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Diversity in Technology: An Eye-Opening Look at Venture Captial's Decision Makers

First Posted: Oct 19, 2015 03:01 PM EDT
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It's no secret that the technology industry has a diversity problem. And while larger firms like Apple, Intel, and others are now working to hire more staff from underrepresented minorities, the most well known representatives of Silicon Valley are only part of the overall picture. The other center of power is known as Sand Hill Road, a part of Silicon Valley that's the center of private equity for the tech industry.

It's literally a road in Menlo Park, California where venture capital firms -- the financial gatekeepers that decide which startups move beyond the earliest stages and grow -- have congregated. It's a key part of the diversity puzzle, and one that has gotten far less attention than the big Silicon Valley firms, until recently.

Early this month, Social + Capital, a firm headed by outspoken venture capitalist Chamath Palihapitiya partnered with tech industry blog The Information to release a massive report called "The Future List." The list compiles gender and ethnic background data on 71 venture firms, large and small, that together represent about $160 billion worth of investment power.

The results were not surprising, given the deluge of diversity reports from other corners of Silicon Valley that showed that mostly white men ran the show. But it does give insight into a recurring problem we've heard from many Latino tech entrepreneurs: Simply getting VC's attention to get their startups funded. In fact, less than 1 percent of Latino-founded startups are venture-backed.

As The Information reported on The Future List, among the senior VCs that make investment decisions, only 1.3 percent were Hispanic. In real numbers, that translates to a total of seven Latinos in decision-making roles on Sand Hill Road.

That's seven Latinos out of a total of 552 senior VC leaders throughout 71 of the most important venture capital firms that supply the financial capital startups need to become more than just startups.

Less than one percent of senior VCs were Black, or a total of four people. And an incredible 92 percent of senior investment teams at the top VC firms were men, with 78 percent being white. There were only 45 women in decision-making roles, or just over 8 percent.

In fact, when compiling data on all senior investment leaders within the 71 firms in the report, the results were that more than 60 percent of all firms had only men in the decision-making positions, and over a quarter of them were all white.

One might argue that the racial and gender makeup of VC decision makers isn't, or at least shouldn't be, a factor when it comes to which startups get funded. But Palihapitiya thinks it probably is.

In an op-ed accompanying the report, "Bros Funding Bros: What's Wrong with Venture Capital," Palihapitiya argues the "predictable and lookalike bunch" at the core of Sand Hill Road is a problem, not just for minority entrepreneurs trying to get attention, but for the industry itself.

"The venture capital industry is stuck in yesteryear-the same people, living the same lives and having the same experiences making largely the same decisions," asserts Palihapitiya. "This sameness may have been a strength, but now it is creating blindspots."

In other words, not having people with different experiences in the decision-making roles is weakening VC's ability to think differently.

Palihapitiya asks, "For every idea we fund, how many great ideas don't even get a sounding board because we can't relate to the problem or the entrepreneur? How much better off would we be if we had a larger lens from which to examine a broader class of entrepreneurs and ideas?"

His argument echoes a challenge issued to the Venture Capital Association earlier this year from co-founder of Latino startup hub Manos Accelerator (and JLo's dad) David Lopez. At the VC's annual conference VentureScape, Lopez asked the gatekeepers in attendance, "Why is it that [VCs] find it hard to invest in the Latino community?" He later said he didn't get an answer, but added it seemed they were working on it.

One answer may be that the vast majority of the decision makers aren't equipped with the experience to understand which ideas from Latino entrepreneurs are worth funding. Palihapitiya certainly thinks so:

We need a wake up call on Sand Hill Road. We need to recapture our potential and open the doors. Invite more people into the decision making: young people, Blacks, Latinos, females, LGBT and others who aren't necessarily part of the obvious majority. Surround ourselves with a more diverse set of experiences and maybe we will prioritize a more diverse set of things. Maybe we will find more courage to do the hard things.

For more details on The Future List, including methodology, a full list of the 71 VC firms and ranking by ethnicity, age, and gender score, and much more, check out the list (free subscription) here.

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