Fed up, startups demand diversity
Aim is to reshape venture industry
SAN FRANCISCO — When Trevor McFedries set out last year to raise money for Brud, his robotics and artificial intelligence startup, he found himself in many meetings with “a ton of white guy” venture capitalists.
So McFedries, who is black, and his co-founder, Sara DeCou, a Hispanic woman, added a condition for investors: The pair would accept money only from venture firms that had a woman or a person of color in a position to write them a check.
“It was counterintuitive for us to raise money from a bunch of white guys who want to extract all the value from the world,” said McFedries, who eventually raised several million dollars from firms that met the condition. “We’re interested in reshaping the way that tech looks.”
McFedries is one of more than 400 tech entrepreneurs and chief executives who has now banded together, in a loose coalition known as Founders for Change, to pressure the venture capital industry to diversify its ranks. The group includes Dropbox’s chief executive, Drew Houston; Logan Green and
John Zimmer of Lyft; Airbnb’s chief executive, Brian Chesky; and founders of public companies such as Katrina Lake of Stitch Fix.
Last week, in a public statement underlining the importance of diversity in the tech industry, the tech executives said the racial and gender makeup of a venture capital firm would be “an important consideration” when they were raising money: “I believe in a more diverse and inclusive tech industry. I am dedicated to having a diverse team and board, and when I have a choice of investment partners, the diversity of their firms will be an important consideration.”
The entrepreneurs’ public statement is unusual. In Silicon Valley’s startup community, founders and investors have generally maintained a delicate power equilibrium. Venture capitalists strive to get into the hottest startups, aiming for a big payoff when those companies go public or are sold. Entrepreneurs, in turn, take money and guidance from the investors to help their startups grow and flourish.
But a new generation of entrepreneurs is ready to upset that balance. Spurred on by the #MeToo movement and fed up after several Silicon Valley scandals last year revealed how investors had abused their power with female startup founders, these entrepreneurs have become impatient for change in the industry.
“It’s pretty obvious the venture industry is not where it needs to be” in diversity, said Jack Conte, chief executive of Patreon, a San Francisco startup that runs a subscription platform for artists, musicians and others. The founders’ statement, which he signed on to, “is a market signal to venture capitalists that their customers care about solving a problem,” he said.
The U.S. venture capital industry, which invested $84 billion in more than 8,000 companies last year, has long faced little to no impetus to alter its demographics. Venture firms are usually small private companies made up of former tech executives or financial types, who are mostly male and white. And because venture firms operate with long-term horizons — their funds generally invest over a 10-year period — the industry’s pace of change is often glacial.
In 2016, 11 percent of venture capital firms’ investment partners were women, according to a survey by the National Venture Capital Association and Deloitte. The survey found no black investment partners at venture firms, while 2 percent of investment partners were Hispanic.
Venture capital firms have made some attempts to diversify their own ranks as well as in the companies they invest in. Several highprofile Silicon Valley partnerships have recently hired female investment partners. Others have pledged to take more meetings with female entrepreneurs. To cut down on harassment, more than 40 venture firms also made their codes of conduct public this month.
“Change has picked up and it’s coming, but I do think it’s measured in years, not months,” Greg Sands, a venture capitalist at Costanoa Ventures, said. Costanoa has made its code of conduct public and recently held “Seat at the Table” events to meet more female entrepreneurs.
Part of the pressure to diversify the venture capital industry is coming from within — in particular, from a small group of female venture capitalists. The Founders for Change movement, for example, originated with Aileen Lee of Cowboy Ventures and Jenny Lefcourt of Freestyle Capital.
Over dinner in September, the two women shared stories of different entrepreneurs who were agitating for more diversity in tech. They decided to corral those founders together to publicly seek change.
“Founders tell us: ‘I cannot believe your industry. It’s like Mad Men,” Lee said.
She added that it might seem self-serving for female investors to push founders to seek more diversity. But, she said, it is not a case of “us versus them.”
Instead, Lefcourt said, it is about everyone realizing that diversity can be a competitive advantage.