Daryn Dodson is the Managing Director at Illumen Capital, a private investment firm focused on reducing implicit bias. What makes Illumen Capital’s approach unique is that their work applies research through their partnership with Stanford University, with the intention of creating systemic change to remove barriers that prevent funds from investing in entrepreneurs of color or women founders. Illumen capital seeks to engage with venture capital and private equity fund managers to reduce bias, unlocking latent returns and impact. We sat down with Daryn to learn more about his work, and how his firm is changing the way investment is done to create a more equitable, prosperous world. Read on:
Can you tell me a little bit about your background, and how journey has led you to your work today, using impact investing for social and economic justice?
As an undergraduate, I studied public policy and then went to work with the Center for Responsible Lending and a team of lawyers to pass anti-predatory lending legislation to protect low-income homeowners. I also had the opportunity to collaborate with a number of civil rights leaders throughout the country, and learned about the ways in which they committed their lives to justice. Witnessing their commitment to equity and inclusion in society is what inspired the work that I currently do around reducing implicit bias in the impact investing space.
According to Illumen Capital’s website, you take impact fund managers through a rigorous process to reduce their implicit bias- first, can you name some of these implicit biases, and secondly, how exactly does this process work, and how/why is it effective?
Through our partnership with Stanford University, Illumen Capital works with the leading research teams in the world to test and apply strategies to reduce bias. A part of what differentiates us from others in the market is that we focus on research-based approaches particularly in the world of finance.
One of the big challenges we see in the industry is that only 1.3 percent of the 69 trillion dollars in assets under management is managed by women and people of color owned firms. At Illumen Capital, we invest into the leading private equity funds, growth funds, and venture funds within impact investing, and work with them to reduce implicit bias in decision-making processes.
For example, these processes include hiring and retaining talent, selecting board members for companies that they own and control, and evaluating and making investment decisions.
What we have found through our research: on average, asset allocators are less able to see performance of women and people of color run firms when it’s equal or better to that of their white peers. So specifically, once we make an investment we evaluate that fund manager and develop a baseline understanding of their racial and gender implicit biases. We then provide coaching and bias reduction tools – based on our own insights and emerging behavioral science from Stanford – over a 10-year period, so that we can help them unlock social and financial returns by reducing barriers that could lead to bad investment decisions and incorrect selections. Essentially, we work to help these managers strengthen their bias IQs.
Can you share some case studies from your own work that demonstrate the power of using investment capital for social justice and why this can be a win-win situation for everyone?
We focus on financial inclusion, education technology, environment, and health & wellness, and in each of these different verticals, there are people that are facing bias. Whether they are facing bias from their doctor in receiving treatment, or talking about teachers creating disparities within their classroom, or whether it’s a banker evaluating an applicant for a loan, the second each of these people begin to evaluate people of different genders or races, there’s a powerful bias that seeps into the decision-making process, contributing to the perpetuation of systemic barriers.
We help companies create a roadmap to reducing implicit bias within their field.
There is a well-regarded study from earlier this decade conducted by McKinsey & Company of over 1,000 investments that revealed when investors work to reduce bias within their decision-making process, they achieved returns up to 7% higher than investors who didn’t. For us, reducing bias within the financial markets is the right thing to do from an impact and business perspective.
Illumen Capital has co-founded “Impact Experiences”. Can you share a little more about what happens during an “Impact Experience”, and what outcomes have resulted from it?
We’ve partnered with Stanford University on applied research around implicit bias reduction in companies, a process that takes about 10 years. One piece of that work is the impact experiences.
The primary way of thinking about impact experiences is that they help solve for what is currently missing- those who run funds are often very distant from the communities they seek to transform and change through investing. So we create opportunities to have our fund managers work directly with communities across race, class, and political lines in order to build real connection.
The objective of impact experiences is to co-create solutions to overcome challenges within communities that have historically been marginalized. Some of those communities that we have worked with include rural West Virginia, post-hurricane Maria Puerto Rico, and post-Katrina New Orleans. The goal is to build bridges across race, class and political affiliation, so that people can work together to overcome challenges.
An example is the work we did in rural West Virginia: we brought impact investors there and created an impact experience with the community that resulted in the creation of a health and wellness center that now serves 26,000 people.
Aside from your work at Illumen Capital, you also serve on the board for Ben and Jerry’s. What are some things that you have been able to help companies do by serving on their board?
Ben & Jerry’s stands as a beacon for many companies looking to have social impact because of its three part mission across economic, social, and product missions. Some of these values translate well that across different companies as impact investing is trying to solidify its metrics. Part of my role as the chair of the impact metrics committee on the board is to oversee the collection of metrics in the 35 countries that we do business in. The metrics help us evaluate our overall footprint as a company.
When investing from a racial justice lens, what are things to keep in mind?
This is a space that requires all of us to think carefully about the decisions that we make: from purchasing decisions to investment decisions, or simply how we choose to show up in the communities that we care a lot about.
We need more people in the sector to help to grow it to its full potential. There’s also a need for broader understanding of personal backgrounds and experiences, along with implicit bias training so that this the sector can invest in ways that is truly inclusive. Without thinking about the biases we hold, we will continue to reinforce them in our investment decisions. That being said, here’s what all investors need to keep in mind:
First, it is a commitment to a lifelong journey of equity work- this isn’t something that can be solved overnight. It’s a way of thinking about the world that honors the humanity and dignity of other people and helps us to be better investors.
Second, one of the biggest opportunities that we have is to bring our investors on a journey of looking at biases across their entire portfolios, and collectively in our investment communities.
What inspires you about being a part of the SVC Community?
Wayne Silby, the founder of SVN and Investors’ Circle, has been on our investment committee, and has been a wonderful leader and person to learn from in my life personally. It’s been about eight years since I’ve been a part of the community, and SVC continues to provide an incredible space for leaders across the social impact world to come together and build the strategies for responsible businesses of the future. It’s simply an incredible group of people.