Venture capital firms don’t have the greatest track record when it comes to racial and gender diversity in their workforce. Now, new research shows that, three years after the murder of George Floyd shone a spotlight on racial disparities in the U.S., the VC industry has made progress—but it’s still very slow and kind of mixed.
According to the fourth annual Venture Capital Human Capital Survey, more firms 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 VC firms with more than 5,700 U.S.-based, full-time employees about their DEI practices and goals, among other topics.
“Firms are slowly moving in the right direction,” says Heather Gates, Deloitte’s national audit and assurance private growth leader.
Mixed Progress Among Junior Professionals
The research found that firms are taking the matter of diversity seriously, or at least, more seriously than in previous years. Nearly one-half (46%) of surveyed firms have a diversity strategy (up from 44% in 2020, 35% in 2018 and 15% in 2016), and 44% have an inclusion strategy (up from 41% in 2020, 31% in 2018 and 17% in 2016).
At bigger firms, the progress is mostly happening at junior levels—what Gates calls “the shining star in the research.” Racial and ethnic diversity are increasing among those positions, at least for some demographics, which could bode well for the future as talent matures through the ranks. “It gives us hope for down the road,” says Gates.
Specifically, Asian/Pacific Islander employees comprised 26% of junior-level investment professional positions, up from 20% in 2018. And the proportion of women grew to 35%, up from 25% in 2016. White junior-level investment professionals remained the same in 2022 (61%) as in 2020 but was lower than in 2018 (78%).
At the same time, when it comes to Black representation among junior-level investment positions, the record is poor, remaining stagnant at 7%, though up from 5% in 2018. Hispanic representation also isn’t great. It increased from 4% in 2020 and 2018 to 5% in 2022.
Older Firms Vs. Newbies
As for higher-level investment partners, where the power really lies, it’s younger and smaller VC firms that have more diversity among those ranks. VC firms founded within the last 10 years reported that a larger percentage of their investment partners were Black (8%), Hispanic (8%), and female (22%) as compared to older firms where Black (1%), Hispanic (2%), and female (17%) investment partners were not as prevalent. “(Older funds) have been around for decades and have very entrenched general partners,” says Gates. “It’s hard to move the needle.”
Limited Partners’ Role
At least some of the progress is coming from pressure from limited partners (LPs). In 2022, 47% percent of firms said that LPs requested their DEI details within the last 12 months, up from 41% in 2020 and 36% in 2018. Also, in 2022, 38% of firms said they requested DEI details from their portfolio companies, an increase from 30% in 2020 and 19% in 2018.
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