Diversity moves up inches at venture capital firms

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Venture capital firms don’t have the best track record of 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 US, the VC industry has made progress, but it’s still very slow and a bit mixed.

According to the fourth year Venture capital research into human capital, more companies have a diversity strategy and most have established or are planning to establish specific DEI goals. But representation, especially among black professionals, is still limited.

The research conducted Through Go forwardthe National Venture Capital Association (NVCA), and Deloittesurveyed 315 VC firms with more than 5,700 US-based, full-time employees about their DEI practices and goals, among other things.

“Companies are slowly moving in the right direction,” said Heather Gates, Deloitte’s National Audit and Assurance Private Growth Leader.

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Mixed progress among junior professionals

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

At larger companies, progress is mostly at the junior level – what Gates calls “the shining star in research.” Racial and ethnic diversity is on the rise 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 the future,” says Gates.

In particular, Asian/Pacific Islander workers made up 26% of junior investment professional positions, up from 20% in 2018. And the share of women grew to 35%, up from 25% in 2016. White junior investment professionals will remain the same in 2022 ( 61%) as in 2020 but lower than in 2018 (78%).

At the same time, when it comes to black representation among junior-level investment positions, the record is poor, holding steady at 7%, though up from 5% in 2018. Hispanic representation isn’t great either. It increased from 4% in 2020 and 2018 to 5% in 2022.

Older companies vs. Newbies

In terms of higher-level investment partners, where the power really lies, it’s the younger and smaller venture capital firms that have more diversity among those ranks. VC firms founded in the last 10 years reported that a greater percentage of their investment partners were black (8%), Hispanic (8%), and female (22%) compared to older firms where black (1% ), Hispanic (2%), and female (17%) investment partners were less common. “(Older funds) have been around for decades and have very entrenched general partners,” says Gates. “It’s hard to move the needle.”

Role of limited partners

At least some of the progress comes from pressure from limited partners (LPs). In 2022, 47% of companies said LPs had requested their DEI data in the last 12 months, up from 41% in 2020 and 36% in 2018. Also, in 2022, 38% of companies said they had requested DEI data from their portfolio companies, up 30% in 2020 and 19% in 2018.