The Ongoing Battle of Bias

It’s no secret that cultural and gender bias are still very much prevalent in startup scenes across the world. While I can’t say that I experienced bias during my time as a founder, as a VC I have seen first hand the opportunities that can be lost when a diversity mindset is not prioritised and acted upon.

At H2 Ventures, we highly value all facets of diversity and over the years it’s increasingly informed our approach to investing. We actively seek out founders from different backgrounds with eclectic skills, experiences and points of view. Our reasoning behind this is twofold; firstly, (and I would hope you don’t need a McKinsey report to tell you this), more diverse startups will grow more sustainably (as more points of view are considered), have more impact and will perform better financially. Secondly we believe that, as investors, the only way that we will grow and improve, as individuals and as a team, is if we challenge our own beliefs and approaches to problem solving. We’ve found that the best way to do this is to surround ourselves with people that aren’t exactly like us.

I have now met over 1,000 founders personally, and invested in over 100 of them. I recognise that for them, raising capital is hard, but investing in early stage ventures can be equally challenging. The majority of early stage investors don’t have experience as founders and most won’t have specific experience in the industry being tackled. Even those who do invest often and have experience as a founder cannot always take a “what worked then will work now” approach. This is why a diversity mindset and approach is critical to an investors success. Allowing biases, conscious or unconscious to permeate your investment process will leave you blinded to the diamonds in the rough. And from experience, I can tell you that those are the most rewarding.

I am honoured that our portfolio is filled with resilient and driven founders, many of whom have not allowed bias to defeat them, indeed, they have excelled despite the significant obstacles that they have faced. However, the fact that many founders succeed despite bias does not excuse the biases that exist in the startup community as it is counter-productive to the long-term health of the ecosystem. It is still the case that some of the very founders that we value most highly have, and continue to face inherent biases as they seek to raise capital to grow and establish their businesses.

I should say that my experiences represent a small sample set, and so my comments here are far from a scientific study, but I believe they serve as good examples of the kinds of biases we need to be vigilant against.

In the early days of the H2 Ventures Accelerator we used to have mentor days during which we invited mentors to select the teams they wished to work with after watching their pitches. As an experiment, we decided to tell the mentors that they could choose any team, even if that meant that one team had two mentors, and another had none. There was one team that did not receive any mentors. If this had happened once or even twice I might have put it down to chance but this happened at every mentor day we held for that cohort, each with a different set of mentors.

This was tough for the founders involved and I felt horrible for them, I couldn’t understand why they weren’t being selected, I was excited by both the team and the value proposition. When I analysed why this team was never selected, the only thing I could see that distinguished them from the cohort was that the founders were of a minority ethnic descent. At the time, I started to question my judgement as I felt that this was one of our best teams, which clearly did not align with the views of our experienced mentors. In hindsight, my views have proved to be correct as this team has gone on to be one of our most successful portfolio companies.

Another example of bias I witnessed was when one of our female led startups was going through a capital raise with a well-known investor. Everything was tracking well, terms had been established and the investor seemed keen. However at the last minute the investor said that they would only invest in the startup at less than half the value that had been in the initial terms and to top that off they questioned the leadership role of the female founder, suggesting that one of her male co-founders should take her place as CEO, when of the co-founding team she had the most industry experience and leadership skills to boot.

This left me flabbergasted. I had often heard about female founders being treated differently but had never witnessed it firsthand, and never expected to see it present so blatantly. I have observed a lot of our portfolio companies raise capital, but never seen any founder treated with what, in the end, is such irrational disrespect. The founder declined the investor and quickly raised capital from more sensible investors on the initial terms.

I of course still have work to do when it comes to my own biases especially as an investor, to ensure that I continue to grow as an individual and that H2 Ventures makes the best decisions when it comes to who we invest in. One area of diversity that I think we are nailing is culture. We continue to invest in founders from all over the world which brings such a fantastic edge to our portfolio.

Currently, 24% of our portfolio companies have a woman on the founding team, although it’s a big improvement from when we started, there is plenty of work left to be done on our part to make sure that number climbs. Encouragingly, the percentage of women applying for our program continues to trend up with each cohort. I am pleased to say that on a cohort level from we’ve gone from 14% female founders in each cohort to 40%, just in the last 18 months.

Diversity of thought matters, especially in the startup ecosystem where ‘outside-the-box’ thinking leads to breakthrough technologies, products and business models that can potentially affect the lives of people the world over. There is a reason that the iconic 1997 “Think Different” Apple commercial said, “Here’s to the crazy ones, the misfits … the round pegs in the square holes, the ones who see things differently”. If we want diversity of thought in our startup ecosystems, then we need to fight biases of all kinds towards all groups.

If we don’t make a conscious effort to build diverse teams, we will find ourselves building a team of people who are just like us. And, that is fine, it’s ok. But, I’ve never been motivated by “ok”, neither has my team or the founders we invest in.