NVCA is dedicated to advancing diversity throughout the entrepreneurial ecosystem. We believe in the value of public and private sector collaboration to develop and discuss solutions that promote the importance of diversity to the innovation ecosystem. Last week, we joined Empowered Women, a nonprofit focused on convening next-gen women leaders, for Hacking the New Economy, a discussion on public policies that can empower women in the new economy.
Justin Field, NVCA Vice President of Government Affairs, joined the discussion alongside Neil Bradley, Chief Strategist at Conservative Reform Network, Suzanne Clark, Executive Vice President at U.S. Chamber of Commerce, Douglas Holtz-Eakin, President at American Action Forum, and Lori Sander, Senior Fellow at R Street Institute.
Among many important issues discussed about the current state of the innovation ecosystem, the first question addressed was who is participating in this startup economy and who is not. A 2014 Diana Project report found that only 2.7% of venture capital-backed companies have a woman CEO. As we reported last week in our PwC/NVCA MoneyTree Report, U.S. venture capital investors invested $16 billion into over 1,070 deals during the third quarter – the seventh consecutive quarter where venture capital investment exceeded $10 billion.
Venture capital investors are poised to continue deploying capital to new products, services and therapies – venture capital firms raised $30 billion from institutional investors in 2014, up from $17 billion in 2013 and will likely match or exceed those levels this year. Even in this active investing climate, the greatest untapped opportunity is in investing in diverse entrepreneurial talent that can build an idea into a successful business.
“There is a real opportunity cost to the entrepreneurial ecosystem and the American economy at large, we are leaving a lot of talent on the sidelines.” said Field during the panel, who pointed out that Hispanic and African American women are the fastest growing entrepreneurial segments in the country, according to a study from the Center for Women’s Business Research.
Venture capital firms, and their portfolio companies, that recognize the opportunity and competitive advantage of investing in diverse talent will lead the way. As First Round Capital found when assessing its own portfolio, companies with female founders perform 63% better than all male teams.
But building a more diverse entrepreneurial ecosystem that taps into the immense pipeline of diverse talent is not an issue that will solve itself. Leveling the playing field for women and minority investors, founders, and employees in the startup ecosystem requires intention and commitment to building inclusive cultures and, it starts with leadership. Venture capital firms with women partners are twice as likely to invest in companies with a woman on the management team, according to the Diana Project report. Right now, we have a long way to go toward equitable leadership. 92% of investment teams of top tier VC firms are male and 78% are white, according to a recent study from The Information and Social+Capital. NVCA’s Diversity Task Force was founded in 2014 to provide resources that support and accelerate the creation of inclusive cultures in the venture capital industry.
“We support proving the model of investing in more diverse entrepreneurs,” said Justin Field. Some progress is being made. According to a 2015 study from CrunchBase, the number of startups with a woman on the founding team is around 18%, up from 9% in 2009. “We believe that by proving this model we will help open the doors of opportunity to diverse entrepreneurs,” Field added.
The opportunity to invest in diversity is equally urgent for startups as it is for VCs. A 2012 Dow Jones VentureSource study, Women at the Wheel, found that among startups with five or more females, 61% were successful and only 39% failed. A host of ideal platforms and policy changes around the topic of attracting and retaining women in the workforce, both in startups and public companies. Against the backdrop of the quickly shifting 21st century economy, the focus should be on policies that spur innovation and enable workers to access flexible, safe, and valuable job opportunities available in today’s sharing economy.
“We have to be careful not to get stuck in the mindset of how our economy has worked in the past and put forward solutions for the future,” said Field.