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Updated February 11, 2023The National Venture Capital Association’s (NVCA) 2020 VC Human Capital Survey sampled 2,500 investors in the US, and found that 3% of partners—those with decision-making and check-writing power—identified as Black (compared to 12.6% of the US population); 3% of partners identified as Hispanic or Latinx (16.9% of the US population); 14% of partners identified as women (52% of the US population). In the UK, figures based on a similar sample of around 2,100 venture capital investors mirrors this picture. For the UK, Diversity VC’s latest survey from 2019 reported that only 13% of partner roles are held by women (compared to 47% of the UK labor force overall), and 83% of all UK venture firms have no women in their decision-making bodies. Further, the number of women on investment committees has not improved since Diversity VC started reporting on these numbers in 2017. The study found that just 8% of all VCs in the UK are Black or of mixed heritage (versus 13% of the population in London, where most of the UK’s tech sector is based), while 12% are Asian. As we’ll discuss later, these numbers have remained stagnant since 2020, and some have shrunk to even smaller percentiles.
The disparities in other parts of the VC world are similarly pronounced: a 2022 report on the European ecosystem, “European Women in VC,” found that 85% of VC general partners in Europe are male, with the UK (87%), Southern European (90%), and Central European countries (90%) trending even above this average. Even more telling is the “fire power” that certain investor groups have, meaning the overall share of the money in VC; according to the same report, women in Europe control only 9% of capital (5% in the UK, 6% in the Nordics). Indicative numbers for Latin America and Canada tell a similar story. Class is a significant variable as well, and the numbers are staggering: in 2018, 40% of US VCs had degrees from Harvard or Stanford; in the UK, one in five VCs went to Oxford or Cambridge (compared to 1% of the UK population average). As this book will reveal, the closed networks of elite institutions play a large part in keeping the industry homogenous, with many people intentionally locked out.
For an industry which has for the last 80 years filtered which ideas and technologies reach the market and change the world, this is a disastrous picture. Not only is this group nowhere near representative of the population it makes decisions for, it has neglected to make the best investments to maximize financial outcomes. Increased diversity in investment teams has been shown to contribute positively to the performance of venture capital funds: an authoritative Harvard study based on over 20 years of quantitative data from the US VC industry, for instance, demonstrates the impact a lack of diversity in the investment committee of a VC fund can have. The more similar the investment partners in a fund are, the lower the success rate for acquisition or IPO. To the contrary, if a fund increased their share of female partners by 10%, they had on average a 1.5% higher overall fund return each year and 9.7% more profitable exits. McKinsey & Company have published several studies (“Why Diversity Matters”, “Delivering Through Diversity”, “Diversity Wins: How Inclusion Matters”) on diversity in more general corporate contexts, which conclusively find that having more women and people from diverse ethnic backgrounds as executives in companies leads to higher financial performance. According to McKinsey’s recent study, companies in the top 25% for gender diversity of executives were 25% more likely to report above-average profitability than companies in the bottom quartile. Similarly, companies in the top quartile for ethnically diverse executive teams have a 36% higher likelihood for above-average profitability.
The data and the business case are very clear but—in the converse of the 2020 NVCA report’s optimistic conclusions—very little progress has been made towards changing the numbers so far. This book looks both at the history and reasons we are in this position, and provides a first-of-its-kind overview of proven best practices to inspire action towards the change that is needed now.
There are four key reasons why the homogeneity of the VC industry matters: