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The inside story of the venture capital and startup world by Biz Carson.
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More than ‘spaghetti on the wall’: VC diversity efforts one year later

​Juneteenth offers a chance to reflect on the VC industry's efforts to diversify itself.

Hello and welcome to Pipeline. Today is Juneteenth, so I hope you take the time to reflect and celebrate the end of slavery. To honor the holiday, today's Pipeline will be a special issue examining diversity efforts in the industry over the last year. We'll return to your normal dose of overheard tweets, interviews and links next weekend.

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Biz on Biz

A year of change — but is it enough?

Last year, I wondered if America's overdue racial reckoning would be the event that would change venture capital forever. As Axios's Dan Primack had pointed out at the time, venture capital isn't the primary cause of the country's racial inequities, but it does exacerbate them as a driver of wealth and opportunity. The industry's response was reminiscent of the #MeToo times — when venture firms looked around the table and realized there was some major work to do.

"I think that the venture capital industry is attempting to work toward change, but I think that we don't know yet, to be honest, how lasting those efforts will be," GV's equity, diversity and inclusion partner, Candice Morgan, told me this week. "We don't exactly know what to do, so people are trying a number of things — there's a little bit of an approach of throwing spaghetti at the wall."

The efforts have been big and small, ranging from millions in funds directed to underrepresented founders to changing hiring practices to open up the venture industry:

  • Dedicated funds: Some of the new funds came from existing institutions, like SoftBank's $100 million Opportunity Fund that launched last summer. It's already invested $50 million in the last year, and there's talk of a sequel. There's also a new cohort, like Collab Capital which raised $50 million to invest in Black founders or Audacity Capital, which is investing exclusively in Black and African cryptocurrency founders. Funds are also experimenting with ways to advance diverse communities. Base10 is trying to tackle racial inequity with a new $250 million fund launched in May that will donate 50% of its carried interest to HBCUs.
  • Open hiring strategies: Hiring a partner used to be a secret process, but more firms are now advertising their partner searches to open up their networks. It's already working: After First Round advertised its new partner position, it ended up hiring Stripe veteran Meka Asonye.
  • Scout programs: Scout programs are also being used as more of an on-ramp into the venture industry. BLCK VC teamed up with Sequoia and Lightspeed to launch its first cohort of 20 scouts that it will work with.
  • Funds of funds: There's also been an increase in funds of funds, or as the VCs put it, investing in their own competition. First Close Partners, started by lawyer Ed Zimmerman and Acrew Capital's Theresia Gouw, has backed dozens of emerging fund managers. Screendoor, another fund of funds from 10 leading VCs, is planning to invest $50 million into new managers. Corporations which might otherwise put the money in their in-house venture funds are also backing managers: PayPal doubled its commitment and has put $100 million in Black and Latinx funds.

That doesn't mean the industry deserves a gold star. There are still plenty of firms that do not have any women or underrepresented founders. Around 80% of investment partners in venture capital are white and 15% are Asian or Pacific Islander, according to a 2021 NVCA and Deloitte study. Funding to Black entrepreneurs increased to 1.4%, but is still a tiny slice compared to the industry.

One of the challenges now is accountability for an industry that is still notoriously opaque. While many companies in the tech industry publish yearly diversity reports, venture funds rarely publish their own diversity reports or measure beyond their talent numbers.

  • Talent should be the first step, but it's also the easiest given the size of firms, Morgan pointed out. Venture firms should also look beyond race and gender and also track things like sexual orientation, veteran status and where everyone went to school (most VCs attended either Harvard, Stanford or Penn). There's also the question of how many "partners" actually have fund economics versus just the title.
  • It's also more than dollars invested. GV wanted to track beyond money in by also measuring ownership in companies from underrepresented founders, how involved they are with those companies and how they are continuing the relationship after the first investment, Morgan said.
  • How do you know it's working? "Some markers that indicate it's actually happening in terms of culture shift is ideally you see those deals coming across the fund: You don't see it concentrated with one investor, you don't see it concentrated across your underrepresented investors, you don't see it concentrated in your junior investors only," she said.

One year in, the question remains: Will this change the venture industry forever? "Worst-case scenario is lots of meetings, no change in funding and perhaps a perception that some of the declarations or the measures taken are performative. I don't think people set out with that intention, but that doesn't mean that good intentions will turn into things that are fruitful," Morgan said.

Only time will tell, but until then, Morgan and others in the venture industry are hoping to keep the momentum going past the initial flurry of commitments to see sustained change.

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