Challenges in the VC World

Overcoming Bias and Promoting Diversity

A talk about breaking into VC wouldn’t be complete without addressing VCs diversity problem. We still have a long way to go when it comes to bringing more women, minorities and non-Ivy League educated individuals into the industry. It has high implications for our future the more we prioritize diversifying the pool of decision makers and builders. 

A study by Paul Gompers and Silpa Kovvali published in the Harvard Business Review found that companies with diverse management teams have a 19% higher innovation revenue. This suggests that a more inclusive VC industry could lead to better investment decisions and a more innovative economy.

A report by the NVCA, National Venture Capital Association, took DIE data from 315 venture capital VC firms made up of more than 5,700 U.S. based employees and approximately $594.5 billion in assets under management. 

Key Findings:

• Most firms have established or plan to establish DEI goals. Finding that 40% of the firms surveyed in 2022 stated they now have specific DEI goals, while 23% plan to implement goals within the next six months. 
• VC firms reported more DEI interest from Limited Partners (LPs) and a focus at the portfolio level. In 2022, 47% percent of firms said that LPs requested their DEI details within the last 12 months. In 2022, 38% of firms said they requested DEI details from their portfolio companies.
• Women represent 26% of investment professionals and 35% at the junior level. However a whopping 57% of VC firms reported having no female investment partners and for the ones that did, only 15% reported having more than one. 
• In terms of racially and ethnically diverse women, Black women comprised 1% of investment partners, 5% were Asian/Pacific Islander women, Hispanic women were 2% of investment partners and White non-Hispanic women comprised 13% of investment partners.
• Representation for Black professionals continues to trail behind. Black employees comprised 5% of investment professionals in 2022 and 4% of senior-level positions. Eighty-nine percent of firms report they do not have any Black investment partners.
• Hispanic employees comprised 6% of investment positions in 2022 and 5% of investment partner positions. Hispanic representation among junior-level investment professionals also increased to 5% in 2022.  

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Efforts to Move the Industry Forward

A number of programs have emerged in an effort to promote diversity. If you are an underrepresented individual in the space, I greatly encourage you to apply and look out for opportunities similar to these.

• BLCK VC
• 37 Angels
• All Raise
• IncludedVC
• Alumni Ventures
• HBCU VC
• Kapor Capital Fellowship
• Harlem Capital Fellowship 
• Dorm Room Fund Black and Latinx Founders Fellowship
• Precursor Ventures Uncommon Collective Fellowship
• Innovate Inclusion’s Fund Manager Accelerator Program
• National Venture Capital Association (NVCA) Emerging Manager Program
• Future VC
• RippleX Fellowships

What’s important to note is that fixing VCs' diversity issue is going to take participation at all levels. At the firm level, implementing DEI policies such as blind recruitment processes, diversity targets, and training programs for staff is a start. We also need more GPs identifying and supporting diverse entrepreneurs while LPs prioritize requesting diversity reports of the funds and their portfolio. 

A 2020 post by Fred Wilson highlighted the need for diversity at the startup Board level. He suggested several actions, including having more independent seats held by diverse people. VCs should take observer seats to make room for these new Board members, and term limits should ensure proper rotation based on skill, not seniority. A striking characteristic of diversity-friendly propositions is that they are also good for business.

In other ways, continuing to publish data on the success of diverse investment teams and the impact of wide perspectives can also push the needle forward. Since the start of change is bringing awareness to the issue at hand and the ways we’re holding innovation back by building and investing within a bubble of “what’s worked” and “what we understand”.