Diversity is core to competitiveness. A 2014 Harvard Business School study, The Cost of Friendship, found that success rates of entrepreneurs diminish when co-investors have similar backgrounds and experiences. As an industry, we have a lot of work to do, and NVCA is committed to helping investors and entrepreneurs build diverse, competitive teams.
Last week, the NVCA team, our members, and partners Deloitte, Proskauer Rose, Silicon Valley Bank, Miller Law Group and the Nasdaq Entrepreneurial Center joined together to host Policies Driving Innovation in San Francisco to provide data, insights and resources. We also rolled out the new NVCA Sample H.R. Policies – a free resource to help venture firms build inclusive H.R. practices.
A Talent Strategy is Key: How Policies and Programs Attract and Retain Diverse Employees
NVCA-Deloitte Human Capital Survey found VC firms with a human capital strategy have an average of 54% female and minority employees overall; firms without a human capital strategy average only 41%.
Firms with formal mentorship programs have 16% greater representation of women in leadership roles.
During the event, Emily Anderson, Consultant, Deloitte Survey Research & Analytics Center, Inclusion Center of Excellence and Carl Bennett, Principal, Deloitte Consulting walked through the results of the 2016 NVCA-Deloitte Human Capital Survey. Our survey examined the current state of diversity across the venture capital industry and collected data from 217 U.S. firms on employee demographics and firm talent-management practices.
The survey explored the lack of demographic diversity in the VC industry. The ratio in venture capital and startups is not proportional to the opportunity: women and underrepresented minorities create new technologies and medical therapies and are customers and buyers of innovation. But far too few investments are made by the venture industry into women and minority led companies. And this lack of demographic diversity extends to the firm level, where women comprised only 11 percent and minorities only 15 percent of Investment Partners or equivalent in our sample. Firms may be missing opportunities to develop relationships when they do not represent the growing population of talent in the market.
Importantly, the results showed that having a talent strategy makes a difference. We found a strong correlation between the existence of human capital strategies at venture firms and their representation of women and minorities. VC firms with a human capital strategy have an average of 54 percent female and minority employees overall; firms without a human capital strategy average only 41 percent.
In addition, firms with formal mentorship programs have 16 percent greater representation of women in leadership roles, and firms with formal recruitment programs have 9 percent greater representation of women in leadership roles.
Impact Begins with Leadership
During the event, leaders who have pioneered new approaches in venture capital to build diverse teams shared what they have learned.
Lisa Lambert, Managing Partner of The Westly Group and former Managing Director at Intel Capital and founder of the Intel Capital Diversity Fund, had a clear message for the venture community: do whatever you can with what you have. In 2015, Lambert embodied that idea following the announcement from her then-boss, Intel CEO Brian Krzanich, when he pledged to improve the gender and racial diversity of Intel. No one asked her to create the diversity fund; instead, she developed the concept and gained approval for a $125 million dedicated fund to invest in women and minority led companies. The fund – the largest of its kind by a significant margin – provides selected tech startups with access to Intel Capital’s business development programs, global network, and technology expertise and brand capital.
Beyond launching a dedicated fund, Sarah Larson, Partner and Chief of Human Resources Officer of Third Rock Ventures in Boston, focused on how VC teams can take action. Larson highlighted that the Third Rock team centers on the concept of group genius – building teams that have diversity of backgrounds, thoughts, and experiences to support the challenges we take on as investors and entrepreneurs. Larson advised that VCs should be willing to go against the norms of traditional profiles and networks and groom talent by tapping into the next generation of leaders.
Ray Leach, CEO of JumpStart in Cleveland, Ohio and co-founder of the NVCA Diversity Task Force, founded the Focus Fund in 2016 to invest in women and minority-led companies. He believes diversity strategies – no matter the approach – are key for success.
“In the long-run, diverse GP teams who outperform less diverse GP teams will make the largest difference, in the short-term, our continued focus on the value of diversity in all things we do as a society and that, given our history, we need to do take actions with intention and consciousness versus running on auto-pilot,” said Leach.
So how do VCs and entrepreneurs begin to take action?
Develop Your Firm’s Internal Policies: Access the NVCA Sample H.R. Policies
Teams have the power to change their diversity story. Formalizing a strategy when it comes to recruiting, developing, and retaining diverse talent can have a measurable impact and represents the first step in developing a more inclusive industry.
NVCA published a new resource for the industry: the new Sample H.R. Policies to help venture capital investors and portfolio companies to recruit and retain diverse talent.
Looking back briefly, the NVCA Board of Directors founded the Diversity Task Force to bring transparency, data and resources to help VCs build more diverse and inclusive teams. Early data from Talent Partners at NVCA member firms – Bessemer Venture Partners, New Enterprise Associates, Draper Fisher Jurvetson and Institutional Venture Partners – helped us hone in on Human Resources as an area where we could have a positive impact.
Led by the NVCA Diversity Task Force, the team of Talent Partners; Carla Newell, Chief Legal Officer and Chief Risk Officer at Ancestry and former Operating General Partner with Technology Crossover Ventures; Chester Te, Assistant General Counsel at Silicon Valley Bank; Walter Stella and Emi Gusukuma of Miller Law Group; Jeremy Mittman and Elaine Lee of Proskauer Rose; and NVCA developed the new set of sample H.R. policies.
Included in the sample policies are a firm mission statement and policies guiding non-discrimination, recruitment, childcare leave, mentorship, participation in outside affinity groups and activities, and flexible work arrangements. While not an exhaustive list, the Sample Policies serve as a springboard for firms to develop cultures that will send a positive signal to people of diverse backgrounds. No two firms are alike, and NVCA encourages venture firms to adopt and/or adapt the Policies in a way that fits the business reality and culture of individual firms.
The new Sample H.R. Policies are now part of the standard set of NVCA Model Legal Documents. We hope that every entrepreneur, venture capital investor, and adviser will start utilizing this set of policies as part of a broader effort to build effective teams.
So what’s next? These policies represent one element of a comprehensive diversity and inclusion talent strategy that includes robust recruitment, retention, and mentorship programs targeting diverse employees.
As Jim Atwell, Deloitte’s National Managing Partner, Emerging Growth Company and Audit Technology Practices shared, “Awareness is a great start, but seeing how the firms that have implemented programs that promote diversity are positively impacted will help to move the needle.”
In addition to the NVCA-Deloitte Human Capital Research and the Sample H.R. Policies. We have put together a short list of a few key resources:
We hope your team will benefit from thinking about ways to bring new perspectives to the table.