Why Diversity Matters

The Problem



By 2050, a majority of people in the United States will be members of a racial minority group.

Yet despite changing demographics, and decades of efforts to promote diversity and inclusion, venture capital in the United States remains predominantly white and male.



And research studies have connected funding disparities for underrepresented minority founders to this lack of diversity among venture capital investment teams, where minority founders receiving far less investment dollars than those led by white male founders.



It is known that venture capital firms tended to invest in founders with similar backgrounds as themselves so that investment dollars essentially go to what it looks like.



Why is this important?



We know that venture capital drives value for new markets and they are at the forefront of value creation and innovation for society.



But diversity is something venture capital firms say they are increasingly hearing about, however the number of people of color in investment making decisions is very low with just 16% of partners at venture capital firms being women, 3% Black, 4% Hispanic, according to an industry survey.



And without doubt, if venture capital firms decided to reveal their partner and investment-diversity numbers, their investors which often include pension funds, universities, and state governments, would likely protest, or cut ties with them entirely.

It isn't that venture capital firms aren't aware of the issues regarding diversity. Many go to great efforts to dress up their Web sites to include pictures of people of color and create the illusion that they do support diversity. But if you look at the actual teams that make investment decisions, you will find few people of color.



Make Change Happen



Clearly, the industry has a long way to go, and a first step would be trying to get investment teams to look a bit more like the general population, and that goes a long way, in pushing for more diverse investment decision makers.



And having more diverse partners will translate to more capital flowing to corners of the business world where it has been historically lacking and when you have more diverse founding teams, you are likely to have more diverse management teams.



Innovation has always been about generating good ideas by challenging the current status quo and diversity of thought is also about challenging the status quo.