Note from NVCA: As part of NVCA’s VentureForward initiative, we launched this blog series in November 2017 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.
No One Said Diversifying Venture Capital Would Be Easy – But Here Are Some Hacks
Analysts have proven repeatedly that workplace diversity leads to better results. Yet the startup ecosystem often works against itself. Highly publicized sexual harassment issues last year led one VC firm to implode and several well-known angel investors to retreat from public view. Even well-meaning venture investors found themselves in the hot seat for portfolios characterized by homogeneity.
Given the opportunity for superior financial returns, why do venture investors fail to support diversity? To start with, building an inclusive culture is hard. To develop a portfolio of high-functioning teams capable of achieving their greatest potential, investors must both:
- Stretch their networking muscles to meet founders, mentors and investors different from themselves; and
- Expand their ability to see others’ points of view, proactively solicit others’ perspectives and mitigate the frictions inherent in heterogeneous teams.
The work is worth it – in terms of financial results as well as culture. Normally, that’s about as much as we’d say publicly; after all, VC is an industry where competitive advantages are kept close to the vest.
Except in this case.
If venture capitalists are to influence the demographics and culture of an industry whose founders – and board rooms, and workplaces – skew straight, white and male, we need to put a premium on inclusivity. Which is entirely possible while enjoying great returns.
Last summer marked the second anniversary of the Intel Capital Diversity Initiative, a five-year, $125 million commitment to zealously seek out qualified technology entrepreneurs from diverse backgrounds. And we’ve found them: There are now more than 45 diverse teams with over $250 million of Intel’s capital in our portfolio, spanning robotics, artificial intelligence, cybersecurity and other tech sectors. In 2017, we more than doubled our 2016 record for backing diverse companies (see chart).
Inclusive investing has required that we change both how we source deals and how we support portfolio companies. We’d like to share a few early lessons, in the hope they can help more investors adopt inclusive investing practices:
1. Widen The Top Of Your Deal Funnel
Sixteen months after our initiative was announced, we expanded the definition of what it meant to be a diverse company – a definition that also aligned to Intel’s supplier diversity programs. To our initial targets of women and underrepresented minorities (African Americans, Hispanic Americans and Native Americans), we added LGBTQ entrepreneurs, people with physical disabilities and US military veterans.
The move was a no-brainer: Finding under-the-radar thinkers who see the world differently is the best way to create the next great NASDAQ listing. But it also means we have to work differently. Inclusivity provides a mix of perspectives, experiences and cultural backgrounds – not only in terms of ethnicity and gender but in terms of people from large companies and small ones, or folks who grew up on farms as well as big cities. Our existing referral networks didn’t reach into all of these communities.
2. Replace Hard Targets With Scalable Ones
One of our initial metrics for a portfolio company’s diversity was that its senior management ranks had to include three people from the underrepresented groups we were targeting. It was an easy-to-understand metric, but it wasn’t flexible enough. In a small company, three people could be the entire leadership team; but as the organization grew, their proportion as part of the leadership team likely would shrink.
Our answer was a scalable target. We took our cue from Intel’s corporate-wide hiring effort to have 40 percent representation from diverse communities (a goal Intel exceeded last year), and we set the same percentage threshold for senior leadership to qualify our portfolio companies as “diverse.” The other metric hasn’t changed: If a team doesn’t meet that 40 percent threshold, either the CEO/co-founder must be from a diverse community, or at least 51 percent of the company must be owned by diverse persons.
A scalable target sustains continuous conversations about diversity as companies grow. It can help young executives seek diverse job candidates instead of promoting up the ranks as a default behavior. And it can create a respectful culture from the outset to avoid a major course correction down the line. One startup leader put it bluntly to Christine at a recent conference: “We know we need to fix this,” he said, “before it’s too late.”
3. Go Deep, Broad And Daily
The third thing that helped make our work more impactful was to encourage everyone connected with Intel Capital to think about diversity on a day-to-day basis. Perversely, this means that we no longer have any sole “diversity” investors at Intel Capital. All our investors now seek diversity and inclusion in their portfolios. As a result, we’re seeing more investment opportunities across a wider range of markets and at all stages of investment.
We’re also looking inside our established portfolio companies to encourage greater inclusiveness. When a new management position opens up, we encourage the leadership team to think expansively and to value what different experiences bring. A great example is Helpshift, which recently hired a powerhouse female CEO.
We don’t mandate any particular hiring approach for our companies, but we do recommend best practices and resources for finding (and retaining) great, diverse talent. We’ve also started a crowdsourced way to aggregate, catalog and map resources that help diverse and non-diverse startups alike address diversity and inclusion challenges.
Finally, we also suggest that our portfolio leaders encourage diversity of thought in their daily work. In team meetings, for example, this approach could include assigning skeptical views – known as minority reports – to guard against group-think and ensure all viewpoints are covered. Another way is to proactively ask others, especially the quiet ones in that meeting, for their points of view.
Intel Capital has invested successfully for three decades. We launched the Diversity Initiative to access new networks for technology investments that support Intel’s growth objectives while targeting competitive returns. Our diversity commitment is not just ideological – we believe that by investing in diversity, we’ll have more wins than the investors that don’t. And in the process, we can help change the broader conversation around investing.
Read the other posts from this series:
Greg Sands – Focus on Progress, Not Perfection
Lisa Lambert – Diversity & Inclusion is a Growth Story
Maha Ibrahim – Canaan Forward: Diversity as an Asset
Carmichael Roberts – Being Different
Kate Mitchell – Time’s Up – We Need to Fix This
Andy Schwab – Diversity Breeds Diversity
Jessica Strong & Terri Glueck – Investing in Inclusion