Another week, another report about the venture capital sector’s poor record on investing in diversity. Most recently the British Business Bank’s Alone Together reports that 39% of black and 49% of asian and other ethnic minority founders are giving up on their ventures because of lack of access to finance. Andy Davis of 10x10VC - co-author of The Black Report which focuses particularly on black founders' experience of raising pre-seed capital - describes their predicament as being ‘over-mentored and under-invested’.
Adding to the evidence, Extend Ventures also launched a first of its kind report looking at how money in the UK has been invested over the past 10 years according to race, gender and educational background. As expected, the findings are sobering. Between 2009 and 2019, just 0.24% of venture capital went to teams of Black entrepreneurs with only one Black female founder raising Series A funding in that time.
Impact investors need to change this. No ifs no buts. Inequality in access to investment is an injustice. And it’s bad for business and returns too. There’s no end of research proving that more diverse teams lead to better businesses, and although data in the VC world on the relationship between diversity and performance is hard to come by, evidence is starting to emerge. Take angel investor Yun-Fang Yuan’s interesting piece on the performance of her portfolio.
The biggest change will come when the management teams of venture capital funds are more diverse themselves. VC is a people business and the culture of ‘warm intros’ means a lack of diversity in investment teams leads to a lack of diversity in the founders of the businesses they back. (One of the reasons we have an open application process at BGV is so that founders don’t need a warm intro.)
Despite the current stats, I’m hopeful for the future as pressure builds throughout the ecosystem. Take the recent news from Yale University’s $31.2 billion endowment. Investment chief David Swensen told investment firms they risk losing Yale’s backing should they not work to increase the diversity of their investment teams.
If you’re an existing or potential LP investor in a venture fund, just ask the question: “could you send me the statistics for the diversity of your investment team and of the founders you’ve backed to date.” The more this question is asked, the faster things will change.
If you’re wondering what the answer is for BGV, we’ve published a page about our approach and stats when it comes to diversity and inclusion here.
This piece was first published in the November issue of our monthly investor newsletter – ‘The Practical Optimist.’ Sign-up here to receive the latest thinking on tech for good and curated resources from the world of impact straight to your inbox.