An Investor’s Most Critical Investment is Inclusion
We have just entered into 2022 and women-founded & co-founded companies still get less than 11% of the total investments worldwide. Even in this new decade, startup fundraising remains with the “most tangible gender gap” and staggering racial disparities. When investors are biased againsty female and diverse minority founders and leaders, they are hurting themselves (and their pockets). That’s something to think about, especially when financial outperformance is all but guaranteed when accounting for gender and ethnic diversity among executive teams.
As we move into a more gender neutral world, a funding gap so massive shouldn’t exist. As we move into a more racially and ethnically diverse future, our startup executives need to represent the world around us.
How do we pave the way for the equitable entry of diverse, minority entrepreneurs and leader into our workplaces? What does an unbiased, inclusive world look like and how do we get there? Let’s dig in and see what others have done and what research is telling us.
1. Create a Magnet of Diversity
When we are genuine about our inclusive intentions to fund diverse leaders and startups, that means our own investors and our own ecosystems reflect that inclusion as well.
For example, successfully introducing and investing in more of women led initiatives means they are surrounded, encouraged and invested in by women themselves. Minorities need networks to “socialize, co-invest, and otherwise partner with similar others”. Halogen Ventures and Aspect Capital is a fund that realized this and created a space where women-led funds are offered a safe circle “to pitch to women funders”. This is one way of increasing the chances that women take the leap and try to seek funding.
I also see investors too comfortable in their daily habits. No wonder they cannot diversify their portfolios. They are going to the same events and initiatives with the same type of people, which automatically lead to a similar dealflow that they have had for the last decade. There are many female founders, black founders, and other unrepresented founders pitch events out there that can give you new perspectives.
2. Go through your representation
Put more effort into social image and presentation. The image we present to the world through our portfolio and social media channels can start to reflect faces of diversity and inclusivity, a heartfelt intention on our part to change the way we work. When I go to a company website, I will automatically get a feeling of the work culture and judge based on what is shown to me. You don’t want to give people the wrong impression simply because you did not make an effort on thinking through your representation. To exaggerate — If I enter a company website and see 10 white male investors as their front page, then I will automatically believe they have unconcious biases towards me and my business.
What you show will affect what you attract. Sometimes, it’s just that simple!
3. Lead by Example
To open our arms and offices’s to diverse startups and leaders, more companies need to lead the charge and they need to make it official. If no one else is doing the right thing, you can be the first.
I see investors promising to fund more women entrepreneurs, or claiming to support minority based start-ups, but what I’m hoping for in the future are greater mechanisms of accountability to bring these promises to life. This means reevaluating, dismantling and rebuilding company codes and mandates, instilling quotas and requirements that demand diverse start-ups funded and present in every facet of our operations. Take EQT for example, the first firm in the PE/VC sphere that uses an artificial intelligence-based deal sourcing tool to guide their investors, called Motherbrain. The firm tweaked Motherbrain’s algorithms to prioritize companies with a woman founder, and now screens twice as many of these businesses each week. The investors also get reminders if they need to meet more women founders.
Getting rid of biases means starting at the source, and examining our standards, our mandates, and our own culture. And there’s nothing wrong with change. Plus, when we lead by example within our workplace, we set the stage for the rest of the world to follow. Besides, who doesn’t like coming in first place? :)
4. Be creative and try new ways
Investors often fall into the trap of “potential biases”, placing greater and faster trust (and funding) in start-up leadership that looks and sounds like them. What can be done to change decision-making processes in a VC firm?
According to researchers and scientists, one of the ideal ways to avoid biases is to “be an orchestra”. If we behave like “orchestra directors”, conducting blind auditions to eliminate biases, women and minorities are given the fair opportunities they deserve based on their performance, not on “potential biases”. Take January Ventures for example, they are rewriting the rules of what it means to have ‘access’ in venture fundraising. Anyone can pitch to them without showing a revenue or a pitch deck by filling in a 2-min form. This is a potential new way to build a future of equal opportunities with transparency, openness and accessibility.
Maybe this works, maybe not. But I have full respect to people who are creative, show that they care, and try new ways!
The power to change is within ourselves and the best part is that we all benefit from these changes and evolutions at the end of the day, in the short and long-term. Alongside my peers and participants with Time to Raise — a program with full focus on fundraising for women led startups, we raise the bar we set for ourselves, for our industry and for our own standards as we continue to head into the decade. For more information on Time to Raise, check us out here!