Despite repeated commitments to ‘do higher’, enterprise capital continues to struggle with poor diversity and inclusion: Black investors are estimated to make up 4% enterprise capitalists in the US and Europe are only women 15% general partners.
Research shows that individuals hire and support those that remind them of themselves. This “affinity bias” creates a vicious circle. With a distinct lack of diversity among VCs, is it any wonder that all-male, all-white teams are much more more likely to attract funding?
To make matters worse, VCs unwittingly fuel this establishment through “knowledge transfer” – holding information and power near their chests. This prevents people from ignored and undervalued backgrounds from having access to careers in enterprise capital, thus perpetuating the inequities we see around those receiving funding.
Extensive jargon
VC knowledge gathering takes many forms. One of the biggest is jargon. Carry, secondary, LP, bridging – for someone recent to the startup world, it’s overwhelming.
And yet, little is being done to extend access to VC education. We don’t teach this in schools or routinely at the undergraduate level. This creates an intimidating barrier for those that need to break in. Result? The VC talent pipeline consists of people that have organic access to knowledge gained through parents, peers, or attending specific institutions.
When my organization Newton’s enterprise programwe launched our free ‘Foundations’ earlier this 12 months, over 1,000 people signed up inside a month. There is a high demand for primary resources; we just need more people willing to create them.
Exclusive spaces
Another type of gatekeeper is the exclusivity of networks and communities throughout the VC.
Reminiscent of highschool parties, many transactions and knowledge sharing happen in invite-only spaces (digital and IRL) or between industry colleagues with existing relationships.
This collaboration between firms is an integral a part of VC, but it will probably also work to the detriment of aspiring investors. (See also: Investor overreliance on warm introduction and its impact on founder diversity.)
It’s difficult for individuals who don’t have an existing network to interrupt into what may appear to be a clique. Those who come from ignored and undervalued backgrounds will lose out. If current VC club members fail to draw ambitious recruits and invite them to the proverbial party, we’ll never truly diversify the industry.
A stiff summary
Venture is a difficult industry to crack. The variety of funds is limited, most of them consist of small teams, and the competition is fierce. However, VCs’ over-reliance on resume characteristics harms diversity and excludes exciting talent.
According to one evaluation, 42% of VC internship advertisements mention an engineering diploma, and 20% mention computer science – in each cases, these are male-dominated fields. Similarly, the study found that firms expect candidates to have between 0.5 and 1.11 years of experience to qualify for internship positions. This is a major barrier to entry for candidates who don’t have the contacts crucial to realize experience (and probably cannot afford to work for free).
By continuing to rely on rigid resume requirements, an insider mentality, and a jargon-filled lexicon, enterprise capital funds provide access to the industry and unwittingly block the cycle of poor diversity.
These are not difficult problems to unravel. But fixing them requires honesty and motion on the a part of existing VC and LP investors. This means addressing these inequities by investing in educational programs and community access, adopting anonymous skills-based hiring, and ensuring that teams consciously seek paths to success for those aspiring to roles in the industry.
In this manner, VCs can abandon the gatekeeper role and as an alternative adopt a recent position as guardians of a fairer and more inclusive enterprise capital industry.