Venture Capital: Diversity & Inclusion Statistics in One Place
Most venture-backed startups are “still overwhelmingly white, male, Ivy League-educated and based in Silicon Valley.”
According to McKinsey and their latest report “Diversity Wins”, the business case for D&I is stronger than ever. Companies in the top quartile for gender and ethnic diversity on executive teams were 25% and 36% more likely to have above-average profitability than companies in the fourth quartile
However, there are still huge roadblocks to achieving D&I. According to PeopleFluent, top roadblocks include a lack of accepted benchmarks and lack of budget. In particular, the lack of accepted benchmarks may be attributed to the fact that diversity is defined as “all characteristics and experiences that define each of us as individuals” according to the US department of commerce. This means that the definition of diversity is very broad, making it difficult to know what to measure or why.
Furthermore, according to Harvard Business Review, the three most popular interventions, mandatory diversity training, testing, and grievance systems, have been found to make firms less diverse, not more, because managers resisted the requirement.
But don’t worry. What this study also found was that there are eight ways companies have found to meaningfully increase diversity including voluntary training, self-managed teams, cross-training, college recruitment targeting women, college recruitment targeting minorities, mentoring, diversity task forces, and diversity managers.
Even though these strategies have proven to be extremely effective, CEO buy-in is essential. Often at start-ups, CEOs are busy trying to keep the lights on. Their most precious commodities are time and energy so they might not be willing to spend time on D&I.
But we can’t let this stop us from trying to increase diversity at both the portfolio company level and the fund level.
We can no longer make the “pipeline excuse”. According to Silicon Valley Bank, about one in four US startups has a woman on the founding team and nearly four in 10 US healthcare startups have a least one woman on the founding team. This number is also increasing. As of 2020, about one in four US startups has a woman on the founding team.
When it comes to the landscape for minorities, only 1% of venture-funded startups have black founders. Said differently, in 2020, U.S. companies raised record amounts of venture capital, at just under $150 billion. Of that capital, only $1 billion went to Black or African-American startup founders, which comes out to less than 1% of total funding.
On the investment side, only 3% of venture capital investors are black. 1% are Hispanic, 26% are Asian, and the remaining 70% are white.
So, what can we do about this?
Portfolio Companies should:
- Report diversity metrics quarterly
- Identify the easiest method for tracking workforce demographics
- Integrate D&I into the culture using training on unconscious bias in hiring and promotions, establishing promotion/hiring goals companywide, establishing goals to add diversity to the board, establishing promotion/hiring goals for C-level positions, ensuring a flexible work environment, reviewing recruiting outreach/interview techniques, and leadership development and training.
- Attend conferences, events, or demo days
- Proactively expand your network of entrepreneurs, investment bankers, or other investors
- Partner with organizations specifically focused on diverse founders
- Provide descriptive and constructive feedback to entrepreneurs to help them strengthen their pitches
- Hire more female or multicultural LPs, fund managers, partners, or board members
- Become more knowledgeable about diverse market segments
- Internally share statistics on the number of diverse-founded companies evaluated or invested in
- Hold pitch days
- Set targets for the number of diverse-founded companies to evaluate
More tactically, here are some more resources:
- Reach out to Take your Seat and Board List next time you’re filling a board seat
- Reach out to founders on the Black Founder List or find under-represented founders on ClubHouse
- Duke Pitch: A competition for Black student-founders
- Y Combinator Black Founders
- Diverse Manager Directory
- Building Supportive Ecosystems for Black Owned US Businesses
- Certification Program from UNC
- OHUB Startup Entrepreneurship Support Programming
- 1863 Impact Report
- Transparent Collective
