Breaking The VC Mold: Radical Inclusion And Big Moves With Ben Stokes
Venture Capital is getting a serious glow-up — and Ben Stokes is at the center of it. As the founding partner of Chasing Rainbows, Ben’s flipping the old-school investment playbook, betting big on underrepresented founders and showing the world that inclusivity is smart business. In this episode, we sit down with the ultimate VC rebel to talk about smashing glass ceilings, building real relationships with founders, and why the future of venture capital looks a whole lot more colorful. Ben shares how he went from White House roundtables to Fast Company's Top Impact Funds of 2024, all while challenging the tired patterns that have kept too many brilliant ideas locked out. Get ready for a raw, inspiring convo about rethinking risk, funding LGBTQ+ entrepreneurs, and turning the VC world on its head — one check at a time. If you’re ready for a fresh take on what investing should look like, you’re gonna love this one.
Contact Ben:
Listen to the Podcast here
Breaking The VC Mold: Radical Inclusion And Big Moves With Ben Stokes
The VC Rebel Disrupting Investment And Backing Underrepresented Founders
Meet Ben Stokes, the VC rebel who's flipping the entire investment game on its head. As the founding partner of Chasing Rainbows, he's not just writing checks, he's rewriting the entire rules of who gets funded in the game. He's making waves. Whitehouse round tables, South by Southwest main stage experiences, and enough 40 under 40 titles to fill a trophy room. Fast Company even named his fund one of their top impact funds of 2024.
Here's what makes Ben different. While most VCs are obsessed with pattern matching, the same old founders pattern matching, by the way, means you're missing a lot. Great founders are often overlooked and underestimated. Ben's proving that backing these underrepresented founders isn't just right, it's smart business. This is probably not that unleashed with Ben Stokes, where venture capital meets radical inclusion and every check written is another crack at that glass ceiling.
I like that.
We have limited time. You're doing amazing stuff, and I don't think you're well-known enough. We've got to expose you even with clothes on.
I'm laughing because the word exposed triggered something. I got this message about a Facebook thing where a urologist was like doing no good stuff anyway. It was a urologist. The Facebook ad was you were exposed to this doctor? I'm like, “Didn't you expose yourself to the doctor because he's a urologist?”
This podcast is called Pride No Matter Unleashed. We certainly are. Here's an observation.
I need to be a professional.
Here's the thing that makes this very interesting, because that's where I was going to go with this next question observation. That is, I would think if you want to raise thousands, millions of dollars of effort for your business and you're going to a VC company, I would think that you're going to feel intimidated and all the stuff. I wouldn't say the least intimidating person in the world, but you're certainly the most fun of anybody that I could see that you would be going to money for. What do you say to that whole level of interaction with how you deal with investors?
Building Authentic Relationships: Approach To Investing
Our fund is based on people being their most authentic selves. If I'm not my most authentic self, how can I expect anyone else to be that? The truth is that, founders, I love to say, and I believe this wholeheartedly, I'm always the dumbest person in the room. There's no dumb questions when it comes to like talking to me or asking me a question, because like I said, “I'm the dumbest one in the room.”
I value being able to build authentic relationships with the founders that I invest in. I had the privilege of having dinner with one of my founders on, I think, Saturday night. They converted. I like that they're now officially priced. I'm proud of them. Sitting at dinner, they were just like, “You're the person that I trust with all these sorts of stuff.” There's this new investor that we just came on and he lives.
I don't want them to be on our board. I want you to be on our board, because you're more direct and you speak the way that I think and feel, and I don't have to think about anything with you, I trust you. I don't have that same level of respect for the VC who led my round with millions of dollars. What a privilege that is. I'll give you another example where we have some founders who I have the smallest amount in their round, like literally.
I got 30K, and that's all I had of time to their pre-seed round. They oversubscribed by 2.1 million. My ownership level is like f*** all. The thing that I love about them is the fact that they came back to me for the month before they went out to raise their newest round where they've currently got $5 million already circled is they spent four weeks with me to get a pitch right before they went out to those next investors. As I said, I'm the smallest investor on their cap table. What a privilege that is to be able to have relationships with founders who trust you as much as they trust me. The only reason I say that is because they can be their whole, full, authentic self without any fear of judgment.
You raised an interesting point. This is probably news to a lot of folks who are reading. What I heard you say is that, as being the smallest investor in his raise, it's not just one venture capital company that's funding these companies. There are quite a few that they're going to.
There's always a number. There are a number of ways of looking at investments. You can either do it as a GP as well. You can write bigger checks into smaller companies, fill rounds sooner, or you can do smaller size checks in early-stage companies, which is my approach. I write a 50K check upfront. I'll follow on with a larger investment once that company has a bit more security and has gone to that next round, usually. That helps ensure that we are picking more winners and the winners are getting more capital to keep going.
That makes sense. Now, what influence do you have in those companies with having that small investment?
Like I said, I'm the smallest check in a lot of these companies, and yet they call me and speak to me and spend time with me. Influence is an interesting word. I don't want the founders to feel like I'm pressuring them to do anything. I ask questions a lot of the time. I asked them because I want to know how they're thinking, or I want to help guide them in terms of things they need to think about.
I'm not there to make their decisions. That's up to the founder to make their own decisions. That's a really important distinction because I think that some VCs. I had this conversation with one of my founders where I suggested that they do a formal announcement about a raise that they've done. They said no, because their customers were not so keen on it. I was like, “Look, you've got your goals, which are raising capital.
If you don't announce this, then that means that other people who could potentially invest in your company don't know about you.” Things like that. I ran a PR release, and so I pushed back a little bit on them, and so I suggested, “An alternative way if it's a particular type of founder. It's that type of customer, is there a way for you to put an umbrella company over top?” There are ways you can creatively structure it. They pushed back on me and said, “Look, trust me. This is not about that issue. It's something else. I was like, “Let's workshop this because I think that we need to really be conscious about having it for our goals as well.” As a leader, you also have to have that.
Differentiation is the only thing in this game that makes you successful.
I don't think anyone has all the answers. I think if we're in a position where we play that game, we have blinders on.
Around influence, my belief is that we, as investor, their success is my success. That's at the end of the day. I would do everything in my power to help them be successful. I'm not going to make them do what I ask them to do because that's not how I play. There are smart people who are much smarter than I am and better at their jobs than I am. I want them to ensure that they have the leadership and backing that they need in order to expand that. I also want to work with them. I ask every single founder to consider us. That includes my team as an extension of that.
Now, with doing that, you've been on a lot of horses over the years. When we talked before this episode, there were two main ways that you needed to be operating. Number one is you have to invest. Number two, you've got to raise the money to be able to invest from accredited investors. What did they get when they invest with you? What typical yields are they seeing when they become part of your fund?
Venture Capital Explained: Funding Works And Returns
This is different than a public investment. Understanding how venture works, I think there's a little bit of that. The way that a venture capital fund works is essentially somebody will commit capital to the fund. I have an investment period, which is where I can invest that capital into however, as a general partner sees fit, and obviously, I'm not making all these decisions by myself. I have a team that helped me.
At that point, then, so I've got up to ten years essentially to return that capital. Not only do I return that capital, but I need to return multiples on that capital. Usually, you start seeing. If pre-seed investments usually see those starting to return, between 5 to 7 years, essentially is when they start getting some return happening. We're fortunate, I will say, we're having our first exit already, which is great.
It's something I'm really proud of. I'm not sure exactly how much that will return to the fund, but what I can tell you is that in the period of time that we've been investing, we've been investing out of this fund for just under eighteen months now, since I did that first close. Far to date, we've had about seven conversions, which means that those went from a safe round, which means that that's a promise of future equity, to an actual price equity piece in each of the companies in those seven, with more to come.
I look at all of that to say that when people do price, they often price at a higher valuation as well. That means that we've had upticks, and we can start seeing our unrealized values, because it's not realized until it comes back in. Essentially, we have more than returned the fund already with our unrealized value. That to me is a good indication that we're picking great companies early on, and then we will definitely hit our stride to be able to return capital to those investors well within that period of ten years that we have. The way that works in terms of how to do this is that I have to return 100% of the committed capital to somebody before we are able to split the profits. Essentially, the way that works is 80% goes to the investors, and 20% goes to us as the fund.
You better be successful or you're screwed.
Yeah, exactly. That just means that we have to be particular diligent about how we choose the companies to invest in. I've been doing this for a little while now. Not to say that I'm amazing or excellent, but I genuinely feel like I've learned a lot over the period of time that I have been investing, and my diligence process has gotten tighter. I will say that there are a lot more checks and balances that I do now compared to what I did when I was younger, not necessarily understanding. I'm a concerted learner, let me say that. I learned through my experiences. I've learned a lot. I'm excited about what the companies that we invest in the fund have been doing.
Typically, when you're looking for a company to invest in, what are the characteristics that you're looking for?
Evaluating Founders: Key Criteria For Investment
The first way I am meeting or get to know a founder is I have a 30-minute conversation with them, just like you and I are having. Over that period of time, in 30 minutes, I need him to go over the five T's. Team, timing, TAM or Total Addressable Market, technology, and traction. The big one for me that really drives me a lot is like, “Why do you believe you and the rest of the team are uniquely positioned to not only understand but solve the problem you're going after?”
It's not just about academic backgrounds. I want to understand the experience that why somebody want to solve this problem. More importantly, why are they the right person to split as well, and how they've stacked a team around them. If they're a solo founder, that can sometimes be hard.
If they have a team and you can start seeing strengths within the team, where, I will be honest, I'm not good at a lot of things. However, I have a team who are great at those things that I'm not so great at. Together, that puts us as a team in a really strong position to perform. I say the same thing around each of the founders that all the companies we invest in. I like to see them have a team because nobody is great at everything.
Are you finding the deals are coming to you, or are you having to go out?
I am so fortunate that we're the only fund in the US that only invests in LGBTQ plus founders as that thesis. Our only thesis requirement is that one of the founding team members identifies as part of the community. We're the only fund in the US only invests in LGBTQ plus. From that angle, when you search for LGBTQ investors, we're the first one that pops up. That helps. What I have also done is that we've got an open calendar link so anybody who is our founder can schedule 30 minutes of my time.
As I mentioned in that first conversation that we had. That to me means that I've not had to try and find founders, they all come to me. It's a privileged position to be in when you are there. The other thing I will say, the network across the VC network all know that chasing, “You're an LGBTQ plus founder, go see them. Go see chasing members.” They do it for me. I don't have to do anything in terms of filing for deals.
I think that's a privilege to be in a position like that, because I'm not filing for deals. I will say that founders want to see us be successful as well because they themselves identify as part of the community. I've had founders who are in later-stage deals come to me and say, “I want you on my cap table. We'll make this work for you because we believe in what you're doing.” That's a really rare thing in VC.
It's going both ways.
As I said, it's a privilege.
I like what you're doing. There are other investors out there, certainly, and some of them are waving the rainbow flag, but I don't know anybody who is specifically we're staying within those parameters.
The reason why I've leaned in on that is that my professor at Berkeley was the guy who helped me to decide that. Adam Sterling is his name. I love that man wholeheartedly. He is just an amazing human. When I was there studying, I did the venture capital class at Berkeley. He said to me, “Don't just be another underrepresented fund manager investing in underrepresented founders. If you're going to be that, I'm going to go invest in Charles Hudson.” Charles Hudson's after fund five. He's very experienced at this.
Instead, he said, “I don't know anyone who's got the connections you have to the LGBT plus community. Again, I've been very fortunate where we've been able to have inroads, and me being an LGBT plus fan myself has helped build that community as well. What I would say is that he was like, “No one has what you've got. There's something special there. You should lean in because differentiation is the only thing in this game that makes you successful.” Like I said, I have a lot to say thank you to Adam Sterling for because he literally has changed my life.
I agree with that. I think we all need it. If we're just another also-ran or another part of the whole vanilla conversation, that one makes us different. I think it's important.
The other thing as well, though, is that for us, by us is a big statement. I think I will say that the element of people feeling comfortable and being themselves and things like that is also something that I want founders to feel as well. I understand where the founders are coming from because I've been there myself. I know what that's like. Having someone who's been in that corner on your team is really important as well.
Ben, at what point does a founder come to you? What I mean is, “I've got a company, I'm bootstrapping myself, I'm using all my credit cards and using the equity of my home if I have a home. I talked to mom and dad and my friends.” Now, you we've exhausted all that. Maybe I can try and get a bank loan, but typically, when you need the money, you cannot get it. At what point was the time that we talked to Ben?
When To Approach Venture Capital: Strategic Advice For Founders
I appreciate that you mentioned all those things you've tried first, because I think that's a really important distinction. I want to see some evidence of either revenue or customers. That's what I meant by traction. I need to see something. Let's talk about what that is and what that looks like. If you don't have that, then that makes it a lot harder for me to make it to see and to invest. Again, I have my own fiduciary responsibilities to my investors.
The way that I would suggest this is that first things first are friends and family, and grants. That's where I would start. If you have an opportunity to get debt financing from banks, do that. Again, both of those options are nondilutive. As soon as you go to VCs, you start diluting your ownership of the company. When that happens, that can change the game and change the game significantly. That's something I want everyone to be aware of.
Venture Capital should be the last place you go to try and get capital for your business,
Venture capital should be the last place that you go to try and get capital for your business. Just playing that out. However, venture capital is also really important because we can accelerate your growth and growth and go to market. I like to break it down. I'm a pretty simple guy. I like to talk simply. If I break it down, I like to think at a pre-seed round,I need to seed round, I need to see about a hundred grand a month in revenue.
At an A round, I want to see about I'm earning dollars a month in revenue. I see that you are already there, which makes it a lot easier, or if you're not there, I need to be able to see that you get there within three months of me getting that income, giving you my investment. The reason why I say that's important is because what I want and how I work with founders is like thinking about the next round of capital.
I will work with each of the founders in my portfolio to help them understand what the next round of capital investors need to see in order for them to get money from them. What we do is we build a strategy on how they get there, and then we build KPIs into that strategy. The idea is that essentially when those founders go out for that next round of capital, not only have they met those minimum requirements that those investors need to see, but they also go in there.
They've also got the proof points of how they got there, but they go in with an idea around, “Your investment gets me to the next stage.” I have a conversation around how that capital is going to be used to do that. More importantly, it's then the investors have to try and prove to that founder that they will be the ones to unlock the doors, those connections, give that mentorship, give that guidance that we've done in our early stages. It's like it changes the game and changes the way that those founders approach capital versus going in there to try and keep the lights on. That's never, ever a good sign.
That's scarcity. I wouldn't want back to somebody that's in a struggle. Again, if it's great, it depends on the case. The question I'm thinking, though, is as an owner, as a founder, let's say I'm hitting 10K a month, we've reached that benchmark, which I think is a good number. To start off with, what percentage of my company, and I'm using me as the example?
Essentially, the best thing for you to do is to already come to me with a safe that already exists. If you've had other people sign that safe note, that really gives me an evaluation of your company. I'm not here to rip people off and things like that either, because I think I've seen that in this game. There are a lot of sharks out in the venture gain as well.
I believe in fair valuation. I usually am signing pre-seed safe notes somewhere between three and eight million dollars in terms of valuation cap. At a seed stage, I'm usually seeing around 7 to 15, and in an A stage, I'm usually 15 to 25. I'm pretty strict on sticking within those limits. That's because of two things. One, it's fair for the founders, and two, I think that over in 2021, that period of time. Companies were overvalued.
Significantly overvalued. I like to stick in the game of where things were previously. My work values were raising in what, 2000? 2015 or 2017, that period of time, because I think that we saw this big cliff where jump and spike in these valuations. Now, when founders are trying to raise again, they're even doing down rounds, which is more of an adjustment back to where my original statement was, or sits. I feel like being fair and understanding what requirements are based on the stage and things like that. I'm not about hype. If you follow the hype, then you end up losing out on making more investment decisions as well.
I'm thinking maybe even more basic, and maybe I'm asking more basic questions. I'm making $10,000 a month. If I were to sell my business, $10,000 a month on an annualized basis, $120,000 a year, assuming that's net, not just gross revenue. If I'm doing a 3X multiple, then we're talking like 3.6 million of value for the properties and real estate guy being for the business. In this case, what percentage of the business do I have to give up?
You decide on a certain amount. Say, for example, if you're raising $550,000 in your pre-seed round, usually your public valuation is around somewhere between 4 1/2 and 5 1/2 million dollars, essentially. You're looking at around 10%, but then again, if you're signing on a safe note, that's different than if you are converting into a price round, because once it's a converted safe, that's when they're usually there's a lead investor that lead investor will set the terms. It's almost like you're putting it at that point in terms of like how much.
On a safe note like that, again, it's a promise of future equity. If you're not leading that or converting it into a price, you're investing in something that may or may not exist. I'm going back to that point, and maybe I'm not explaining it very well, but essentially, I'm happy to sign safe notes on $3 $8 million for an evaluation cap. In that case, you might be raising the evaluation cap. In that case, you might be raising $300K to 800K, sometimes 750K to 1.5 million.
Understanding Safe Notes And Equity: Demystifying Venture Capital Terms
Let me stop you for a second, because the terminology and nothing everyone else does. I think a big chunk of our audience, not to insult our intelligence of audience, I will tell you that I'm ignorant of some of this too. We have people who are watching Shark Tech.
I don't make my decisions the same way. I say that because I'm not demanding a certain percentage. I like to get a percentage of the company in terms of ownership. Again, that is variable because I might say, for example, if at 50k in the pre-seed round, I will have roughly if you're giving away 10% and you're raising 500k, and you're giving up your value ratio is 5 million, then that puts me at 1% ownership if you want to think about that. That gets diluted back down when more investors come in at later stages. I'm not judging the question. There are a lot of variables after. Also, I may decide to invest more in that next round, which means that I can have greater ownership in that company as well. That's another thing to think of.
This was going to be so straightforward.
Where there's high risk, there's high reward.
If we like it, if we’re cruel, like an investigative interview. I should be a politician, let's be honest.
I'm not trying to be a dick about this. I'm a real estate investor by nature. It's like, “Putting this and you get 10% of this.”
If I help you break this down the way that I think, and how I have to think about these things. It's very different in terms of the way that I have to invest versus the way that you invest because, again, asset classes are very different in the return and profiles.
You're talking about safeness and this.
Essentially, a safe note is this instrument that is where essentially, we have an agreement on evaluation. It's like a contract, essentially, but it's a contract for a promise of future equity. I'm investing in the hope and promise of a future equity round being achieved.
That sounds very risky.
It is. It's a high-risk investment. This is where, I'll be honest, it is a very high-risk, illiquid asset investment. That is one thing I will say. However, where there's high risk, there's high reward. I would not tell you to put all of your savings and things like that into a venture fund as an investor. I would tell you to diversify your risk. That's the right thing to do. Have I listened to my own words? Probably not as much as I should have, but I will tell you that there needs to be a diversified risk strategy. If the market drops, for example, when the real estate market dropped in your case, you lost a lot of money and potential equity in a lot of these properties.
This was darker.
At least you've got some. Mine's going. I would say, so if I think about this again and going back to that diversified risk strategy, I would put a portion of my portfolio in high risk. I would put a portion of my portfolio in blue chips. Blue chip, low risk, steady growth. You know what you're getting with those things. Mostly public market, long-term bonds, all of that stuff.
You know what you're getting. That's easy. On a high-risk thing, you have to be okay with essentially losing that money. This is the difference between investing as an angel investor and investing in a fund. If you're investing in it as an angel investor, you yourself are doing all the diligence on a company, and you then invest in one company. If that one company fails, then you've lost your entire investment.
Whereas if you're investing in a fund, like Chasing Rainbows, for example, not only are you diversifying your risk and cost the entire portfolio, but that means that if company A fails, but company B and C do okay. Company D shoots it out apart. You get a portion of your ownership as a portion of each of those. You will have a higher return potential for return based on that risk diversification. Similarly, the same thing across your entire portfolio. Make sure that you diversify.
I think that's abundantly safe. I wouldn't want to do it any other way because if you make one mistake, if your portfolio has got ten companies in it and one company fails, you're down theoretically 10%. If everything were equal. I'd much rather play that game than have 100% of a failure. Just no.
That's the truth. I'm not saying I'm amazing and make all the right decisions because I don't, but it does help that I do this as a full-time job. I'm in the game. I know a lot of people in the game. I ask a lot of people questions. From a diligence standpoint, I have a full team of people that it's not just me investing, it's a group of people who I ask for advice from. Before I invest in a founder, I spend a lot of time with them. I get to know who they are. On top of that, we also get investors in the fund as well as others who have specific industry expertise or knowledge to diligence the founders with us so that I can get their opinion on whether or not this would be a good investment as well.
Closing Wisdom: The Future Of Inclusive Venture Capital
It makes a ton of sense. Now we're running out of time, and we can go on for a lot, because I love spending time with you. We're going to put links to you and to your site and everything on the show notes here. Do you have something for those who are visual, who want to read about what you do?
I've got an investor deck that I'm more than happy to have here. Check through the funds, the goals, and also has information about the sixteen companies that we've backed as an investment portfolio as well.
You're doing something really important, and quite frankly, given the choice of where I want to put my money, I'd much rather put my money in companies that back me from a socioeconomic standpoint and support me and so on than companies that are rainbow washing or whatever. Especially now.
I would say this about our community. In the next four years, we've not even been through four weeks yet. I look at this and think, “What are the next four years going to be like?” The only way that we as a community can ensure our survival is by backing each other within the community. Anyway that we can get.
That's why we're doing what we're doing as well. Ben Stokes, I adore you. Thanks for being with us. I wish we had more time, but unfortunately, I am back-to-back as well. We would love to have you back. I know you'll be with us for the summit coming up ahead. We'll be more details on that, but behind the scenes, you guys, he's freaking awesome.
Check out the show notes, click the link, get more information about what he's doing, both if you are looking to raise money for your own business, he's got money, he's got lots of money. You can tell somebody you'd want to work with, he'd be fun to work with. Number two, if you're looking to diversify your investments and play the long game, I would not hesitate at all, just from what I know of this gentleman. Mr. Stokes, a pleasure and an honor.
Thank you so much for having me. I appreciate it. I would just say one caveat that we need to have anyone who's interested in investing in the fund as to commit to this particular fund if they want to get into it by March 5th.
By the way, we didn't tell you what year it is, so they may be different funds. See where it goes.
We need all capital committed to fund this particular fund with the companies in the deck by March 5th, 2025.
This is not the end of investing with them.
Not. We will be doing it in another fund as well.
That's what I want to make sure. Don't think just because we're talking about 2025. This will live on for years, my friends.
This is my legacy. It will live on forever.
I love you. Thanks so much, my friend.
Bye.
Important Links
About Ben Stokes
Ben Stokes is the Founding Partner of Chasing Rainbows, an early-stage investment fund which invests in LGBTQ+ founded companies ensures greater access to capital for underrepresented founders. He is an emerging fund manager with both startup and corporate experience, Ben has been a driving force in creating opportunities for LGBTQ+ founders to receive early funding.
In 2023, Ben was named 40 under 40 Rising Stars of Venture by the Venture Capital Journal, and named 40 under 40 LGBTQ+ Pride Leaders by Business Equality Magazine. In 2022, he was named in the Top 100 Investors by Alumni Spotlight and was recognized by the NVCA, as one of the Top LGBTQ+ Investors Making an Impact. In addition to this, in 2021, Ben spoke at the UN General Assembly on Living with Purpose, has been a guest speaker for the Nasdaq Entrepreneurial Centre, British Government and gave the Graduation Address for his Alma Alter after being awarded Young Alumni of the Year 2021 for the University of Tasmania.
On top of this, Ben sits on a number of NFP boards, including co-chairing StartOut’s Investor Board. Prior to founding Chasing Rainbows, Ben previously founded SocialTable, a social platform used on every continent. Using his own experience as an LGBTQ+ founder of color, he has been an active angel investor in companies led by underrepresented founders and has fostered a number through to their exit or next investment phase, which laid the foundation for Chasing Rainbows’ thesis.
Ben mentors through a number of organizations, including Australian Landing Pad in San Francisco, Techstars in Washington DC, Out in Tech in New York, River City Labs in Brisbane, Sunramp at the Sunshine Coast University (to name a few), assisting founders to navigate the road to entrepreneurial success - with a particular interest in those who want to take their start-ups and scale-ups global. Ben is a Material Change Institute Fellow, and has his Executive MBA. He also attended UC Berkeley’s Venture Capital Program, and was selected to be part of both the StartOut Growth Lab, a start-up incubator located in San Francisco, and RBL1, based in Austin. Prior to becoming an entrepreneur he worked at Oracle and Salesforce.
Ben grew up on a farm on the North-West Coast of Tasmania after being adopted from an orphanage in Sri Lanka by a loving Tasmanian family. His mission is to help create a world that's built on radical inclusivity where diversity of knowledge and experience is celebrated, a cornerstone for the vision of his fund Chasing Rainbows
