Venture capital, like the rest of the alternative investments industry, has made efforts towards improving diversity and inclusion (D&I) in recent years, but progress is still too slow. When it comes to gender, for example, recent figures from data provider Preqin show that the proportion of alternative assets employees who are female rose very modestly from 18.8% in 2018 to 19.7% in 2019.
This week, London-based consultancy Equality Group launched its first inclusion index, which ranks the top 20 PE and VC firms according to their diversity and inclusion performance. Private Equity News — sister paper to Financial News — which had exclusive access to the list, spoke to some of the 400 global firms analysed to discuss their strategies, case studies, and why the industry has taken so long to take action.
Why is D&I important?
RE: In our business, it is very much about the people behind the idea or behind the business. If we limit ourselves to certain founders, because of unconscious bias, or networks, we’ll find ourselves missing out on opportunities. And we’ll also find ourselves not being able to build the companies that we want. The industry is just limiting its possibilities by not focusing on these topics.
Kinnevik was crowned the most inclusive VC firm by the Equality Group’s Inclusive Top 20 PE & VC Index. What’s the firm diversity roadmap?
RE: One of the things we consider very important is the thorough review of our behaviour. We aim to raise self-awareness as we go along and continue the conversation as we try to be prepared for uncomfortable situations. We have those conversations because this is not a ‘one-off’ project that you do. This needs to be part of the firm’s ongoing cultural journey. That requires a lot from everyone at the firm.
It takes time and effort to keep the conversation going at all stages and at all levels of the company, but this is key. To do that we’ve ensured that we have continuous training and inspirational talks on the topic [D&I] and that we have an internal D&I task force as well, which is an influencing group that represents all functions across all levels.
Why does the industry need diversity and inclusion?
MH: Representation matters. We’re past the point where we have to make the case for diversity and inclusion. There are enough studies that highlight how diverse teams perform better, deliver better returns, and much more. What we ultimately want to drive with our efforts is increased access to capital to founders from all walks of life and diversity in the outcome. As tech for good investors, we’re acutely aware if your product is not inclusive by design, it will be unequal in the outcome.
At BGV, we publish our own team’s diversity and inclusion data annually in our impact report. With our portfolio companies, we take a permission-based approach to collect and report on their D&I data. This in turn helped us establish a benchmark for our firm to consistently see what’s working and where we need to step up our efforts and resources. What other VC firms can do is collaborate and share insights to help others figure out their D&I methodology.
Why has the industry taken so long to take action when compared to other asset classes?
MH: The VC industry is notoriously opaque and private by nature. VC deal flow largely operates on warm introductions. This already restricts access to capital to a narrow and largely homogeneous pool of investments, if the VC firms themselves are not diverse by design.
Only recently has that changed, with many more firms committed to operating ‘no warm intros needed’ policies. And whilst there’s been an increase in diversity at the associate level of funds, the decision-making power often still rests with largely homogenous groups of people. Increasing diversity and representation up to the investment committee level is critical for the VC industry to really move the needle on D&I.
What are the main barriers people from diverse backgrounds face in VC today?
CR: There are many structural barriers that start with entrenched obstacles and biases in higher education and entry-level jobs. Many people hired in VC have backgrounds in banking or consulting; paths into those jobs are often not meritocratic and linked to family connections, income and educational background. That creates a very homogenous pipeline of talent into VC.
Furthermore, the recruiting system for VC firms has not favoured candidates from diverse backgrounds. Traditionally, jobs were not posted on job boards, and hiring cycles are very slow. Many firms still don’t have people managers who drive transparent recruiting processes. Given the compounding nature of all these issues — none of which should be hard to rectify — VC has been very slow to take action compared to other asset classes.
Why do you think VC should do more about D&I?
CR: Improving diversity and inclusion in VC and in tech is not only the right thing to do, it’s the smart thing to do. As VCs backing disruptive technology companies with an outsized impact on our society, we have an important responsibility to encourage and advocate for more diversity of race, gender and perspectives in tech. Too often, people building VC-backed companies are from a select and homogeneous pool of people who look (and often think) the same. Greater diversity — in all senses of the word — will ensure that companies, their products and services better reflect the communities they serve.
Not addressing this means the world is missing out on someone who might develop the next ground-breaking technology that vastly improves our collective future. If we as a VC do not have a team that is reflective of society’s diversity, we are putting ourselves at a disadvantage in discovering and backing the next global category-winning companies.
This article was published by Private Equity News.