By Carol L. O’Riordan
We frequently write in this space about the dearth of minorities and women in many sectors of the economy and about the need to raise those numbers both for reasons of equity and for good business reasons. That is why a current Washington Post article on diversity in the venture capital industry caught our attention.
The author is Vivek Wadwha, director of research at the Center for Entrepreneurship and Research Commercialization at Duke University. His taking-off point is that the National Venture Capital Association (NVCA) recently announced the formation of a task force to help its members increase opportunities for women and minorities. Wadwha is hopeful that this is an indication that the VC industry may be putting an end to what he calls “frat-boy behavior and tolerating the exclusionary practices of companies that they have invested in.”
Wadwha writes that the numbers are even worse than people think. According to a 2014 survey by Babson College, only 6 percent of partners in venture-capital firms are women, and only 2.7 percent of the 6,517 companies receiving VC funding between 2011 and 2013 had women CEOs.
As we see it, these numbers make the nation’s major law firms look like a bastion of equality; 16 percent of equity partners in large U.S. law firms are women. Seventeen percent of Fortune 500 board members are women. Not a very good record, but more than 6 percent.
Wadwha says that VCs’ propensity for funding people like themselves – “nerdy white males” – isn’t making good economic sense. The majority of venture funds, he writes, have produced lower returns than the public markets. We recognize that this is not an area where federally mandated set-asides are appropriate. Action will have to be taken by the industry itself. But as Wadwha writes, “in doing the right thing and addressing diversity, the NVCA is ensuring its own survival.”
At the very least, money should start flowing to nerdy African Americans, nerdy Latinos and Latinas, and nerdy white women. If industry members want to find some of those, we’ll be happy to point them in the right direction.