Turning point or momentary distraction for tech?

We are at a crossroads. VCs can take the hard road to reforming our industry through innovation and accountability… or continue with the status quo after a moment of self-flagellation.

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Harassment in general is a symptom of a much bigger problem in tech: exclusion. Just as when a venture capitalist harasses, it’s usually not isolated: It’s not just one woman who gets harassed, it’s many. And it’s often tied to an unhealthy corporate and industry culture. If you have so little respect for women that you’re harassing them, you’re unlikely to be respectful in other contexts: funding decisions, boardrooms, advising. And it’s not just women — you’re less likely to be respectful of other underrepresented groups.

Signing onto a statement that we as an industry are not going to harass women is necessary but far from sufficient for fixing the systemic injustices plaguing tech and venture capital. Sexual harassment isn’t usually just about sex. It is about power and the traditional gender roles we expect people to occupy. No sector of the tech industry has more power than VCs, who make or break a company and founder.

VC firms, you need to work on yourselves and on your portfolio companies. Diversity and inclusion should be a top priority — it’s part of building a culture and company just as much as a business model, an HR process, a marketing function, and your product. It impacts all these areas even if you don’t make it an explicit priority. We’ve now seen that failing to really incorporate diversity and inclusion has consequences for those who failed to see its importance.

Project Include knows VC firms can easily take the lead in tech diversity and inclusion. They can hold their portfolio companies accountable by adding comprehensive diversity metrics to their quarterly reporting and by implementing our recommendations in their own firms. Taking the lead to make their own firms diverse and inclusive will give VCs the credibility and experience to be better advisers to tech startups — and better investors making better decisions and driving better returns.

VCs can determine the trajectory of a startup. The first critical step they take is to decide whose plans to consider and which companies to fund. They have a strong influence on the selection and placement of board members, since CEOs and founders may look to the VC’s network for candidates and usually require VC approval. VCs also interview and select the senior management team, and sometimes replace CEOs, at the startup phase and over the lifetime of the portfolio company as founders and other leaders are replaced.

Almost all VC firms do not have diverse or inclusive teams internally,1 so their ability to directly help their portfolio companies build diversity and inclusion into their cultures and teams is limited. The 2015 Future List survey found that 92 percent of the senior investment teams were male and 78 percent were white; it also counted a total of only four Black VCs and seven Hispanic VCs (demographic breakdowns for Latinx VCs were not provided) out of 552 senior VC investors.

Recently, we have seen a few women added to investing teams, but often as the “only ones.” There is little to no racial and age diversity, few disabled people, limited numbers of veterans, and little religious diversity. Caregivers, remote workers, and people from nontraditional backgrounds are also poorly represented. The limited amount of investment in founders from underrepresented groups is disappointing, and VCs have work to do to overcome their biases.

Until recently, firms did not track or share information on diversity and inclusion on their own teams — much less among the founders they funded, or the teams those founders built.

Here are our recommendations for VC firms for meaningful lasting change:

1. D&I work is complicated, takes time, and requires tradeoffs. VCs should recognize the hard work and value of preventing problems before they become too difficult to manage internally. As board members and advisors, they should reward efforts to build better, happier teams that make better decisions and ultimately drive a 35 percent likelihood of better financial performance.4 They should already understand how much work and money it takes to clean up a culture and change behavior — and how it can take down a company and its founders if you don’t. Recently, several companies announced costly product changes to counter racism on their platforms. These changes might have been avoided had diverse and inclusive teams had been part of the product development process in the first place to anticipate and prevent obvious abuses of their services.
2. VC firms need to require their portfolio companies to commit to set and achieve diversity targets. They are uniquely positioned to encourage founders to address diversity and inclusion during the particularly crucial early stages of a startup — which will avoid the harder work of solving problems later. They can help by expanding their own recruiting networks to provide more diverse leadership candidates for their startups.
3. Similarly, VC firms should employ coaches and mentors to help founders create open, empathetic, and inclusive cultures. They should further consider adding a scouting program for sourcing potential investments with diverse founding teams.
4. Adding the metrics we suggest to portfolio reports allows VC firms committed to inclusivity to track progress at their current and potential investments. They should be looking for diversity in their portfolio companies based on research showing that companies with diverse leadership and boards have better financial performance.

To help fix these problems they have contributed to, VCs also need to look at outside scale solutions.

1. Financially support organizations that deliver comprehensive, meaningful, and actionable programs towards improving D&I in the technology sector to help fix the problems.
2. Engage trusted, reputable diversity experts to develop thorough and public sexual harassment policies that are actioned. Allocate at least 10% of their fund to seed investments in companies with majority women/people of color/women of color founders, run by a WOC/POC.
3. And to take down some of the structural problems, we need to hear others’ stories. Eliminate any non-disparagement and non-disclosure clauses, and don’t require arbitration.
4. Listen to these stories themselves. Follow women, people of color, and women of color on social media. Seek out voices that are different than the ones you are already surrounded by every day.

We hear many of the people who through action or inaction are responsible for this problem now speaking up. We’ve laid out a list of actions. Let’s move forward together so the tech sector can live up to its full potential.

This piece represents Ellen’s and Project Include’s views and not necessarily those of any other organization.