VCs have an enormous impact on the world, as investors we influence who the next billionaires are going to be. Capital at this scale distorts the world: those with money wield great power within society and politics; their voices are louder. But the same is also true of the products of companies that VCs support. These products create the platforms that shape the world. The sheer scale of technological innovation fundamentally impacts the way we live day to day. It is essential that VCs seriously consider their responsibility in diversifying the ecosystem behind this immense power.
Currently, the best way to become a founder is to have money already and/or have a failed startup, preferably two. If you can support yourself financially, then you are able to make any money you are given go further: you’re more likely to survive; you’ll last longer. If you have a failed startup, or, even better, multiple failed startups, VCs will happily give you more money. (Resilience and fortitude are, after all, vital characteristics of a successful entrepreneur.) This is not diversifying power, though. Many people don’t have the financial safety net to acquire such experiences. This is reinforcing the hegemony of people with money and power.
At Anthemis, we know how important diversity is. It is an integral part of our culture. We know that diverse teams make better, more informed decisions. The business case for building diverse teams has been proven: a recent McKinsey study found that racially and ethnically diverse companies outperform industry norms by 35%. Anthemis is — as of June 25, 2019 — a woman-led enterprise with 55% female employees, whilst 38% of our investment team is female, compared to the industry average of 18%.
Employees of firms with inherent and acquired diversity are 45% more likely to report a growth in market share and 70% more likely to report the firm has captured a new market.
Source: Center for Talent Innovation
Cognitive diversity is also essential. The broader the spectrum, the deeper the awareness and resilience. Whether someone is rebellious or curious; Oxbridge-educated or self-taught; has a financial or non-financial work history, each adds value to the team.
Diversity inside a team is only part of the issue, though. To avoid reinforcing hegemony, to avoid too much societal distortion, we need to look more closely at our ecosystem. For it is that network of connections which decides which direction society will move next.
There are potential entrepreneurs in every strata of society. An optimal portfolio, therefore, should naturally represent the heterogeneity of society as a whole. Too often, VCs are simply reacting to what comes in. There are reasons for this: we have limited time; we need to be as efficient as possible; we are ultimately judged on the number of great deals we make. These are important considerations. But what about if we were to take a higher-risk approach to long-term interactions?
For example, instead of connecting with people because they are ready to found a company or have useful knowledge for us today, how about taking an educated gamble on an individual being useful because they are different or because they have characteristics that will play out well in the long term? Those who have been through personal difficulty, for example, may make better entrepreneurs because they have higher resilience. (See Stephanie Duchek’s 2018 article: “Entrepreneurial Resilience.”)
It isn’t just about increasing opportunity, fairness and social justice. It also makes sound financial sense. The more diverse the ecosystem is, the wider the pipeline becomes and the higher the deal flow. We need to focus on creating the best and the most diverse pipeline. We cannot afford not to, otherwise we are missing out on a multitude of opportunities for investment.
You can only be what you can see. To realise that you can be a founder, to know that that possibility is even out there, you need to know someone who has done it. There’s a kind of truth to this. And it’s directly relevant to us. Communities need to be exposed to entrepreneurs and/or investors. If we, as investors, are not visible being ourselves out in the community, if we are not saying to communities that you, too, can be a part of this world, then we are dramatically reducing the efficiency and scope of our pipeline. At a micro-level, this is bad for business: we’re leaving great resources untapped. At a macro-level, it is bad for society: we’re valuing privilege over diversity.
VCs are at the centre of a vibrant ecosystem of startups and financial institutions. If we can diversify this ecosystem, then our portfolio will organically diversify. To do this we need to reach outside of our own personal groups and diversify our own personal networks. Take Frontier Ventures, as an example. Although the company was set up by white male partners only, they reached out to communities with more women present and now 19% of their companies have at least one female founder.
Once we have diversified our own personal networks, we then need to be proactive and invest in our own communities. We need to invest deliberately in our people in order to bring their existing diversity into the network more explicitly. This might be the offer of free pizza, or a space to work in, or a forum to share expertise or advice. Diversity should feel effortless if done well.
A great example of how a supportive and diverse community can grow organically is YSYS: Your Startup, Your Story. Deborah Okenla, the Founder and CEO, has taken the overlapping notion of intersectionality and applied it to an online startup community that focuses on putting founders, developers, creatives and investors together.
To my mind, there is no number that signals a diverse portfolio, just as there is no equation that fully captures a diverse work environment. There is no diversity end goal, where equality has been magically achieved. It’s about asking whether you can look at your company, your portfolio or your network and say: “Yes. I’m proud of this.”