Venture capital diversification is a numbers game
If you know where to look, Los Angeles and its surrounding towns are full of little gems explaining the area’s history. As he stood in traffic in Santa Monica today, a plaque caught my eye – it proclaimed that African Americans are one of the oldest cultural groups to inhabit seaside towns, dating back to the late 1900s. 1800s, and are responsible for building much of the infrastructure we use today.
Looking at the composition of business communities in Santa Monica and neighboring Venice, this historical context is far from obvious.
There are few people of color who have found tech startups in their Silicon Beach neighborhoods that can find venture capital funds to back them. A 2020 Deloitte study found that 93% of venture capital firms had no black partners and that black founders received just 1.2% of funds invested in US startups in the first half of the year. the year.
For women, the numbers were similar. Jesse Draper, general partner of Halogen Ventures, whose Playa Vista-based venture capital firm is on a mission to fund more women-founded businesses, says they are likely to raise 2-4% of venture capital funding. compared to men.
Local efforts to change this dynamic were the focus of LA Tech Week’s “Diversity and Inclusion in the VC Value Chain” event, held Friday morning.
Hosted by a coalition of nonprofits and advocacy groups, including Diversity VC, BLCK VC and LA Mayor Garcetti’s PledgeLA, the event focused on what venture capitalists and bankers can do to encourage more diversified investment in Los Angeles and around the world. The general consensus was simple: in the world of finance, numbers and data speak loudly. The more research that can be collected on the disparity of the financial ecosystem for underrepresented populations, the more likely venture capitalists are to change their minds and hire more diverse fund managers.
Diversity VC is currently working on its second report on diversity in venture capital, which will be published in October.
“The powerful thing about data is that you can’t argue with it,” Sarah Millar, Diversity VC COO and panel moderator, told dot.LA. “We see data as a way to engage stakeholders who might otherwise say we just don’t have enough information to make those decisions. By providing them with the information, we can at least take them one step further.
Aisling Carlson, Sieo’s chief commercial officer and a Diversity VC volunteer who helped organize Friday’s panel, said the company’s studies were sponsored by Amazon Web Services and SBB Research Group.
“Sometimes it’s these big institutions that are part of the problem, but they’re also trying to be part of the solution, so it’s a weird dichotomy,” Carlson said. “Knowledge [the problem]then doing something about it are two very different things.
Some of the panelists criticized what companies are actually doing with their diversity and inclusion initiatives. Mandy Bynum McLaughlin, CEO of BLCK VC, said she works for a startup called New Relic in San Francisco as the global head of diversity and inclusion. She found work trying to push these initiatives ended up being “watered down”. McLaughlin spoke alongside Draper and Fernando Zeledon, general manager of StartUp Grind East Los Angeles.
“That’s all to say that racism is alive and well and moving very intelligently,” McLaughlin said. She noted that she was trying to convince older, wealthier black people to put some of their money into investing in black founders. “There is a lot of money in our community. but the way our community invests is quite traditional,” said Bynum McLaughlin, pointing to athletes who invest in restaurants or sports teams.
During the roundtable, both Millar and Draper said that when it comes to convincing VCs to back various founders, it might seem like a no-brainer on paper, especially considering that female founders are more likely to exit and have higher rates of return. compared to men.
Draper recalled being contacted by Andreessen Horowitz (LA Tech Week’s sponsor) about a cultural impact fund, then being told it was just a $10 million grant. of dollars.
“I was like, well, you manage billions of dollars and [this fund] is only $10 million… So I wrote this article, “Investing in women is not a F—— Charity,” Draper said. “[This] does the investment a disservice, and it feels like charity, and that was very frustrating for me as a woman.
All panelists agreed that traditional investors are missing out on millions by not funding more diverse businesses. “These are people who don’t get capital, and that’s an economic opportunity for me,” Millar said. “Because if you don’t invest in them, and I invest in them, and they succeed, you’re missing out. How is this not a financial decision?
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