Is it ethical for a VC fund manager to charge for founder consulting?

Can an active VC fund manager also offer a consultancy service that improves an entrepreneur’s ability to gain VC funds?

That’s the ethics question that blew up VC Twitter last weekend and made for an uncomfortable few days for Lolita Taub, the investor and executive who’s been a leader at her own Community Fund, Backstage Capital and Baltimore’s Catalyte, among many others.

It started in an offhand mention in a Twitter Space about Latinx founders and their struggle to get VC hosted by Sean Salas, CEO of Camino Financial, which had 1.6K people tune in. First-time founder Edward Gonzales of the startup Paypadz mentioned how hard it was to break into the what he felt was the secretive network of VC. He’s listing examples of sending cold emails and DMs on LinkedIn when he says:

“Even with Lolita Taub, I reached out to her and she shared her Google Sheets where I know there, you can pay a fee to talk with her,” Gonzales said in the Twitter Space. “But at least that’s access. That’s something that is so hard, because … when [VCs] look at my last name, Gonzales, I don’t even get a call back.”

From there, Del Johnson — the investor, former principal at Backstage Capital and former scout and fund manager of now defunct indie.vc — caught the Taub detail and started the eventual Twitter firestorm coming at the funder.

Did this guy say Lolita charges founders to talk to her? Lol sounds wack as hell to me and counter to my personal conception of ethical dealing in VC.

— Del Johnson (@DelJohnsonVC) February 4, 2022

Johnson is opposed to how important personal networks are in VC and is vocal about their negative effects on founders of color. (Check out season two of Technical.ly’s Off the Sidelines podcast for a deep dive on this topic.) He’s all about revolutionizing the VC world for greater equity. He’s also blocked by a huge swath of VCs — two-thirds of “VC bro” Twitter, if you ask him — and by the end, he would be blocked by Taub.

What Taub does is this:

re: consults, I talk to founders/funders/operators & call/o that it's a consult NOT a VC pitch. Topics include: ops/fundraising/career strategy, etc.

re: deck reviews, I share slide-by-slide feedback.

re: pitching me as a VC, I ask all to submit to the matching tool/my typeform https://t.co/vrWSqnNeus

— Lolita Taub (@lolitataub) February 5, 2022

She offers these one-on-one consulting services or, previous to this week, pitch deck review for $400. It’s not something only she does. There’s a whole industry around consulting and teaching about how to make it in the VC world.

Taub supplements her income by consulting because the life of a small fund manager focusing on underrepresented communities is one of financial instability, as she described in a conversation with Technical.ly this week.

Baltimore’s McKeever Conwell II described a version of this himself when recounting the rise of his RareBreed Ventures: Before the deals came through for the fund, he was broke and living off the last of his savings. He was two months away from giving up and getting a steadier job. And then we wouldn’t have the $10 million fund changing the complexion of venture capital.

“We’re trying to have a more diverse industry and we don’t all come from money,” Taub told Technical.ly. Historically, venture capital is an old money profession and those expectations about the wealth of fund managers is a box Taub wants people to recognize that she doesn’t fit in. “It’s so easy for people to say, ‘Hey, don’t do anything, and if you do make money, give it away to charity.’ That’s a luxury maybe you can afford, and I just can’t.”

It’s akin to unpaid internships. To get the job, you have to work for free to prove you have the skills — but who has the ability to put in that kind of work for free? Typically, those who are already well off or from a higher socioeconomic background. The plight of a small VC fund manager is similar: They don’t make much off the fees of a fund as small as the Community Fund, and in terms of returns from investments, that’s years down the line.

“If you’re signing up for this” as a VC fund manager, Taub said, “and this one thing doesn’t give you any money, then it means that we’re not going to have a diverse VC ecosystem.”

In a vacuum, Taub understands the criticism. But if she can’t pay her bills as a fund manager and she can’t pay her bills as a consultant, how can she pay her bills?

It’s an important distinction that she doesn’t charge founders for her time when they’re pitching her for funding. From those less diametrically opposed to the concept of consulting as VC fund manager, the feedback on Twitter was more about clarity and clearly drawn lines between her role as a fund manager and as a consultant.

16/x There's an easy fix here: Pay me OR pitch me policy. Think you could get more out of consulting? Do that. Want her on your cap table? Pitch her–but make 'em mutually exclusive and make it that you won't fund clients. Same w/the match tool. No paid clients get a match.

— Charlie O'Donnell (@ceonyc) February 5, 2022

Taub says the Twitter blowback affected her mental health; seeing members of a community you love call you a grifter and exploiter can do that. She’s taken the constructive criticism and updated the rules and policies of her site to more clearly reflect that paying for her consultancy services — which no longer include pitch deck review — makes a company ineligible for investment from Taub, thus eliminating the conflict of interest and the appearance of impropriety.

🗳 If a founder wants to pitch me their co for investment consideration, they’ll need to submit their co to my form here: https://t.co/t9vgB2sqj5

The flow after that will be👇🏽 /3 https://t.co/BStoAA5YTN

— Lolita Taub (@lolitataub) February 10, 2022

Taub values her work as a fund manager and the vision she has as an emerging VC. She doesn’t want to do anything to jeopardize or compromise her fiduciary duties.

“It’s the one industry where I really believe that in my lifetime I can make impact in creating generational wealth for myself, my family, and our community,” Taub said.

But all that above is about the plight of the emerging VC. What about the emerging founder — where do they fit in this?

As he described in the inciting Twitter Space conversation, Gonzales has bootstrapped his company using his previous high salary working in fintech and does whatever he has to do to make ends meet, including drive for Lyft or Instacart, because he doesn’t take a salary from the company he’s trying to get off the ground. Accordingly, he has his own plea for access to the VC world. It’s a question that will be asked by every new founder who is Black, Indigenous or a person of color who doesn’t historically have the network to do a friends and family raise that happens to include a million-dollar angel investor or friend of a friend who manages a hedge fund.

“I just wanna know: How can I access all of you? How can I talk with you, give you my pitch deck, give you my data? Show you what I’ve built?” Gonzales said.

Is it OK for him to pay $400 to the consultant trying to make her own living, when he may be having trouble paying his rent? More free or lower-cost opportunities for founders in his situation to learn could be the solution. Within our capitalist system, after all, both parties are trying to break a glass ceiling and provide better opportunities for people who look like them.