Making room at the cap table: A new plan for promoting diversity in tech

It’s no secret that the tech world struggles with diversity. Women, African Americans and Latinos respectively comprise 33%, 8% and 7% of the total tech workforce and just 20%, 5% and 5% of its leadership, despite evidence of a correlation between diversity and success.

As an industry, tech has succeeded in normalizing the topic of workforce diversity, and while the results are slow coming, there is movement, and that’s worth acknowledging.

But there are other ways we should be thinking about increasing diversity in tech, and that’s on the cap table. The secret is that it’s not actually hard to do, but it isn’t the norm yet. We did it at my company, and it’s worth demystifying the process so you can do it, too.

People like me don’t get hired — or funded

Before we get into it, it is important to understand something often called “people like me” bias. Human beings unconsciously relate to, and therefore choose to work with, people that look and think like they do. It’s a cognitive bias that is hard-wired into our evolution, and it’s extremely hard to overcome.

Investing in female- and minority-led startups will naturally create more diversity in startup cultures because “people like me” will start to reflect the diversity of those companies’ founders. It’s not particularly shocking, then, that according to Solv’s 2021 EEO report, we are 45% female, including roughly 33% of our technical teams.

The problem is that “people like me” also affects who gets funded in the first place, not just who gets hired and promoted within a startup. Among venture capital partners, 80% are men, and they are overwhelmingly white. Women represent just 13% of U.S. venture capital partners, and African Americans and Latinos make up just 3% each. Unsurprisingly, while 40% of new startups had female founders, they received just 2.2% of all 2020 venture capital.

As it turns out, we don’t just have a diversity problem in tech employment. We have a diversity problem in tech investment as well.

It’s time to take a new approach

What if the key to achieving diversity in the startup world was extending tech investing opportunities to more women and minority investors? Let me spell it out: Making room at the (cap) table for those who typically have not had such access enables wealth creation. And with wealth creation comes the capacity to invest in other companies and founders, or to become entrepreneurs themselves.

At the closing of our last financing round, I called a longtime friend, investor and thought partner, Kara Nortman, to celebrate the moment. I was emotionally done with fundraising and ready to get back to building my company, but she was direct and unapologetic: “We’ve talked about cap table diversity for a long time. You have an opportunity to open up some space in this round to women and especially women of color. If you say yes, I’ll help you make it happen.” With her push and inspiration, that’s exactly what we did over 10 days.

We set up a special purpose vehicle (SPV) focused on female investors. We reached out through emails and text messages to the female angel investors in our network and asked everyone to invite at least one woman of color who is an accredited investor to consider investing in our round. Then we held two Zoom meetings and delivered our pitch, just like we would for any other investor. Looking at this group, I saw the people who actually use our platform, and I knew immediately how powerful this approach could be.

To be clear, this was not just a publicity stunt or token gesture of corporate social responsibility: We raised $3.5 million from this group over the course of those 10 days. Sixty percent of the SPV investors were women of color and one-third of them had never made a venture investment before.

Here’s how you can do this, too

So you care about cap table diversity and want to make it happen? Good! We’ve already “won some and learned some” on this, so here’s my advice to help you get started:

1. Fully commit to the plan: Raising money requires a lot of energy and cooperation from internal and external teams, and nobody wants to drag it on longer than it needs to. Talk to your existing investors early and get their buy-in. Make sure your internal team is aligned on the timing and purpose of your SPV. Otherwise, it will be hard to summon the energy to do this later in the fundraising process.

2. Tap your network: As an entrepreneur, you are already used to networking, but this is different. Think about who in your network has the passion, the capability and the connections to help you make it happen quickly and efficiently. In our case, cap table diversity is something that Kara Nortman already executed in a different context, when she intentionally built a diverse cap table for the first majority women-owned professional sports team in the country, Angel City. She was indefatigable in spreading the word throughout her own network and mine. Once you find the right “nodes” of connections, this will spread like wildfire.

3. Find a “success partner”: I recommend having one external party be responsible for handling the hands-on logistics of the SPV. It could be a law firm, an investment partner, or CPA, but you need one go-to partner who can handle all of the SPV investors’ questions on matters of law, finance, tax, rights and responsibilities. In our case, a family office handled everything for us brilliantly. They made sure all investors were accredited and answered all questions. They invested human horsepower to prove that cap table diversity was possible. You can also use AngelList or Carta as alternative options.

4. Set limits: We time-bound our entire SPV campaign at two weeks and had exactly two video pitch meetings with potential investors. Then investors had to decide within the time frame. Make it clear to your audience that this is an open-and-shut opportunity; eliminating the one-on-one meetings and extensions made it work in our time frame. You will lose some people who are not comfortable with the pace and process, but that’s OK. You might also consider limiting the number of investors who are allowed in the round. We landed at 75, but you might choose fewer or more, depending on what you’re trying to achieve.

5. Reduce the minimum: It took a leap of faith to not set a minimum investment level, but it was the right thing to do. If we want to diversify the investor community and get more women and people of color on cap tables, we have to make it easy for first-time investors to get in the game. Because of the limits we put on the process and opportunity window, the low minimum did not cause chaos and instead opened up the opportunity to first-time investors who would have had a hard time with the more common $25,000 individual investment minimum.

6. Choose your tools: How will you accept funding applications? (We used Google forms). How will your success partner provide information and process questions? (We used Slack). How will you conduct your virtual roadshow? (We used Zoom). How will you manage the entire project? (We used Airtable). How will you build community after the round is closed — via email newsletters? Through a Facebook group? How often will you make updates? However you do it, choosing your tools in advance will lighten the load.

We can change the world, one cap table at a time

In 2021, more than 14,000 startups raised a staggering total of $330 billion worth of funding. If we can make space on even a fraction of those cap tables for a more diverse group of investors, we have a real chance to achieve top-down change where other efforts have been frustratingly slow.

Solv is not the only company doing this: 10% of fintech startup Finix’s last round was reserved for Black and Latino investors. There is a lot of pent-up demand among successful women and people of color who understand the risk of this asset class and have the financial capacity to invest in startups. Adding more diversity to your cap table via an SPV harnesses that demand for good.

I won’t kid you — this was hard work and we were figuring it out as we went. But so is everything worth doing in life. Both Kara and I did this while we were on vacation, and it energized, rather than exhausted, us. For me, my team, and all of the people involved in this project, it was one of the most rewarding and inspiring things that we have ever done.

The real reward, however, will be when diversifying cap tables becomes a more normal part of every startup’s financing journey. It is possible to create cap table diversity in your next round. Knowing this and normalizing it as part of the financing process is one way every founder and institutional investor can make positive change, today.