Tanvi’s Take: 5 Diversity-Related Fallacies in Venture Capital

Some days I’m excited about the attention diversity, equity, and inclusion (DEI) is getting in the world. Other days, I’m absolutely crushed by how folks, even with the best intentions, just don’t get it. Every now and then, I’m worried even I don’t get it. DEI is a complicated and nuanced space, and as a new entrant into the venture capital scene, I’m struck by the lack of awareness most investors have of those nuances. For all the innovation and intelligence within venture capital, as an industry it can feel backward in its people development and social justice.

Below are 5 of the most outrageous diversity-related fallacies I’ve heard venture capitalists say or that I’ve noticed.

Fallacy #1: “There aren’t enough founders who are women/people of color for us to fund”

This statement is essentially a way for venture funds to absolve themselves from blame. Let me say this once and for all: it’s not a pipeline problem. Female, racially diverse, LGBTQ+, veteran, etc. founders are out there. I work at a fund that almost exclusively invests in Black and Latino founders, and we have yet to run into a pipeline issue. So, the problem isn’t that these founders aren’t out there but rather that venture funds don’t know how to tap into the right networks to find them.

In fact, I once heard someone who works at a well-known accelerator say that there weren’t a lot of female AI founders but there were a lot of female biotech founders. So, to improve the gender diversity of their overall fund, they could refocus their fund strategy to focus on biotech vs. AI.

Based on what this individual said, venture capitalists would rather change their fund strategy rather than admit their sourcing could be improved. Not to mention the biotech example he brought up is flawed (women in biotech have a hard time raising money thanks to Elizabeth Holmes).

Fallacy #2: “One of our partners is a woman/person of color/woman of color”

At a recent summit I went to, someone asked a panel of VCs how they were addressing DEI. One fund (represented by a white man) started their answer by saying “well, my co-founder is a woman of color”. I immediately winced. Simply having a woman of color on your founding team doesn’t mean your company isn’t sexist or racist. And when you mentally check out on diversity because you have a woman/person of color/woman of color on your team, you put ALL THE PRESSURE on them to champion diversity. It’s not enough for just the women and people of color to champion diversity, everyone must pitch in.

Additionally, diversity isn’t limited to just women and people of color. The LGBTQ+ community and veterans, to name a few, are regularly left out of venture capital diversity discussions despite being deeply underrepresented.

Fallacy #3: “We evaluate founders solely on their company”

My favorite VC moment thus far: hearing a white male venture capitalist say he evaluates founders solely on the company’s quality, and bias isn’t present in his process. I barely stopped a massive eye-roll at this comment. For everyone who reads this…please make sure you understand implicit bias. We are all guilty of acting with implicit bias (including me) and there are countless facets to how you can be biased (against women, racial minorities, queer or trans-identifying folks, those of lower socioeconomic statuses, etc.).

Saying you aren’t biased in your sourcing and due diligence is simply incorrect. Instead of becoming defensive or combative when discussing diversity, start by simply acknowledging the issue. It’s okay to not have the right answer to the problem, but ignoring the problem simply perpetuates it.

Fallacy #4: “We’re launching a fellowship to increase the diversity of venture capital investors.”

Recruiting in venture capital is inherently flawed. As a human capital consultant in my previous life, I continue to be jarred at how little intentionality goes into venture capital recruiting. Corporations spend MILLIONS of dollars thinking about how they evaluate candidates’ skills and how they can create a delightful candidate experience. Venture capitalists, on the other hand, focus on hiring someone as quickly as they can, rather than hiring the best candidate they can. This all makes sense, given the fee structures of venture capital funds. But it’s no wonder venture roles are passed around in close-knit circles that have historically been heavily white and heavily male.

I love the recent crop of diversity-focused fellowships I’m seeing funds launch. But in my opinion, the applications for these fellowships do not set up their candidates for success. Someone without venture capital experience or without anyone to coach them through it (primarily women, racial minorities, LGBTQ+-identifying folks, etc…aka who these fellowships are trying to attract) will NOT be able to answer questions around market trends, company valuations, and $1B exits as well as someone with venture experience and support will.

An example: I was applying for such a diversity-focused fellowship and one of the questions was “which of our portfolio companies do you think will be a $1B exit and why?” Upon examining their portfolio, I noticed my fund had invested in one of their portfolio companies. So now, I had insider information and was better positioned for this application. Someone with no venture capital sway, who arguably the fellowship was better designed for, was instantly disadvantaged.

So…is it enough to just launch these fellowships? Or is a deeper change required in how candidates apply and are evaluated? For an industry that prides itself in finding unicorns companies, venture capital could do a better job finding unicorn investors.

Fallacy #5: “You should send deals to VCs to get your foot in the door.”

Personal hot take alert : I absolutely hate this piece of advice. It’s presented as an equalizing activity because you can theoretically impress a venture capitalist with deal flow, no matter who you are or what your background is.

This is simply not true. As we know, insider information is rampant in venture capital. Someone with the right connections will be able to send significantly better deals than someone without them. And someone currently working at a venture capital fund has access to a pipeline and hundreds of startups they can share easily. So, this technique is essentially another way individuals without connections are penalized and kept out of venture capital. And who are the individuals who typically have better connections? Affluent white men, of course.

Allow me to share a real-life example…I mentioned Sequin (a fintech startup where I worked) with the head of the fund I was interviewing with for a venture capital role. He had never heard of them but was genuinely interested. We had a great chat about Sequin and women-focused finance, but I didn’t end up getting the job. Lo and behold, when Sequin was fundraising who invested in them? This same fund! And did I get a job, commission, recognition, or even a LinkedIn connection from him? I’ll give you one guess, and it’s a NO.

This kind of entitlement leaves a bad taste in my mouth.

For individuals who have systemically been taken advantage for centuries, this is not okay. It’s too easy for those on the receiving end to take advantage of us because they are conditioned to do this in their day-to-day lives. I’m not saying that sending deals is a bad technique to get your foot in the door. I’m saying that underrepresented individuals like women, racial minorities, and LGBTQ+ individuals need a different technique.

There are so many more fallacies I see in the space; like the funds that only have HBS or GSB-specific internships, the woman-focused funds that don’t pay their female interns, the women investors who proudly proclaim to support women but mysteriously don’t respond to your emails, the male entrepreneurs who think its okay to hit on female investors, and more.

As much of a bummer as these fallacies are, I’m happy I see them because I know what I want to change. Venture capital is an exciting and inspirational space to be in, and I am energized by its potential. The goal of this article is to spark a discussion around how we can make the space feel more equitable to entrepreneurs and investors, not to chide or guilt anyone.

Lastly, there are so many individuals and funds already actively working to make venture capital a more equitable space. I’m deeply proud of them and excited by their progress. Change is happening slowly, but it sure as heck is coming!