Over the last decade, U.S. venture capital investments quadrupled, the number of businesses started by women grew to 40%, and we’ve seen growth in the number of entrepreneurs of color. However, the percentage of venture capital dollars going to women-founded companies has barely budged since 2012, and the numbers are even worse for Black and Latinx founders — only 1% of VC-backed founders are Black, and less than 2% are Latinx.
Institutional Investors Must Help Close the Race and Gender Gaps in Venture Capital
Three proven strategies to make a difference.
August 27, 2020
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Summary.
Research repeatedly shows that companies with diversity in senior leadership significantly outperform their all-white, all-male counterparts. Diverse leadership generates better financial performance, stronger innovation, and higher levels of startup success. Yet, despite compelling performance data, venture capital isn’t following the opportunity. This is true for a variety of well-documented reasons: gender and racial stereotyping, unconscious bias, systemic economic barriers, and Silicon Valley’s preference for serial entrepreneurs. Chief executive officers, chief investment officers, board members and trustees of large institutional investors — many of whom claim to care about diversity and inclusion — can make a meaningful difference by holding venture capital funds accountable with three changes to operating practices that have proven effective: 1) Require their long-established VC fund managers to report the number of companies with gender and racially diverse leadership they are investing in, as well as the capital committed to these companies — both during due diligence for all new funds and at annual performance reviews; 2) monitor the number of women, Black, and Latinx people in senior decision-making investment roles at their established VC funds; and 3) adopt new guidelines to invest in high-performing emerging VC funds that are 100% committed to gender and racial diversity.