Diversity and Venture Capital: What we Learned from The Information’s Diversity Index
The Information is a subscription-only digital media company founded by Jessica Lessin, a longtime journalist who got her start at the Wall Street Journal covering technology and media. The organization is estimated to have more than 10,000 readers across 84 countries, and recently launched an accelerator program dedicated to growing the subscription news business.
Since 2015, The Information has published an annual “VC Diversity Index” — working with Social Capital to report on the lack of diversity in the venture capital industry. Using a probabilistic methodology, they’ve set out to gather and evaluate gender, ethnicity, and age data on General Partners and Managing Directors at U.S. firms: painting a picture of the people who are ultimately responsible for making investment decisions.
“We used a diversity index based on probability: the chance that any two people from one firm will be the same gender or ethnic background,” writes reporter Serena Saitto. “The lower the score, the lower the diversity. This approach uses the same principle as the Simpson Index (ecology) and the Herfindahl Index (economics). The diversity [of age] score is based on the probability that someone encounters a person within five years of their own age at their firm.”
To narrow their data set, they focused largely VCs with a minimum of $250 million in assets under management (AUM) making early-stage technology investments. The results represent an analysis of 73 firms, all of which had raised at least one new fund in the past five years.
The Results
The takeaway: overall, the number of women in senior investment roles has increased since 2016, from 62 to 90.
“The VC industry remains predominantly male and white,” Saitto writes. “But small gains made by women — several prominent firms such as Benchmark and Union Square Ventures hired their first female partner last year — suggest the industry is paying more attention to gender diversity.”
Yet despite these numbers, there’s still an incredibly long way to go. And according to data from All Raise, an organization on a mission to “accelerate the success of female funders and founders,” these numbers can actually be misleading. Of the 89 firms that do have female representation, 78% have just one female partner. And the fastest growth of women in VC comes from new fund formation, not from existing funds hiring more women.
The gap
While there may be more female partners making investment decisions across the VC ecosystem, this hasn’t yet translated into a meaningful increase in the number of female founders receiving funding. Women (especially women of color) continue to struggle raising capital, and in turn, access the resources necessary to build their products and their networks.
It’s notable that only 50% of the firms that The Information surveyed responded when asked how many female entrepreneurs they had backed in the past five years as a proportion of their total investments. Of those who did answer, this number averaged around 18%.
Pitchbook’s most recent study confirms these numbers: In 2017, female founders raised $10.5 billion in VC funding, up from $6.7 billion in 2016. But when viewed through the lens of yearly increases in total institutional investment, these numbers represent no significant year-over-year gain. (Source) In fact, AllRaise reports that the growth rate of funding going to female-founded companies has actually plateaued over the last four years. (Source)
This data varies depending on your source and methodology. It’s worth noting that while The Information analyzed funds with more than $250 million AUM, All Raise looked at any firm with a fund size greater than $25 million. Regardless, the problem, as described by All Raise, is clear to see.
“The tech industry proudly builds the future, but in many ways still operates in the past,” they write. “The lack of diversity in tech has created a culture and economy that disadvantages women and minorities in raising capital and building ground-breaking companies with lasting impact.”
The future
At R/GA Ventures, it’s our goal to take small steps to level the playing field. From June 17th — 22nd, we’ll be traveling to the Cannes International Festival of Creativity with a group of female founders, giving them the opportunity to network with global brand leaders and pitch their companies in front of an influential audience. If you’re a founder in the media, marketing, communications, or advertising space, or know someone who is, you can apply for the five-day academy here.
