Diversity in Venture Investing
October 11, 2021
As a startup investor, I consider it an integral part of my work to make sure that the best startups get the capital that I can allocate, regardless of gender, background, or any other factors irrelevant to success. This means being mindful about the investment process and being on the lookout for where any diversity issues can occur.
Now that people are continuing to go back to the offices, I find it useful to reflect on how venture investing has changed as a consequence of COVID-19 and if any of the habits that emerged are worth keeping, and if any of them has an impact on the investment process from a diversity perspective. So far, I have two hunches:
Digital pitching eliminates irrelevant, biased information
When people talk about in-person meetings and why they prefer them, one thing that often comes up is that there is some subtle information transfer taken away from a digital meeting. Something is missing. This could be framed as a missing dimension, or it being harder to befriend someone through digital meetings.
To me, this thinking is problematic when it comes to venture capital-pitching. Clearly, this extra dimension is highly subjective. It is shown all the time that people like and trust people that are like themselves. When founders assume that I need to like or click with the founders to invest in their startups (which they sometimes do), I say absolutely not. That's not an objective decision-making process.
If digital meetings diminish the impact of irrelevant information that risks making a decision more biased, that's a good thing.
Digital scouting levels the playing field
It's pretty common for venture capital-scouting to take place behind the curtains, such as events, gatherings, or introductions through personal networks.
Some firms even downgrade the dealflow that they get through their website or as cold e-mail, because they are under the impression that the dealflow that comes through those channels is of lower quality than that which comes through attending an event or through your network. Think about that through a diversity perspective for a second. Again, as people like and trust people that are like themselves, that's who they are friends with, and those are the people who are in their networks. Those are the people you run into. Clearly relying on your network is not a great way to encourage diversity.
During COVID-19, some of these doors have been shut. Dealflow turned digital. I think it's a good thing, and continuing to take digital dealflow seriously is one of the very simple things that investors can do to nudge diversity in the right direction.
I think there is a lot to be said about diversity in venture investing. As of right now though, it's pretty clear that the track record is horrible - more on that another time. More things can and should be done, but that shouldn't stop you from grabbing low-hanging fruit when you see it.