Venture capital has historically been an insular, isolated world. In the world of venture capital, women and minorities are dramatically underrepresented – both in terms of having the power to give out funding, and in being on the receiving end of that funding. Today, venture capital continues to exclude female and minority entrepreneurs from the investment pipeline. From the entrepreneurs pitching to investors all the way up to the C-suite, gender and racial imbalances pervade venture capital.
Not only do minority founders make up a disproportionately small percentage of all startup founders, but they also have a harder time securing funding. During the first half of 2013, minority entrepreneurs made up just 8.5% of the people pitching their businesses to angel investors. Entrepreneurs of ethnic or racial minorities were also less likely to receive investment that year. Compared to 22% of all businesses, just 15% of minority-owned firms successfully translated a pitch into dollar bills.
According to 2010 data from CB Insights, 87% of venture capital-backed founders are white and 83% of the founding teams for these were all white. As a whole, less than one percent of venture capital funding every year goes to founders who are people of color.
As far as receiving venture capital funding, female founders aren’t doing so well either. Between 2010 and 2015, just 10% of venture capital funds invested around the world went to startups with a female founder. In 2016, venture capitalists invested $58.2 billion in companies with all-male founders. During that same year, women received just $1.46 billion. According to Ethan Mollick, a professor of management at Wharton, 38% of new businesses in this country are started by women but only 2% – 6% of those founders receive VC funding.
One challenge faced by both women and minorities in securing funding is the pipeline problem. Venture capital historically has been, and still is, an all-boys club with a mostly white workforce. Because venture capital is so male-dominated, many women lack access to networks of social and intellectual capital necessary to close on funding. Women may represent about 50% of the labor force, but when it comes to money and power, they have very little of either. As for minority founders, factors like unconscious bias, historic under-representation, and lack of access to opportunity all play a role in their under-representation in the venture capital pipeline.
If the tech industry is ever going to build a culture of inclusion and diversity, female and minority founders need “intentional” funding. Some corporations have already begun implementing plans to increase diversity in the startup world. In 2011, Comcast Ventures (Comcast’s corporate venture arm) started the $20M Catalyst fund to invest in companies led by women and members of minority groups. In 2014, Intel Capital (Intel’s venture capital arm) announced that it would set aside $125M in a Diversity Fund to invest in startups with diverse management while bringing them into Intel’s portfolio. The same year, AOL launched a $10M fund designed to focus on women-led consumer internet startups.
While large corporations are making strides to level the playing field, mainstream venture capital firms don’t seem to be making the same commitments. Even though research shows that having a diverse team results in a more creative and more profitable company, the venture capital industry seems to be largely denying itself this opportunity. By leaving out women and people of color, firms miss out on millions of innovative minds and profitable business opportunities.
Funds that focus on diversity like Intel’s Diversity Fund, AOL’s BBG fund, Women’s Venture Fund, BackStage Capital and our very own Elevate Inclusive Fund, ensure that we invest in diverse minds. It’s time for us to stop talking about the diversity problem in venture capital and start taking action to solve it. The answer is an intentional investment. Lets put our money where our mouth is. By taking these action steps, we are building a more inclusive, equitable, and innovative world.
Elevate Capital through its Inclusive Fund has made a big dent already. 70 percent of the Inclusive Fund investments are in women-founded startups and minority founded startups. Elevate Capital has become a driving force in changing the faces of entrepreneurs and set a new benchmark and a leader as a fund with proven success in diversity and inclusion.
