Fund III Diversity Goals — A Follow-Up on How We Did
In June 2020, we wrote a Medium post summarizing our commitments to investing in an equitable and just society. In that post, we laid out our 50–10–10 initiative for Fund III, with the goal of building a portfolio with companies that are 50% women-founded, 10% Black founded, and 10% Latinx founded, inspired by Project Include. At Better Ventures, we believe that backing underrepresented founders is both a moral imperative and a source of financial outperformance, what the Harvard Business Review calls the Diversity Dividend.
As promised, now that Fund III is fully invested, we’re providing an update on how we did. In short, we’re proud of the progress we’ve made, and yet we still have more work to do. Further below, we outline our plans for Fund IV including setting a stretch goal for founder diversity that goes beyond 50–10–10 and reflects the general population.
Fund III Results
We’ve fully invested Fund III (except for some holdback for follow-on) in 26 companies. Just under half (46%) of our companies are female-founded, while the majority of our companies (54%) have one or more non-white founder(s). 15% of our companies are Black-founded, 12% have one or more Latinx founder(s), and another 27% have at least one founder of color (who isn’t Black or Latinx). We’re pleased with the overall progress we’ve made, as we came in just 4% shy of our gender diversity goal (more work to do!), while we exceeded our goals for both Black and Latinx founders by 5% and 2%, respectively. Compared to these two groups’ representation in the overall population, we exceed the mark for Black founders (15% vs. 12.7%) but came up short for Latinx founders (12% vs. 17.6%).
Gender Diversity By Fund
You can see below that the gender diversity of our founders increased significantly from Fund I to Fund II as we made that a top priority, and we did a decent job of holding the line close to 50/50 as we went from 19 investments in Fund II to 26 investments in Fund III. We did this by focusing more on deal sourcing organizations (e.g. accelerators, university programs, and other venture firms) led by women and by hiring women investment professionals (including Lyndsey Boucherle, who initially joined us as an Associate and was recently promoted to Partner). We’ve also benefited from the flywheel effect of backing more women founders, as they themselves have become a great referral source for additional female-led companies.
Racial Diversity By Fund
We’ve come a long way on racial diversity among our founders since Fund I, and the biggest increase was from Fund II to Fund III, as we prioritized backing more Black and Latinx founders. We exceeded our Fund III dual 10% goals for Black and Latinx-founded companies by 5% and 2%, respectively, by taking a deliberate approach to diversifying our deal sourcing channels over time. We know it doesn’t happen overnight, which is why in the summer of 2020 we implemented a bi-weekly DEI Ops team working session. This intentionally carved out time enabled us to focus on the tactics of diversifying our deal flow, including building relationships with GPs of color, reaching out to Historically Black Colleges and Universities (HBCUs), building datasets of founders of color (e.g. Latinas in tech, top women in AI, and Black researchers), and adding diversity criteria to DealBot (our data-driven deal sourcing engine).
Gender and Racial Diversity Across All Funds
Below is a snapshot of where we stand on gender and racial diversity across all three of our fully-invested funds, representing 61 portfolio companies. Despite our slow start with Fund I, our focused efforts to diversify with Funds II and III have paid dividends, with overall representation of 43–8–8 across women, Black, and Latinx-founded companies.
Helping Our Companies Implement DEI
In our 2020 post, we also outlined plans for our team to participate in unconscious bias and inclusive culture training and to help our companies implement DEI best practices. After many months of research to determine the best firm to lead the training, we chose Paradigm, and they hosted an excellent virtual session for our team and many of our portfolio companies in April 2021. We were also joined by Bee Partners and Congruent Ventures along with some of their portfolio company founders. The training was very helpful in uncovering unconscious biases that can negatively impact investment decision-making and highlighted the importance of tuning into your staff to build an inclusive culture. We’ve followed up on this training by hosting additional DEI focused events with our founders, including one led by the CEO of a Fund II company with 300 employees that has had good success with building a diverse team and inclusive culture.
We’ve also started working more closely with our portfolio companies to help them implement DEI best practices as early as possible and to track diversity metrics over time. We started adding (non-binding) DEI mandates to our term sheets in Summer 2020, and I’m happy to share that these have been well received by the companies we’ve invested in; we were worried some founders might push back on these but instead they’ve welcomed it and want to work with us to achieve these goals. Additionally, Lyndsey on our team took the initiative to put together a thoughtful DEI Playbook, which helps guide our early-stage companies through best practices with regard to setting DEI goals, recruiting diverse teams, and building inclusive cultures. Feel free to reach out if you’d like to learn more, as we’re happy to share.
What’s Next
We launched Fund IV in early February with the same 50–10–10 diversity goals that we set for Fund III, and we plan to invest in 30 companies. While we know we have our work cut out to achieve these goals, especially as we add five more companies to the portfolio, we plan to press into the effort and move even closer to the makeup of the broader population. Thus, we’re also setting a stretch goal of 50–13–18, i.e. building a portfolio that is 50% women-founded, 13% Black founded, and 18% Latinx founded. In addition to continuing the efforts outlined above, we’re also planning to add diversity to our team as we hire a Head of Platform and bring on new GPs of color to our Advisory Board.
We look forward to sharing more updates in the future, and we welcome your thoughts and comments on everything we’ve shared and what’s working well for you. And a big THANK YOU to those of you in our community who generously carved out time from your busy schedules to give us great feedback on this post!
