How can VCs invest in more diverse startups?

At Climate Mosaic our work is dedicated to ensuring that the entrepreneurs tackling climate change and the investors backing them are as diverse as the world we live in. In our experience, networks are one of the most valuable assets for founders (and investors), second only to cold hard capital. However, studies show that these networks can be harder to access and establish for underrepresented groups. VCs should be aware of this. I recommend that VCs try not put their personal network recommendations on a pedestal. Stay objective, use data to review referrals quality, and keep looking for organisations and individuals that are doing the legwork to source and champion brilliant and diverse talent. The data won't lie.

They can start by being diverse themselves: you see the photos of their teams they all look alike. Thus, if they are themselves clearly unable to work with people of other origins, why do they expect founders to do it?

Leveraging Deal-Sourcing Platforms: Utilize platforms like ynos.in, Tracxn, CB Insights, and Pitchbook to stay abreast of emerging trends and discover startups with unique value propositions. Broaden your investment scope by exploring niche markets and industries not immediately apparent through traditional networks. Transparent Communication: Clearly communicate your investment thesis and expectations. Encourage entrepreneurs to reach out directly, creating an open and inclusive environment. Removing communication barriers ensures that a diverse set of entrepreneurs has equal opportunities to present their ideas.

Establishing partnerships and building a vibrant startup ecosystem is critical for a better deal flow. As part of the partnership development process, new avenues need to be explored by connecting with a diverse set of partners. Adequate budget needs to be set up for building new partnerships as it requires time and resources.

Venture capitalists (VCs) can expand their network to make more diverse investments by adopting intentional strategies to connect with a broader range of entrepreneurs and communities. They should partner with and actively participate in organizations that are dedicated to promoting diversity in entrepreneurship. This includes attending events, conferences, and networking functions hosted by these groups. Another helpful tip is to connect with diversity-focused networks, both online and offline. Engage with these communities through social media, forums, and other platforms where entrepreneurs and investors gather to share insights and opportunities.

We've been running investor readiness programmes for under-represented founders for the last few years, and one of the bits of advice we give investors looking to invest in more diverse founders, is to make the initial approach as seamless as possible. For example, ensuring that your team's email addresses are easily identifiable on your website and including a simple application form, with a commitment to respond within 48 hours to all approaches. This is a much more inviting way to start a conversation.

I'm on board of directors of 6 startups, 2 things you need to do: 1) Make yourself outstanding in specific industry amd skill. You will be invited to advise or invest into good startups 2) Invest a small amount first (1/10 of the budget you have) to learn. Or sell your time for equity if you don't have money Do it in 4 years and you will achieve your target

Expanding a network to make more diverse investments requires a proactive and intentional effort. By engaging with diverse communities, building relationships, and participating in initiatives that promote inclusion, venture capitalists can create a more diverse and representative portfolio.

Revisiting the Investment thesis and evaluating the criteria is an important process in order to understand the market realities. At times it's better to fine tune the thesis and rebuild the investment thesis based on these ground realities. A flexible and agile approach would give a better results.

A slightly different perspective… those seeking funding are so entrenched in obtaining funding that they often wing it. They forget to go back to basis and invest in themselves so that they stand out when pitching. This is one of the most overlooked, quickest and easiest ways to receive validation, funding and for a founder to display their credentials to a VC

Having a diverse team is crucial as it taps into varied perspectives, fostering innovation and creativity. It unlocks potential in underserved markets, often overlooked by traditional funding models. Diverse teams better understand and cater to a wider customer base, enhancing product relevance and market reach. This approach not only drives economic inclusivity but also yields competitive advantages, as diverse companies often outperform their less diverse counterparts in profitability and team dynamics.

I agree! Diversifying a VC team in this way is crucial but stand clear of tick boxes, truly diverse people, investors and teams can smell these a mile away!

Ensure diversity within your own investment team and decision-making committees. Having a diverse team can enhance your ability to identify investment opportunities that align with a broader range of perspectives. As they call it non-agnostic.

I agree! Diversifying a VC team in this way is crucial but stand clear of tick boxes, truly diverse people, investors and teams can smell these a mile away!

Diversity is about people. You can read books & listen to podcasts, but nothing beats getting out & talk to people to see how they view diversity. To me, there are 2 types of diversity, domestic & global diversity. In America, we typically view diversity as black, white, brown, female, male etc. but true diversity spans the globe & expanded thinking. Investing in more diverse startups requires thinking of the byproduct effects we create like environmental & socioeconomic factors & consequences produced by our investments in companies. As VCs, to build world-changing global companies, we must invest globally inclusive, & constantly be refining our investment policies for a high rate of startup diversity in our portfolios. #vc #venturecapital

The better place to learn about the market is being in the market by attending industry relevant events. Attend events, conferences, and networking functions that focus on underrepresented entrepreneurs. Building relationships within diverse communities can lead to a broader deal flow and different industry perspectives.

Books, podcast and LinkedIn articles like this are super beneficial. This is an area where structured mentoring, coaching and masterminding (in its true form), is sometimes overlooked. As the African proverb says; “If you want to go faster, go alone, if you want to go further, go together”

Education is key, for both Investors and Founders. Vcs can actively participate in workshops and seminars focused on diversity and inclusion in the startup ecosystem. These events often cover topics such as unconscious bias, inclusive investment practices, and the benefits of diverse teams. Consider enrolling in diversity and inclusion training programs. These programs can provide a deeper understanding of diversity issues and equip VCs with the skills needed to create inclusive investment strategies. Stay informed about policy changes and initiatives that promote diversity and inclusion. Understanding the broader context and legal landscape can help VCs align their investment strategies with evolving industry norms.

Prioritize this as part of your sourcing agenda. Pretty simple! Give everyone a fair and equal chance and actually focus the evaluation on the value, as the word suggests!

I totally agree! Action and accountability (the right sort of accountability) is everything. There’s detail in the data, so keeping track of the data and what it means for you is important. Having metrics to work by and track is important too.

To advance diversity and inclusion in your venture capital efforts, it's crucial to establish precise and quantifiable goals and objectives. These can encompass various facets, including the quantity and proportion of investments directed towards diverse startups, the funding amounts and terms offered, the representation and retention rates of diverse team members, as well as the outcomes and returns generated from these initiatives. Celebrate your achievements as milestones are reached and leverage setbacks as learning opportunities. By monitoring and communicating them, you not only fortify your commitment to diversity but also contribute to a culture of accountability and continuous improvement within the venture capital landscape.

Expanding the VC network is like discovering uncharted fisheries. Look underneath the glossy aspects when judging startups—secret gems are sometimes buried. Different members of your team are like instruments in a symphony. In VC, ignorance is both uncool and unproductive. Adapt to varied markets. Do something because VC values action above rhetoric. Diversity should be a business plan and moral guide. Every thought matters in the larger picture. VC is about creating the future, not just funding enterprises. Oh well, VC is about shaping the future, not just finance and the money game. Let's architect the change, not just ride it and enjoy the journey!

A diverse team is a good start. Particularly at all levels, not just analyst, or associate levels but also partner level. Expanding the network to meet people that you wouldn’t regularly meet is important. Connect with different communities and see how you can support entrepreneurs from diverse backgrounds.