VC Diversity, Equity & Inclusion: Progress Report
Addressing Diversity in the Venture Capital Landscape
It is widely acknowledged that the venture capital sector has historically struggled with a lack of diversity. Fortunately, concerted efforts are now underway within the industry to foster greater inclusivity.
A fundamental principle for improvement lies in accurate measurement. Consequently, in 2016, a systematic approach was initiated to monitor progress regarding diversity, equity, and inclusion (DEI) within venture capital.
The VC Human Capital Survey
This initiative, a collaborative effort between the National Venture Capital Association, Venture Forward, and Deloitte, aims to gather comprehensive demographic data on the VC workforce. The survey encompasses firms of all types, sizes, investment stages, sectors, and geographic locations.
The survey also examines trends in talent management and recruitment strategies. Findings have indicated that while progress can be gradual, evidence suggests an increase in diversity – and the implementation of diversity-promoting practices – in certain areas.
Data collection occurred in 2016, 2018, and 2020, with the latest results released last month. The third edition incorporates data from 378 firms, a significant increase from the 203 firms that participated in 2018.
Notably, over 145 firms have pledged their commitment to transparency by signing the #VCHumanCapital pledge, agreeing to publicly share their DEI data.
Key Findings from the Survey
The data reveals that gains in diversity among investment partners have primarily been attributed to the recruitment and promotion of women. However, representation of Black and Hispanic investment partners has seen minimal improvement.
Conversely, the demographic makeup of junior investment professionals demonstrates greater diversity. Furthermore, the increasing adoption of diversity-focused talent management and recruitment practices offers a positive outlook.
While substantial work remains, the latest survey has highlighted several crucial insights and changes. These findings provide a valuable benchmark for continued progress.
- Female investors are driving the majority of diversity improvements at the partner level.
- Representation of Black and Hispanic investors remains significantly low.
- Junior roles show promising signs of increased diversity.
- More firms are adopting DEI-focused recruitment strategies.
The Growing Focus on Diversity and Inclusion
A rising number of companies are now formally designating individuals or teams to champion diversity and inclusion efforts within their organizations. Currently, 50% of firms employ a dedicated staff member or team for this purpose, a significant increase from 34% in 2018 and 16% in 2016.
Alongside this, the adoption of diversity and inclusion strategies is also expanding. 43% of firms now have a formalized diversity strategy in place, compared to 32% in 2018 and 24% in 2016.
Strategic Implementation and its Impact
Furthermore, 41% of firms have implemented a specific inclusion strategy, marking an increase from 31% in 2018 and 17% in 2016.
This deliberate focus on DEI initiatives is demonstrably linked to positive results in diversity metrics.
Correlation Between Intentionality and Outcomes
Companies that invest in dedicated DEI staff, coupled with robust strategies and programs, consistently demonstrate greater levels of gender and racial diversity within their investment teams and partnership structures.
The heightened attention to DEI is also reflective of a wider industry shift.
Increased Stakeholder Demand
A growing proportion of firms are reporting that their limited partners and portfolio companies are actively seeking information regarding their DEI practices over the last year.
Positive Trends in Talent Acquisition and Growth within Venture Capital
Although venture capital firms are typically characterized by their small size and stable employee base, data from 2020 indicates growth in investment roles. Specifically, 21% of firms noted an increase in senior-level investment positions, and 43% observed expansion in junior-level roles.
Furthermore, the composition of junior investment teams is becoming more diverse. This is evidenced by greater gender and racial representation among these professionals, serving as a promising sign for the future diversity of investment partnerships.
The adoption of Diversity, Equity, and Inclusion (DEI) initiatives is also on the rise. A growing number of firms are implementing dedicated recruitment and hiring programs focused on DEI. 33% now have formal DEI programs, and 74% utilize informal approaches, both representing consistent gains since 2016.
Compared to 2018, firms are now more inclined to consider external applicants when filling vacancies.
Challenges to Broadening the Talent Pool
Despite these positive developments, venture firms still heavily depend on existing networks for recruitment. This reliance can inadvertently lead to a lack of diversity in hiring decisions.
Analysis of survey data between 2018 and 2020 reveals minimal change in the utilization of limited recruitment methods for external candidates. The most frequently cited strategies remain leveraging industry peer networks (78%) and internal referrals (59%).
However, a notable exception exists. The practice of advertising positions on platforms like LinkedIn and in industry newsletters has increased significantly, from 37% of firms in 2018 to 54% in 2020. This represents a valuable opportunity to connect with a wider range of potential candidates beyond established circles.
- Key Finding: Increased use of online platforms broadens candidate reach.
- Important Note: Reliance on internal networks can hinder diversity efforts.
The Difficulty of Measuring Inclusion
Following the successful recruitment of diverse talent, fostering an inclusive culture and ensuring employee retention are crucial indicators of progress in Diversity, Equity, and Inclusion (DEI) initiatives. A growing number of companies are now establishing programs focused on leadership growth, mentorship opportunities, and strategies to improve retention rates.
Currently, approximately two-thirds of firms utilize informal programs of this nature – a 20 percentage point increase since 2016. Furthermore, 20% of firms have implemented formal programs designed to support these goals.
Challenges in Inclusion Assessment
Evaluating inclusion levels presents a significant hurdle when utilizing the VC Human Capital Survey. The survey methodology relies on responses from a single representative per firm, which inherently limits the ability to accurately reflect the experiences of all employees regarding inclusivity.
It is difficult for one individual to comprehensively assess the degree to which inclusion is felt across the entire organization. To address this, a new question was incorporated into the 2020 survey to understand how firms are internally evaluating inclusion.
The results indicate a disparity: while 41% of firms state they have a defined inclusion strategy, only 26% actively gather feedback from their employees through surveys specifically designed to measure inclusion.
The Continued Influence of Subjectivity in Promotion Processes
Robust and consistently implemented policies regarding career progression are essential for guaranteeing that a diverse range of skilled individuals attain leadership positions within the industry.
Currently, around 20% of companies indicate the presence of formal Diversity, Equity, and Inclusion (DEI) initiatives specifically targeting promotions – a notable increase from the 5% reported in 2016.
Furthermore, 65% of firms now operate with informal DEI programs related to advancement, contrasting with 39% in 2016.
The Persistence of Subjective Evaluation
Despite the growing prevalence of DEI programs designed to support employee promotion, subjective criteria continue to exert a significant influence on promotion decisions.
This reliance on subjectivity can unfortunately contribute to disparities and biased results.
Key Factors in Promotion Considerations
Nearly all firms surveyed (90%) consider “contributions to fund performance” as a very important or important factor when evaluating candidates for promotion.
Similarly, a substantial 82% of firms place significant weight on “deal origination” capabilities.
However, the factor most consistently highly rated is “soft skills,” with an overwhelming 94% of firms deeming it very important or important.
These subjective assessments create a considerable potential for unconscious bias to affect outcomes.
Consequently, the emphasis on these factors may diminish the importance given to objective performance metrics.
A more demonstrably relevant evaluation of performance is crucial for fair promotion practices.
Sustaining Progress in Diversity, Equity, and Inclusion
The findings from the third iteration of our survey arrive at a crucial moment. This follows a year characterized by heightened national attention on social justice and racial equity. Simultaneously, legislators have been working to broaden access to funding for historically disadvantaged groups, and the venture capital sector has demonstrated a renewed commitment to DEI principles.
The survey highlights areas where the VC industry’s efforts would be most impactful. It also underscores the interconnectedness of needs within DEI-centered programs.
Understanding Intersectional Representation
The data reveal that advancement within a single demographic category can present a more complex picture when examining individuals belonging to multiple marginalized groups. For example, while the proportion of female investment partners has shown consistent growth, the representation of women of color in these roles has not mirrored that trend.
This illustrates the importance of considering intersectionality when evaluating DEI initiatives.
A Measured Pace of Change
Although progress in DEI has been gradual and inconsistent in certain areas, there are grounds for encouragement. On April 6th, the NVCA, Venture Forward, and Deloitte convened a discussion featuring industry leaders.
The purpose of this meeting was to analyze the latest survey results and tackle DEI challenges, opportunities, and strategic approaches for the industry.
Increasingly, firms are prioritizing these constructive dialogues, both internally and publicly with their counterparts. A more collaborative approach is emerging, with firms implementing well-considered and actionable DEI strategies with purpose and a sense of urgency.
Looking Ahead
Continued dedication to DEI initiatives and building on the current momentum could lead to a significant turning point. This shift would be demonstrably reflected in the results of subsequent survey editions.
Continued commitment is essential for achieving meaningful and lasting change within the venture capital landscape.
- Focus on intersectional representation.
- Prioritize collaborative strategies.
- Act with intentionality and urgency.
