Diverse teams perform better. First Round Capital found that, over 10 years, teams with at least one female co-founder performed 63 percent better than male-only teams. Racially diverse teams also perform 35 percent better than their industry peers. Yet only 8 percent of venture capital money is going to women-led companies, and 1 percent is going to companies with a black founder. While black and Latina women in particular are behind 80 percent of new female-led companies, they capture a meager .2 percent of VC funding.
The numbers are equally bad in the philanthropy space. Only 21 percent of philanthropic dollars go to diverse founders, and92 percent of CEO positions on foundations and boards are held by white people. The business case for investing in diverse leaders is clear, yet diverse entrepreneurs still struggle to raise money at the rate of white male founders. As a member of the investor community, it is time to take ownership and action.
I’ve seen the impact of diversity firsthand through my organization Fast Forward; 79 percent of our companies have at least one co-founder who is a woman or person of color, and our teams are outperforming for-profit accelerator graduates. We are often asked how we found these leaders. Building a diverse portfolio takes work, but there are four strategies we have come to rely upon.
The success of an investor is determined by the power of his or her pipeline of founders. Pipelines often mirror the background of the investor. If you are interested in increasing the diversity of your pipeline, you need to hire investors from diverse backgrounds.
Investors must prioritize increasing the number of meetings they take with diverse founders.
According to the Crunchbase Women in Venture report, women-led venture capital firms or firms that had an exceptionally high number of women investors were more likely to invest in women founders.
Traditional seed investors leverage referrals to get the best deals. My organization also partners with trusted peers by sharing pipelines, but we don’t stop there. If you are looking to diversify your pipeline, you have to move beyond referrals. We recruit from coding camps, professional development meetups and conferences with non-technical audiences.
Using referrals as a screen is not a great indicator of future success. First Round Capital found that accelerator demo days and Twitter research outperformed network referrals by 58.4 percent, and founders who pitched First Round directly without a referral did nearly 23 percent better.
Open application processes remove barriers for diverse founders. Accepting applications from anywhere is a good start, but if you want to attract different kinds of founders, you have to be public about your search and your screening criteria.
So much investment happens in a black box — to the detriment of diversity. Founders are resourceful, and they like to be associated with like-minded organizations. If you make your pipeline transparent, let people know who you are tracking and why — you will increase the likelihood of attracting diverse founders.
When we weren’t getting the volume of diverse founders we wanted, we did something radical. We published our pipeline. As soon as we opened up our process, we were flooded with pitches from founders who were not connected to any of our peer investors.
The day in the life of an investor — a venture capitalist or a foundation program officer — is marked by meetings. The volume of pitches required to find the next Mark Zuckerberg or Sal Khan is staggering. Investors have upwards of 400 meetings a year with entrepreneurs, and most will make less than 10 investments. If you want to invest in the next Tristan Walker or Nancy Lublin, you have to meet them first.Investors must prioritize increasing the number of meetings they take with diverse founders. An effective tactic is opening space on your calendar for “serendipity meetings.” These are a couple of hours a week reserved for founders or aspiring entrepreneurs who have different profiles than the ones we see all the time.
There is a funny thing about intention. When you shift your intention, you get different results. If you decide that investing in diverse founders is a priority, it becomes your job to find them. You can hire diverse investors and empower them to make investments in markets you may not have considered. You likely will meet with 40 founders before you make a single investment, so ensure that at least 20 of them are women and people of color.
If you are public about your commitment to diversity, you will attract the best deals from diverse founders. You will not have to sacrifice quality. You’ve likely missed huge market opportunities by getting stuck in pattern matching — but it’s not too late to turn that around.