Taking stock of the VC industrys progress on diversity, equity and inclusion – TechCrunch

Bobby FranklinContributor

Lets be clear: The venture capital industry has lacked diversity. The good news is the industry is working to improve itself.

To begin with, as an industry, venture capital can only improve what we measure. In 2016, we set out to develop a rigorous methodology for tracking progress on diversity, equity and inclusion (DEI) in venture capital, and to measure and benchmark those data through our biennial VC Human Capital Survey.

The goals of the survey powered by the National Venture Capital Association, Venture Forward and Deloitte are to collect demographic data on the VC workforce across all firm types, sizes, stages, sectors and geographies, as well as trends on firm talent management and recruitment practices. Weve learned that progress can be slow and seem discouraging, but weve also captured evidence that diversity (and firm practices to advance diversity) is increasing in some areas, even as other areas have unfortunately not seen the same pace of change.

We fielded the survey in 2016, 2018 and 2020, and released the outcomes of the third edition last month, featuring data (as of June 30, 2020) collected from 378 firms, a marked increase from 203 participating firms in 2018. Furthermore, more than 145 firms signed the #VCHumanCapital pledge to publicly commit to submitting their DEI data.

At a high level, the data showed that improvements in diversity among investment partners have largely been driven by the hiring and advancement of female investors, while there has been little progress in the equitable representation of Black or Hispanic investment partners.

However, the demographic composition of junior investment professionals reflects greater diversity and wider adoption of diversity-focused talent management and recruitment practices suggest some cause for optimism. The industry still has a long way to go, but here are some of the key insights and changes we identified from the latest survey.

More firms are explicitly assigning responsibility for promoting diversity and inclusion internally 50% of firms have a staff person or team tasked with this responsibility (compared with 34% in 2018 and 16% in 2016). Simultaneously, diversity and inclusion strategies have become more widespread; 43% of firms have implemented a diversity strategy (against 32% in 2018 and 24% in 2016), while 41% have an inclusion strategy (versus 31% in 2018 and 17% in 2016).

This intentionality translates to improved diversity outcomes. Firms with dedicated DEI staff, strategies and programs achieve greater gender and racial diversity on investment teams and among investment partners. The increased emphasis on DEI is also a broader ecosystem trend. More firms report that limited partners and portfolio companies have requested their DEI details over the past 12 months.

Venture firms are relatively small and turnover is generally low, but 21% of firms in 2020 reported their number of senior-level investment positions had increased, while 43% said their number of junior-level positions had expanded. Meanwhile, the demographic composition of junior investment professionals reflects higher gender and racial diversity, a positive leading indicator for the diversity of future investment partners.

As overall DEI strategies have become increasingly widespread, more firms have also developed DEI-focused recruitment and hiring programs 33% of firms have formal programs, while 74% have informal programs, both reflecting steady increases from 2016. Firms were also more likely to report that they typically seek external candidates for open positions than they did in 2018.

However, firms continue to largely rely on internal networks for recruitment, which often encourages homogeneous hiring outcomes. Between the 2018 and 2020 surveys, there was little change shown in the use of narrow recruitment methods to find external candidates; notifying peers in the VC industry (78%) and notifying the firm internally (59%) were the strategies cited most often. The exception was posting on third-party websites like LinkedIn or in newsletters, a strategy reported by 54% of firms in 2020 (a substantial increase from 37% in 2018), which presents one avenue to reach a broader audience of candidates outside of existing networks.

Once talent has come on board, inclusive culture and retention become key metrics of DEI progress. More firms are implementing programs dedicated to leadership development, mentorship and retention, with about two-thirds reporting informal versions of such programs (20 percentage points higher than in 2016) and 20% of firms reporting formal programs.

Assessing inclusion through the VC Human Capital Survey is challenging because we survey one representative per firm, and one person cannot speak to the degree of inclusion felt by others. However, we added a new question to the 2020 survey to gauge how firms themselves are assessing inclusion. While 41% of firms reported having an inclusion strategy, only 26% said they conduct surveys of their employees to assess inclusion.

Well-structured, consistently applied policies for career advancement are critical to ensuring that diverse talent reaches the most senior decision-making levels of the industry. About 20% of firms reported having formal DEI programs focused on promotion (up from 5% in 2016), while 65% of firms have informal programs (compared with 39% in 2016).

Although DEI programs focused on the promotion of employees are more widespread, subjective factors remain a key consideration for promotion decisions, which can lead to unequal and biased outcomes.

Almost all firms reported that contributions to the performance of the fund (90%) and deal origination (82%) were very important or important factors in considering promotions. However, the factor most often rated highly was soft skills, with 94% of firms saying it was very important or important. These types of subjective factors present significant opportunity for unconscious bias to creep in and can detract from the weight given to objective measures more demonstrably relevant to performance.

The results of the third edition of our survey are timely, coming on the heels of a year in which social justice and racial equity have been the subjects of sharp national focus, policymakers have sought to increase access to capital for underserved communities, and the VC industry has shown a renewed focus on DEI. The survey shows where the VC industrys efforts should be focused and also serves as an important reminder of the intersectional needs of DEI-focused initiatives.

The data show that progress within one demographic element can be more nuanced when considering people who represent multiple marginalized communities (e.g., the percentage of investment partners who are women has steadily increased, but the percentage of investment partners who are women of color has not).

The pace of DEI progress has been slow and uneven in some areas, but there are reasons for optimism. On April 6, NVCA, Venture Forward and Deloitte hosted a discussion with industry leaders to further examine the latest survey results and to address DEI challenges, opportunities and strategies for the industry. More firms are prioritizing these constructive conversations, both within their firms and publicly with industry peers. More firms are acting in a collaborative spirit, adopting thoughtful and concrete DEI strategies and acting with intentionality and urgency.

If the industry can continue to build upon this momentum and commitment around DEI efforts, we can reach a tipping point that will translate to meaningful progress reflected in future editions of the survey.

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Taking stock of the VC industrys progress on diversity, equity and inclusion - TechCrunch