Note from NVCA: In September, NVCA announced our path forward to address harassment, diversity, and inclusion in VC. With the help of our Members and Industry Partners, we’re currently primarily focused on updating our sample HR policies and developing HR best practices, but we know policies and best practices can only go so far. To that end, we launched this VentureForward blog series for industry leaders to share their perspectives on why diversity and inclusion (D&I) are important for the future of VC, their firm’s activities and approach to D&I, and guidance for how we—as an industry—can drive meaningful change.
Lisa Lambert, Managing Partner at The Westly Group, continues the series with her post below:
Diversity & Inclusion Is A Growth Story
This post is for every investor with the skepticism to ask: why should I give two hoots about a diversity and inclusion initiative? The answer is it’s critical if you want to keep doing what you’re already good at: identifying underserved markets, diving in early, and making money on the opportunities.
As a fellow investor, I can tell you those opportunities, and the talent to exploit them, are already available.
As a vice president and managing director for Intel Capital, I led the effort to create the $125 million Intel Diversity Fund, which focuses on investing in women and minority-led technology start-ups and is the largest of its kind. Trust me, a giant like Intel doesn’t put this kind of cash on the table unless there’s serious upside waiting in the wings.
I’m also the founder of UPWARD, a global network for executive women. In four years, it has grown to nearly 5,000 members across 7 U.S. chapters and 3 more around the world. They include VCs, entrepreneurs, and executives who are using our worldwide network to accelerate their careers.
The success of these two initiatives illustrate there isn’t a pipeline problem when comes to underrepresented groups in entrepreneurship and venture capital. Quite the contrary: there is plenty of talent, but you have to make a determined effort to find it.
Understanding how to do so – and how to achieve the bottom-line success that diversity and inclusion represent – is a story of history, shifting demographics, and a critical decision you should make as soon as possible.
Back To The BRICS
In 2001 a new acronym redefined global investing: BRIC, shorthand for the emerging economies of Brazil, Russia, India, and China. The addition of South Africa in 2011 created BRICS and set in motion an explosive growth curve from which we’ve never looked back.
Making bets on BRICS companies wasn’t easy at first. As investors, we had to push aside Rolodexes of the usual suspects. We had to pound the phone and the pavement to build relationships and partnerships amid cultures we didn’t know well. We had to navigate distances, languages, time zones, and legal systems to get deals done. But we did it.
The same kind of opportunity is here again.
Demographic Shifts Help Create New Markets
It may come as a surprise, but the first wave of entrepreneurs from underrepresented communities is already well established.
You can see it in VC firms like Aileen Lee’s Cowboy Ventures and Theresia Gouw’s and Jennifer Fonstadt’s Aspect Ventures. In companies like Task Rabbit, the gig-economy icon founded by Leah Busque and helmed by Stacey Brown-Philpot who just engineered its sale to IKEA. And in CEOs like Julia Hartz of Eventbrite, Adi Tatarko of Houzz, and Mariam Naficy of Minted whose companies have rocketed past one billion dollars in market capitalization.
Women and unicorns mix quite well, thank you.
Part of this success is due to demographic shifts in the United States. Women are nearly half the labor force and graduate with college degrees at rates greater than men. They’re a powerful economic engine, making decisions to buy homes 91% of the time, automobiles 61% of the time, and consumer electronics 51% of the time. And they’re a great early market for wearable-technology products such as jewelry and apparel.
Meanwhile Hispanics, who often lead the market in technology adoption, will account for most of the country’s future growth for the next 35 years, according to Nielsen. The U.S. is expected to reach minority-majority status by 2043, less than two generations from now.
When you’re a member of one of these groups, you might spot an opportunity faster than someone who isn’t. Take Jess Lee, the former CEO of Polyvore. She had to convince male funders to back her fashion site for women. To do so, she came up with one of the best pitch stunts ever.
“We took a stack of fashion magazines – the September issues with thousands of pages – and threw them on the table in front of the VCs and said, ‘This is hundreds of millions of dollars in ad revenue. Now imagine that on the Internet.’ And they said, ‘Oh, we get it.’”
Lee sold Polyvore to Yahoo! for a reported $200 million. Last year, she became the first female partner in the U.S. at Sequoia Capital. She’s the kind of person you want on your team – but there’s something you need to do first.
Not A Pipeline Problem But A Leakage Issue
I tell VC leaders that workplace diversity and inclusion isn’t a pipeline problem – it’s a leakage issue. Too frequently – and often unintentionally – the pipe is too porous for diverse talent to flow into a firm’s upper ranks.
One of the easiest ways to get things moving is a human capital strategy. Our recent NVCA-Deloitte study shows that when VC firms put such a strategy in place, the population of women
and minority employees jumps from 41% to 54%. There are mountains of data to show that diverse teams produce better results. At the least, even most skeptical should consider a human capital strategy a worthwhile hedge.
So why don’t we see more of them? There are some obvious reasons: VC firms tend to be small, with understaffed or outsourced HR operations. Without a strategy champion, leaders can fall back on recruiting and hiring from the same old networks.
Less obvious, but alarming, is an issue raised in the 2017 Lean In Women In The Workplace study, performed by McKinsey & Co. “Many employees think women are well represented in leadership when they see only a few,” the report said. “Because they’ve gotten comfortable with the status quo, they don’t feel any urgency for change.”
That means those in charge need to lead the way.
As in the BRICS days, we need to recognize the opportunities in our midst: women alone represent a worldwide market more than twice China and India combined. We need to start on human capital strategies to attract and retain the diverse workforce that can help us thrive in these markets.
Most important, we need to reiterate to our fellow partners and employees that diversity and inclusion is a growth story, borne out by solid data, which can help us – all of us – succeed.
Lisa Lambert is a Managing Partner at the Westly Group and responsible for investments in software, IOT, and the Internet. She is also the founder of UPWARD and sits on the NVCA Board of Directors, where she’s co-chair of the VentureForward initiative. Prior to joining the Westly Group, she was a vice-president at Intel Capital and the Managing Director of Intel Capital’s Software and Services Fund and the Intel Capital Diversity Fund.
Read the other posts from this series:
Greg Sands – Focus on Progress, Not Perfection