you to have that analysis. And then the rest, like I said, it does come down to team. When we think about anything that's been accomplished, it's people. It's the people behind it that make it happen. And that's the piece I've really come to appreciate as I've built more into the investment space, is how powerful that piece is coupled with, again, just underlying, this is a strong business and we can see the potential. But I don't have a crystal ball. We can all get it wrong.
Christopher Reichert: And so how do you, as Beta Boom, manage the risk of your funders or your funding pool as you engage with a startup?
Kimmy Paluch: Yeah. Great question. It's multiple things. So, one is we chose specifically to be a generalist fund. We invest in all software and you see many that are only focused on one specific vertical, but that doesn't give me the diversification that I think is necessary to be very guaranteed of potential returns. And so that's one way. The other way is really how we work with the founders, because for us, we don't want to leave a lot to chance. And then, one of the biggest reasons actually, why startups fail—it's about 42% of the reason that startups fail—is because there's no market need, because they didn't find that product market fit. And so that's what we do when we're working with the founders is we're really, really focused on a lot of experimentation to find product market fit. And for me, that's our biggest de-risking strategy, because if we can put a strong foundation and kickstart that kind of culture of experimentation and hyper focus on getting to that point, then we've set that founder up for greater success.
Christopher Reichert: And so that's the six-month period. And so as you approached the six month period in your process, have you had to make some uncomfortable decisions of, sorry, this just isn't working? Or how does the relationship after the six-month period continue?
Kimmy Paluch: Yeah, it's a good question. It depends on the founder. Sometimes we may not even need six months and other times they might need a little longer. And so we have actually continued coaching them for an extended period. I consider ourselves a very long-term investor. So even six months is a blip when you think about the trajectory that a founder is going to have. We're typically unofficial advisors, we will go down and meet with them once per month, if needed, after the six months. And they'll turn to us for various questions. And I think that's very important that we're available to do that, but really I think it's about just being there for the founders.
Christopher Reichert: So, the convertible note method that you use—you fund and then it's something that will convert to equity at a subsequent round, or maybe you have invested the equity then, but the value is maybe realized later. How does that happen for companies, that you come in with, I'm going to make an orange filled Oreo, and now all of a sudden, they've pivoted to something different? So, the initial idea, is it just based on the underlying corporate structure that retains your equity in whatever it evolves into?
Kimmy Paluch: Yeah, that's typically how it happens. It usually stays under the same company name. We've actually had discussions with founders who are willing to carry over our investment and our equity hold into the new business, but most pivot in the same space and therefore stay under the same corporate structure. There's two kinds of camps that Paul Graham says, “just find a good team and invest in them and they'll figure it out.” And so let them go ahead and pivot, and others that are really looking for the actual market and saying, okay, no, this has to have it all. And I think it's somewhere in the middle.
Christopher Reichert: Right. Yeah, that makes sense. Tell us about your New Pattern initiative? You've started it in Salt Lake City and now you've moved to a couple other cities, right?
Kimmy Paluch: Yeah, that's right. So last year, obviously 2020 was a big awakening for us on multiple fronts, in the wake of the George Floyd murder and the rise of the social unrest again. We partnered with several groups in Utah to start a New Pattern. And it was really my recognition that we invest really early, but there's still a lot of problems even before we invest. And part of it was some of the things that we've talked about, Christopher, with the wage gap. And so there are hurdles that founders need to face before they can even get their companies off the ground. And so that is really what the grants were for. We decided to start a series of grants. And again, because capital is not enough, we wanted the grants to be coupled with pairing them with resources, but we would start grants for black female founders in Utah.
And so, we now have awarded four of those grants; they're up to $10,000 per grant. And the intention is to help founders that typically are the least served, but provide the greatest opportunity. They're the fastest growing black, female founded companies. They're the fastest growing asset in all of the demographics. And so we started here in Utah in 2020. So we made our first grants in the fall and then we've just launched it in Chicago as well, which is our second city that we are very active in. And so actually later today, we're going to have our first pitch competition. And both of these grants by the way, were done in collaboration with other persons working in different areas to serve the underserved.
Christopher Reichert: So, this is a grant compared to say, a microloan?
Kimmy Paluch: Yes, absolutely. And that was important for us. We wanted it to be non-diluted and to be very easy for the founders to take forward without any burden.
Christopher Reichert: And not a heavy lift at your end, or a huge lift at least?
Kimmy Paluch: Yes, exactly. And there's been so much resounding response to this. We've had donors step up without us even approaching them because I think everybody recognized that there's a moment that we're in and that we can't stand idly by. And I believe this is a right thing. We need non-diluted funding, so that founders don't stop before they even get started.
Christopher Reichert: And have you ever heard of D'Rita and Robbie Robinson? They're the founders of Pendulum Holdings. They're based out of Chicago, I'm pretty sure. And they helped the Obama family in their financial transactions as they were leaving the White House. It looks like they're kind of in this same momentum in this space funding companies led by founders of color.
Kimmy Paluch: Could you say that name again?
Christopher Reichert: It's a husband and wife. Robbie Robinson is the husband and D'Rita, D apostrophe R I T A is the wife and Pendulum Holdings. It's kind of secretive, but what I found interesting about it is that this space seems to be—that's that inflection that I talked about earlier—it's becoming much more in my opinion, or my perspective of one, much more discussed and talked about as something that not only "Oh, we should do it". It's like, "Oh, this is happening".
Kimmy Paluch: Yeah, absolutely. I think there's some words of caution in here though, because we've definitely seen people taking advantage of this from a PR perspective, but not following through. So I worry a lot about accountability in this space, like making sure that we're actually making an impact and measuring. For us, we're going to measure and see, do these grants even do anything? But beyond that, I've seen several brands step up and plaster themselves in newspapers, and then there's been no follow through. And so that's a worry, but I am encouraged that there's so much conversation now.
Christopher Reichert: Yeah. Snake oil salesmen will always be there, right, if there is money floating around?
So, you missed out on Luis Breva's class at Sloan, but did you have a favorite professor or class?
Kimmy Paluch: A few, yes. Leigh Hafrey, and I had the pleasure of TA-ing his course as well, but for communications. And it's funny because communications in our first year, everybody says that, "Oh, this is the one that won't matter". And it tends to be the one that matters a lot or the most, but I really enjoyed that conversation because it did, that class, it allowed us to really push on our ability to express ourselves, which is very important and to be succinct and create proper presentations.
And then Bill Aulet for sure, was just fantastic in entrepreneurship. I think I took at least two of his courses and also a SIP course. He's very much a leader when it comes to disciplined entrepreneurship, which I think is something that we definitely turn to in our own work.
Christopher Reichert: Yeah, he's definitely a name that comes up perennially when people talk about their experience, particularly entrepreneurial experience, at Sloan.
Kimmy Paluch: I did also regret not getting to take Fiona Murray's classes and it was actually because I was pregnant and about to give birth and so I couldn't take her course, but Fiona Murray's also just incredible.
Christopher Reichert: Yeah, absolutely. What's your biggest takeaway from Sloan, if you think back on your time there?
Kimmy Paluch: Gosh, I think people say it a lot, but MIT people are the best. I've recommended so many people as they're looking for MBA programs to seriously consider MIT because of the people, because I think we tend to not have heirs about ourselves, even though they're phenomenal, phenomenal people. You can be sitting beside someone who like has a JD and a PhD and are now there and you wouldn't know it. And they're just incredibly smart, but incredibly humble. And I'm not saying that for myself, because then that will cancel the humility. But absolutely I think the people have been just incredible and that network has been powerful going forward, but certainly because people are so open.
Christopher Reichert: That's great. I noticed you're a member of a few boards: Womenpreneurs, Unbank Ventures, and venturecapital.org. How do you use those connections with those networks or those platforms to promote the vision of your company? And particularly investing in diverse teams?
Kimmy Paluch: Yeah. I think it's twofold. Some of those organizations are trying to be better. And so I'm trying to help them be better in some ways. And then others, I think are just very important for the ecosystem. Womenpreneurs for instance, is an organization that's been here in Utah for five years, serving female founders, primarily, and leadership, female leadership. And so it was an easy decision to join them because it was just so aligned with what I was also trying to do. And so it's a furthering of the work, I guess. It's an ability to give me another platform to also have more effects beyond just investing.
Christopher Reichert: So, seeing as we're on an MIT podcast, what's the last thing you really geeked out about?
Kimmy Paluch: Ooh, I'm going to meet me in a minute for this one.
Christopher Reichert: Take your time!
Kimmy Paluch: I mean, it's a boring answer, but I'll give it. So we're in diligence with several groups now for our current fundraise. There were questions about our financial model. I built about three different models that have all the variables and you can swap it, and I shared it with someone else in the industry and said, "could you just take a look at this?" And then he basically said, "ours was much simpler than this, but they might appreciate the MIT approach!" That's certainly one.
Christopher Reichert: That’s great! What's your definition of success?
Kimmy Paluch: I think it will be defined by the legacy that I leave. I think I may not even experience it in my lifetime, but my hope is that I can have a huge impact in how people look at opening access for financial inclusion and social progress.
Christopher Reichert: Well, that's great. Thanks very much for joining us today on Sloanies Talking with Sloanies. My guest today has been Kimmy Paluch, the managing partner at Beta Boom. Thanks very much.
Kimmy Paluch: Thanks for having me, Christopher.
Christopher Reichert: And if you want to know more about what Beta boom is doing go visit their website at betaboom.com.
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