Institutional Investors Must Help Close the Race and Gender Gaps in Venture Capital

From the Harvard Business Review. Research repeatedly shows that companies with diversity in senior leadership significantly outperform their all-white, all-male counterparts. Diverse leadership generates better financial performance, stronger innovation, and higher levels of startup success. Yet, despite compelling performance data, venture capital isn’t following the opportunity. This is true for a variety of well-documented reasons: gender and racial stereotyping, unconscious bias, systemic economic barriers, and Silicon Valley’s preference for serial entrepreneurs. Chief executive officers, chief investment officers, board members and trustees of large institutional investors — many of whom claim to care about diversity and inclusion — can make a meaningful difference by holding venture capital funds accountable with three changes to operating practices that have proven effective: 1) Require their long-established VC fund managers to report the number of companies with gender and racially diverse leadership they are investing in, as well as the capital committed to these companies — both during due diligence for all new funds and at annual performance reviews; 2) monitor the number of women, Black, and Latinx people in senior decision-making investment roles at their established VC funds; and 3) adopt new guidelines to invest in high-performing emerging VC funds that are 100% committed to gender and racial diversity.