Venture Capital: Diversity Update

If you were to peep inside the corridors of most venture capital firms, including those in pockets of Silicon Valley or those scattered about Manhattan or in the Boston suburbs, would you see encouraging signs of diversity? Would you see a diverse environment, an inclusive culture, or a setting where those from under-represented groups are deeply involved in investment discussions, analyses, presentations, and decision-making?

In those same venture capital firms, would you see women, blacks and Hispanics in prominent professional roles?

Not really, says a survey from the National Venture Capital Association (http://www.nvca.org/). Would you be surprised? Not really, the survey also shows.  The business of venture capital (investing in promising start-ups, nurturing new ideas, coaching young entrepreneurs, and facilitating financing in second and third rounds) has a long way to go.

The survey was taken in mid-2011 and follows a similar survey from 2008. The survey was sent to investment professionals and to those in a variety of administrative roles.  About 600 responded, providing answers to questions related to race, ethnicity, background and education. Whether optimally scientific or not, the responses weren't surprising. Women, blacks and Hispanics still do not have significant roles in venture capital--at least at the big, world-shaking firms. 

What did the survey tell us?

1.  Women are not prominent in major roles at venture-capital firms.  Only 11 percent of those in investing roles are women, a decline, in fact, from 2008 (14 percent).

2.  Women are more involved in life sciences and clean technology (18 percent), less involved in non-high-tech businesses (8 percent).

3.  There are signs of progress. Women (both investing professionals and administrators) comprise 28 percent of those under 30.

4.  Blacks and Hispanics are virtually invisible in the industry, and there has been little or no progress the past three years. African-Americans and Hispanics (combined) comprise 2 percent of all survey respondents (both investors and administrators)--down from 3 percent in 2008.

5.  There are few signs of progress among Blacks and Hispanics. They comprise 3 percent of investing professionals who had less than five years of experience (those who are among the most recent hires).

6.  Asians and Asian-Americans have a greater presence at venture-capital firms, but not in significant numbers:  9 percent of all respondents this year, 17 percent of all investing professionals with less than five years of experience.

7.  Alumni from prominent graduate schools are present in large numbers at top venture-capital firms.  Almost 80 percent have master's, J.D., or Ph.D. degrees; about half have MBAs.  Graduates of Harvard, Stanford, Yale, Penn, MIT, Berkeley, Duke, Norwestern, Michigan, and Columbia comprised about half of all the respondents.

8.  More than half of respondents had spent some time in their careers as consultants, investment bankers or attorneys, suggesting that one of the best ways to enter the field is to have started out first and gained meaningful experience in one of these roles.


Why are the numbers for under-represented groups woefully low? 

Why hasn't there been progress? Is there something that keeps or discourages blacks, Hispanics and women from large-scale entrepreneurial activity and from participating in expected profits and large windfalls from sales of private stock or IPOs?

As most know, the top venture-capital firms tend to be concentrated in hotbeds of entrepreneurial activity, where firms have close access to new ideas, innovation, and eager entrepreneurs, but also access to capital and investors.  Silicon Valley and the greater San Francisco area are well-known homes for top ventures firms, but so are Boston, Chicago, and New York.

Top firms, based on the number of deals they've done over the past few years and the amount of capital they manage, include Sequoia Capital, Andreesson Horrowitz, Draper Fisher, Kleiner Perkins, General Catalyst, Accel, Charles River Ventures, Khosla, Oak Investment, and Greylock--many of whom are members of the NVCA and likely had employees and investing professionals who participated in the survey.

Why are those from under-represented groups not intimately involved in the promise, innovation and profit-sharing of venture investing?

1.  The venture-capital world is private, clubbish.  "Members" know each other well from previous deals, affiliations, and experiences. They know each other in previous roles as bankers, lawyers, and consultants. They may, in fact, know each other from school. They invest in deals and funds within the club; they hire among each other or tap investing talent they know among themselves.

Some firm leaders might have been entrepreneurs before. They benefited from financial support and industry guidance from other venture firms.  The survey said more than 15 percent of investing professionals at venture firms were CEOs or heads of other start-ups.   Many managed start-ups through early stages, reaped large benefits from the sale of their enterprises, and then invested the wealth in new venture funds. Marc Andreessen, a Netscape founder, and Peter Thiel, PayPal's founder, are now widely known as venture investors.

2.  Venture firms are narrowly focused on the next deal, the next new idea, and the next entrepreneur who has a "disrupting" vision. They are seldom motivated by or caring enough to ensure diversity among their professional staff. Institutions, investors, and funds that provide capital for the venture fund don't hold firms accountable. Because transactions and relationships are private, they aren't likely to push  to make firm's culture inclusive and or push to provide opportunities for those from a variety of backgrounds.

3.  Venture firms, not held accountable and operating in closed-door environments, are likely to be unaware, uninformed or unperceptive of diversity's benefits.

4.  Venture firms tend to be marginally staffed. They include investor professionals, principals, partners, analysts, and researchers. They also include attorneys, administrators, and financial staff.  They are not likely to have personnel who pursue diversity-related initiatives and programs, who hold the firm's leaders accountable to fairness, opportunities and diversity, or who prompt the firm to catch up or keep up in related issues.

5.  Venture firms aren't likely familiar with diversity pipeline programs or aren't aware that blacks, women, and Hispanics in numbers are interested in venture capital, private equity and fund investing and attend the same top business schools that their leaders did.  Blacks, Hispanics, Asians and women who find their ways into the sheltered cultures are likely to have attended the same schools and found a pathway from school ties, summer internships, or experiences in investment banking or consulting.


Despite the dismal numbers, some African-Americans, Hispanics and women have punctured the closed doors.  Some have started their own funds or have found a way into top spots at the bigger venture capital or private-equity firms (Ronald Blaylock's GenNx360 Capital, e.g.).

Nonetheless, applaud the NVCA.  First, it dares to conduct such a survey and report its results widely, even if there isn't yet much to celebrate while progress is stiflingly slow.  Second, it states it has objectives to improve the numbers.  Its president Mark Heesen said in a recent release, "Ideally, we would like to see a professional base that reflects the entrepreneurs in which we invest, one that is robust and diverse in terms of gender, ethnicity, nationality and age."

In other words,the NVCA is daring to hold the industry accountable, if it doesn't do so itself.

Tracy Williams