July 26, 2022

Closing the Funding Gap

Three VCs share their initiatives for addressing diversity in investment

For too long, diversity has been a blind spot for venture funds. Decades of emphasis on the bottom line has come at the expense of inclusion - and, it seems, investors’ wallets. 

A 2018 paper entitled ‘The Other Diversity Dividend’ demonstrated clearly that diverse startup founders and investing teams are more innovative, make more money, and outperform their more homogenous counterparts. In fact, research demonstrates that a homogenous team of VCs or founders actually damages chances at success. 

And yet, the industry is still overwhelmingly white, male, and stale. Only eight percent of investors are women, two percent are Hispanic, and fewer than one percent are Black. While diversity has been nominally on the agenda for most VCs, it is only this year - thanks to the Black Lives Matter movement - that a real reckoning with diversity and representation among investors has arrived.

This is not so much a question of diversity for diversity’s sake; for many VCs, inclusion has become a critical issue precisely because of so many missed opportunities and overlooked founders. 

Flipping the switch

As part of Black Tech Week, Colorintech convened a panel discussion entitled ‘Closing The Funding Gaps’. Moderated by Temitayo Odukoya, VC & Startup Lead at Colorintech, the panel brought together three leading venture capitalists who have made notable strides forward in diversifying their investments. 

Opening the discussion, Temitayo said that the panel was an opportunity for people to scrutinise what top VCs are actually doing to address inequality.

“One obvious question is why we are having a conversation that pertains to the Black community without any Black founders on the panel,” Temitayo said. “The research clearly shows that the onus of driving change in the tech and venture community has been placed heavily on women and people of colour.”

“So already, the underrepresented are being forced to be the gamechangers,” she continued. “They’re the ones running events, attending panels, driving initiatives, but at the end of the day, the sad reality is that when a Black founder wants to pitch their idea, they’re pitching to a room full of white people and, normally, white men. This conversation is a way for us to flip the switch [and] listen to what the people writing the cheques have to say about what they’re doing to close the Black funding gap.”

Building practical strategies to address inequality

While diversity and inclusion has been nominally on the agenda for many companies and VCs, this has usually amounted to increased lip service, but no real practical actions. Niklas Niklas Zennström, CEO & Founding Partner at Atomico and the founder of Skype, told the panel that the events of this year and the Black Lives Matter movement had finally made him and his fellow partners sit up. 

“Over the last several years we have woken up to the fact that we, as an industry and as a firm, have not done enough good work on diversity,” Niklas said. “We are inclusive in our mindset, but we didn’t do enough about it. We needed to move from thinking diversity is good, to acting on it. The events of this year were another wakeup call for us to do much more in terms of ethnic diversity and supporting people of colour.”

Atomico, he explained, took steps several years ago to increase gender diversity within the fund - with some success. 45 percent of the Atomico investing team are now women, up from 20 percent in 2017. But now, Atomico is looking to expand its ethnic diversity through practical new initiatives. 

Firstly, they analysed the makeup of their team to ensure that investments were being made in diverse groups of founders, not just white men. Secondly, they focused on internal training by rolling out unconscious bias training. Finally, they addressed their sourcing activities, attempting to look for opportunities in unconventional places to reach more diverse founders. One program they launched was an ‘office hours program’, where every member of the investing team is open to offering advice through meetings with founders from underrepresented backgrounds. 

“We need to be ambitious and push ourselves, and offer help in those really early company creation stages to encourage people who would normally be discouraged from starting companies,” Niklas explained. “It’s not only Silicon Valley that can create great tech companies. Technology and entrepreneurship need to flourish all over the world.”

Supporting diverse founders from pre-seed

Ada Ventures is a VC firm focused on investing in overlooked founders and markets.

“We believe there are massive opportunities that are getting left on the table because VCs are not open to investing in people who come from anywhere,” Check said. “We believe the people who are going to build the next generation of unicorn startups in the next ten years are going to be founders who don’t look and sound like those in the past.” 

Ada has focused its efforts on two key initiatives. The first is the Future VC internship programme. With 480 participants globally, this two-month paid internship offers individuals from underrepresented backgrounds an entry into the world of venture capital, providing industry talks, coaching, visits to start-up hubs, and the opportunity to present to an investment panel. Ada also launched the Diversity VC standard, a certification for VCs to demonstrate they are working to invest in diversity and inclusion. 

“The last six months have been very humbling for me,” Check explained. “In some ways, I thought I was actually doing a lot of the right things. But when Black Lives Matter had this resurgence following the killing of Breonna Taylor and George Floyd, it showed me I needed to go much deeper than I had done. It revealed my complicity in this, and the complicity of everyone in our position as VCs - which is a position of privilege and influence, and one that has contributed to the structures creating the racist society we live in.”

Inclusion in the US and Europe

Ben Narasin is a Venture Partner at NEA, the largest traditional venture fund in the world. He started a website, pitch-ben.com, which allows anyone in the world to pitch him over video with guaranteed feedback. For him, access is the critical issue when it comes to making inclusive investments.

“I used to speak at conferences across the world [before the pandemic], and I’ve always wanted anybody to be able to come up and talk to me,” Ben said. “I make it a habit to hold an office hours session after my keynote, and it’s a great way to get exposed to lots of different people. If you have a very small amount of people from any one group pitching you, you’re going to have a much smaller chance of converting within that group.”

“I hear about 2000 pitches a year, and I’ll fund a handful. So in the past, I’d say a dozen of them would be from Black founders, but now, you’re seeing more Black entrepreneurs being funded. I think everyone wants to pay attention right now, and I think they’re taking action, but what I would encourage any investor to do is to offer easy access to themselves for founders - and the earliest stages are where you can make the most impact.” 

For Temitayo, it’s time for VCs to put their money where their mouths are. “Black founders are tired of being advised - they need funding,” she said. “That’s the only way you’re going to have large unicorns and tech startups really solving worldwide issues and bridge the Black funding gap.”

Catch up with the full session of ‘Closing The Funding Gap’ and 20 other hours of content celebrating Black culture and tech breakthroughs here