The first comprehensive look at the demographics of venture capital from its own trade association is a sobering snapshot of what decades of exclusion of women and minorities have wrought.
Women, African Americans and Latinos are significantly underrepresented in venture capital, with few holding decision-making positions, according to the report to be released Thursday by the National Venture Capital Association and Deloitte University Leadership Center for Inclusion.
In the past, NVCA has argued that a change to carried interest tax treatment would result in a significant decrease of venture capital investments to U.S. startups. It was always specious, given that not a single VC would say on the record that they’d stop being a VC if the law was changed.
So Franklin has abandoned that claim, acknowledging that “current VCs will continue to invest.”
His new tack is to argue that a tax treatment change would discourage the next generation of VCs from emerging, particularly in geographic regions outside of VC hotbeds like Silicon Valley, Boston and New York.
The National Venture Capital Association took aim at Donald Trump’s plan to end the special tax treatment for carried interest, saying Monday the Republican presidential candidate misunderstood the role it played in the U.S. entrepreneurial ecosystem.
“Despite the populist uproar, carried interest has been an important feature of the tax code that properly aligns the long-term interests of investors and entrepreneurs to build great companies together, and is only realized after our country receives the benefit of greater economic activity,” NVCA President Bobby Franklin said in a statement.
On Wednesday, the NVCA task force released its inaugural report highlighting the steps the association and its member firms have taken toward that end. The NVCA hasn’t set specific diversity goals, nor does it hold its member firms accountable to promises to include more women and minorities, the report illustrates a shift in the conversation and a growing realization that the status quo must change.
“To change the ratio of the business will take a fair amount of time, and that’s why, to me, this is the beginning,” Venky Ganesan, chairman of the NVCA board and managing director of Menlo Ventures, said in an interview. “This is the opening of the discussion. But what I think is gratifying is people recognize its importance.”
“No doubt, lots of good stuff included in Secretary Clinton’s tech agenda,” says Bobby Franklin, CEO of National Venture Capital Association. “If the details are as good as the blueprint, we would be very supportive of this type of agenda in a Hillary Clinton Administration.”
The IPO market, while relatively atrophied, was not completely without some action. Six biotechnology companies went public this past quarter and raised $574.5 million, although that was the lowest total amount raised since the third quarter of 2011, according to the National Venture Capital Association (NVCA).
Two of the largest IPOs were geographically removed from Silicon Valley: Beigene and Editas Medicine, based in Beijing and Cambridge, Massachusetts, respectively. Beigene took the lion’s share this quarter by raising $182.2 million.
“Despite the successes of a handful of venture-backed biotechnology companies making IPOs, the IPO window for venture-backed companies from other sectors has been completely shut,” says NVCA CEO Bobby Franklin.
U.S. venture capital firms raised $12 billion for 57 funds during the first quarter of 2016, a 59% increase by dollar commitments from the first quarter of 2015 and a 17% decrease in number of funds raised, according to a report by Thomson Reuters and the National Venture Capital Association.
It was the strongest quarter for dollars raised by U.S. venture capital firms since the second quarter of 2006 when 79 funds raised $14.3 billion.
“As witnessed over the last year, the fundraising environment for venture capital continues to improve,” NVCA’s chief executive Bobby Franklin said in a news release.
“While it’s unlikely for this strong pace to continue, we do expect this to be a solid fundraising year when all is said and done,” he added.
“Three years removed from passage of the JOBS Act, we are pleased to see the SEC finally move forward on rulemaking to allow for the adoption of equity crowdfunding platforms,” said Bobby Franklin, president and CEO of the National Venture Capital Association. “Anything we can do to help facilitate the growth of innovative startup companies through additional avenues to raise capital is a net positive for the American worker and the U.S. economy.”
Venture capitalists will pledge concrete measures to bring greater diversity to their predominantly white male profession during a high-profile event at the White House.
Tuesday’s announcement from venture capital’s trade group will take place during the White House’s first Demo Day to showcase technologies from the nation’s diverse set of entrepreneurs and kick off a new initiative to bring greater diversity to the tech world.
For its part, the National Venture Capital Association is making a commitment “to advance opportunity for women and underrepresented minorities in the entrepreneurial ecosystem,” the trade group says in a letter to President Obama that was exclusively shared with USA TODAY.
“With software companies continuing to disrupt entrenched industries and in some cases creating new industries all together, venture investment into the sector increased 30 percent from the first quarter to $7.3 billion,” Bobby Franklin, CEO of the National Venture Capital Association, said in a statement.
“As valuations increase and more and more companies choose to stay private longer, we are likely to see software’s share of total venture investment continue to rise.”
Franklin said the increase was partially driven by more nontraditional investors joining funding rounds.