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

By Ilene H. Lang and Reggie Van Lee

Over the last decade, U.S. venture capital investments quadrupled, the number of businesses started by women grew to 40%, and we’ve seen growth in the number of entrepreneurs of color. However, the percentage of venture capital dollars going to women-founded companies has barely budged since 2012, and the numbers are even worse for Black and Latinx founders — only 1% of VC-backed founders are Black, and less than 2% are Latinx.

The preponderance of capital invested in venture funds comes from institutional investors — foundations, family offices, college endowments, pension funds, and insurance companies. Large institutional investors are the lifeblood of venture capital. They can and should leverage their outsized resources and unique position to hold venture capital funds accountable for addressing race and gender gaps in their investment portfolios.

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.

There were a number of promising initiatives to change the status quo even before the raised consciousness and anti-racism protests of 2020. Numerous angel networks including Golden Seeds, Plum Alley, and Astia are providing seed capital to high-potential female founders. Morgan Stanley and Goldman Sachs started accelerators for women and multicultural entrepreneurs. And recently Andreesen Horowitz and SoftBank announced funds to provide capital, respectively, to underserved founders and entrepreneurs of color.

Read the full article as it originally appeared in Harvard Business Review.