The Disaster of Diversity in VC

To this day, minorities and females face extreme barriers to breaking into the Venture Capital industry. How do we solve this?

By Dev Patale

Venture Capital is funding our future, whether it be the next Uber, Airbnb, or even Tesla; so it’s time to discuss the disaster of diversity in the industry. This issue has been well covered (just take a look at the plethora of articles on the topic), yet we continue failing to see substantial progress. According to Richard Kerby’s 2018 study, VC is overwhelmingly white (70% of investors, down from 74% in 2016). VC is overwhelmingly male (82% of investors, down from 89% in 2016). And VC is overwhelmingly elite, with Harvard and Stanford alum alone accounting for 40% of venture investors- not to mention the droves of MIT, Yale, Princeton alumni. It’s no secret that the industry’s woes of neglecting minorities and women in favor of white males have not simply disappeared. 

Why is this such a pressing issue? Venture capital has an unprecedented amount of influence over technological innovation, deploying billions of dollars a year to drive growth and revenue across thousands of portfolio companies. But there can be no tolerance for such elitism; investors must make bets on founders, and they’ll naturally connect best with the most similar individuals. The converse is also true- founders are more likely to approach investors if they can connect with them, placing minority and female founders in a disadvantageous position compared to their white male counterparts. It shouldn’t come as a surprise, then, that female-founded startups only raised 2.2% of VC investment funds in 2018. Harlem Capital’s 2018 diversity report identified 105 Black and Latinx venture-backed startups that raised at least $1 million. Only 105 startups over several years. These funding decisions have huge implications for the entire entrepreneurial ecosystem, because without diversity in VCs, we can’t possibly hope for diversity in venture-funded businesses. Thus, to improve the inequities in funding for women and minority founders, VCs must be led by a team that’s intentional about cultivating a culture of inclusion and diversity. With meaningful internal change, the unacceptable trend of disparities in funding can begin to reverse.

So, how do we continue combating these barriers? 

Fortunately, for early stage ventures, some of the nation’s most prominent accelerators (YCombinator, for example) actively promote diversity in the startup ecosystem. Such programs offer critical resources to founders, including a network of investors and mentors that prompt fast-tracked growth. They also lend credibility to these ventures, positioning minority- and women-led ventures well for future funding possibilities. By supporting the launch of more programs dedicated to addressing this inequity, we will begin to see true progress. We must also keep the spotlight on these issues. Many VCs pledge support for diversity initiatives, which turn out to be little more than lip service. By continuing to write and continuing to fight, we will effect meaningful change in the industry and push firms to stand behind their pledges. 

Venture Capital may be funding our future, but its culture is rooted in the past. For too many years, it has safely neglected the talent of minorities and females; only with impactful strides in championing diversity will there be a reversal in this trend.