Diversity somehow rises in venture capital firms

by The Insights

Venture capitalists don’t have the best track record when it comes to racial and gender diversity in their workforces. Now, new research shows that, three years after the murder of George Floyd shone a light on racial disparities in the United States, the venture capital industry has made progress, but it’s still very slow and rather mixed.

According to the Fourth Annual Venture Capital Human Capital Survey, more companies have a diversity strategy and most have established or plan to establish specific DEI goals. But representation, especially among black professionals, is still limited.

The research, conducted by Venture Forward, the National Venture Capital Association (NVCA) and Deloitte, surveyed 315 venture capital firms with more than 5,700 full-time U.S.-based employees about their DEI practices and goals, among other topics.

“Firms are slowly moving in the right direction,” says Heather Gates, national audit and assurance private growth leader at Deloitte.

Mixed progress among young professionals

The research found that companies are taking the issue of diversity seriously, or at least more seriously than in previous years. Almost half (46%) of companies surveyed have a diversity strategy (compared to 44% in 2020, 35% in 2018 and 15% in 2016), and 44% have an inclusion strategy (compared to 41% in 2020, 31% in 2018 and 17% in 2016).

In large corporations, progress mostly occurs at junior levels, what Gates calls “the shining star of research.” Racial and ethnic diversity is increasing among these positions, at least for certain demographics, which could bode well for the future as talent matures within the ranks. “It gives us hope for the future,” says Gates.

Specifically, Asian/Pacific Islander employees accounted for 26% of junior-level investment professional positions, up from 20% in 2018. And the proportion of women rose to 35%, from 25% in 2016. junior-level white investment remained the same in 2022 (61%) as in 2020 but lower than in 2018 (78%).

At the same time, black representation among junior-level investment positions is a lackluster record, remaining flat at 7%, though up from 5% in 2018. Hispanic representation isn’t great either. It fell from 4% in 2020 and 2018 to 5% in 2022.

Older companies vs. Beginners

When it comes to higher-tier investment partners, where the power really lies, it’s the younger, smaller venture capital firms that have more diversity among those ranks. Venture capital firms founded in the past 10 years reported that a higher percentage of their investment partners were black (8%), Hispanic (8%) and female (22%) compared to larger firms. old where black (1%), Hispanic (2%) and female (17%) investment partners were not as prevalent. “(Older funds) have been around for decades and have deep-rooted general partners,” Gates says. “It’s hard to move the needle.”

Role of sponsors

At least part of the progress comes from pressure from sponsors (LP). In 2022, 47% of companies said that LPs had requested their DEI details in the last 12 months, compared to 41% in 2020 and 36% in 2018. Additionally, in 2022, 38% of companies said that they had requested DEI details. DEI details to their wallet. companies, an increase of 30% in 2020 and 19% in 2018.

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