On Wednesday, Erika Brodnock and Johannes Lenhard published their book, “Better Venture: Improving Diversity, Innovation, and Profitability in Venture Capital and Startups,” which serves as a guide for those looking to increase diversity, equity and inclusion in the venture capital market.
The authors conducted more than 80 interviews to gauge how much progress there has — and hasn’t — been in the American and European startup ecosystem, suggesting that the current venture funding model is archaic. They point out that, in its current structure, it resembles the economic model used by European slave traffickers. This perspective puts into context how, centuries later, Black founders raise less than 2% of all venture capital funding.
Brodnock and Lenhard sat down with TechCrunch to discuss their book and what impact they hope it has on the industry.
Editor’s note: This interview has been condensed and edited for clarity.
How did you meet, and why did you decide to write this book?
JL: I was starting to do some more digging around diversity, equity and inclusion topics in the VC world. I did a couple of pieces for Crunchbase, mostly around women, and Erika was one of the people I spoke to. It turns out that there was a much bigger project that it felt like we immediately needed to start attacking.
EB: I think the first piece we wrote together literally just jumped out at us and onto the page. It was really easy. He wanted to explore writing this book, and he pulled together a proposal. I quickly jumped into it and started to add bits and said, “You know what, how about we look at the history of venture, a look at where we are going and a look at where we’ve been?”
Personally, I’ve always had these bold ideas, and I’ve always wanted to really change the system that I kind of came up with, whether in edtech for kids or venture capital. I want to disrupt the system. [Johannes has] opened the doors for us to be able to get, quite frankly, some of the most incredible people to speak us, who are incredibly senior in the venture capital world. It’s been an absolute delight to do this book.
What was the process of writing this book like? How long did it take?
EB: It took about two and a half years to get the book done, and it was a labor of love. We interviewed people in the middle of lockdown in 2020, and then family members of mine got COVID — my dad had it pretty bad, and I thought that he was going to actually pass away at the time, and so that was a harrowing time to kind of pause.
Then we started to interview again, and we went through the interview process, and there was a point at which [Johannes and I] came together and were a little bit disappointed in the fact that we hadn’t really heard anything from anyone that venture was changing. That disappointment led us to kind of go through a whole new set of interviews, and that was where we added the final part of the book, where we started to find people who were doing things that were radically different. The process was a long and poetic one, but it all came together in the end.
JL: We only had one “no” — everyone that we reached out to basically opened their doors to us, so it was really phenomenal to see that. We always tried to get the European and the American view, and in 80% of the interviews we did — we had both sides of the pond at the table. We didn’t see the radical changes that are obviously needed because, in the last decade, the numbers haven’t changed at all. It was very important after we completed our first set of interviews that we weren’t like, “OK, this is it.” It took a lot of energy and definitely added a year or so to the undertaking, but it made it much, much better.
In interviewing more than 80 people in this space, were there any surprising trends that started to emerge in terms of what people were seeing in this space in terms of diversity, equity and inclusion?
JL: Americans think they’re much more advanced when it comes to diversity, equity and inclusion in the space.
[Maybe] in the sense of, for instance, thinking through what role ethnicity plays? Yes. But everywhere else. Absolutely not. I cannot really stand here and say that Americans are better at this than Europeans. The numbers are almost identical when it comes to GP-level diversity, when it comes to founder-level diversity. And the Americans are screaming so loudly about how great they are. This is even worse. Then the second thing, the diversity of an organization is really just the starting point. If you do the “D” without the “I,” you’re going to lose people immediately because people won’t feel they’re included. They’re going to quit. And even more importantly, what we don’t really talk about at all is “equity.” What incentives do these owners have if it’s ultimately about preserving their wealth?
What are women still describing as their glass ceiling in terms of getting funding and even moving up within the venture space?
EB: I think that women from all walks of life are still kind of at a massive disadvantage. In the intersectional case, women that are from lower working-class backgrounds or who are from other ethnicities aren’t getting a bite at the cherry in quite the same way as their white middle-class and upper-class peers. There’s an almost one-and-done approach that has been kind of adopted, wherein one person in the portfolio [or on a panel is a woman], then the diversity box is ticked. That’s indicative of the problem that we have at the moment, that women don’t feel as though they can actually speak up and make the difference that they need to in investment panels and at their companies, or to raise the money that they need to raise.
We need to start making sure that there is some sense of psychological safety. Psychological safety happens when you feel included. When you feel safe enough to speak. There needs to be a coming together of all of the different people [ … ] rather than siloing us into women and ethnicities. If we come together as one voice, we’ll be able to start to make breakthrough impacts much more quickly.
What, in your opinion, is needed in order to really push change in this space? Is it some type of legislation, or what type of pressure needs to be applied, and where does it need to come from?
EB: Legislation is helpful to a point. However, I do think that legislation and quotas can be part of the problem because that’s why we have this situation now where people are going, “Well, I’ve got a woman; therefore, I’m done.” If we mandate it, then we turn around and get to a place where people do things to tick the box rather than hire the very best person, and then people can end up being penalized for the fact that they are the Black hire, or they are the female hire. But I also believe that until we get to a place where we’re even close to things looking fair, you probably will have to mandate so that we can move much faster than the glacial pace that we’ve been moving up until this point.
JL: The incentive structures don’t really point in a direction where change is built into the system as it stands. They are making money from money in the system, and they’ve been doing reasonably well as a whole. Although most VCs lose money, the VCs that make money make a lot of money for these LPs. We’ve had investment bias toward white men with certain degrees. How can this change? This is a similar issue with ESG. A lot of these big-name VCs say, “Why would we integrate ESG when we are doing very well?”
What needs to happen, and this is not going to happen in the American system, unfortunately, is that some of these LPs need to fundamentally switch how they talk to these VCs. Money in Europe is managed by states, and the states don’t have to make money with the money they’re putting into this ecosystem. For them, what they’re trying to build is the next generation of digital and non-digital companies. They have every incentive in the world, given that they’re managing domestic taxpayers’ money, to do this with diversity, equity and inclusion at the very core of it.
I would put pressure on [American LPs] to fundamentally say if you’re not diversified at the GP level — or whatever the actual intent is; that needs to be defined. But there needs to be very explicit measures in place as a condition to give money.
Tom Nicholas’ book makes a case for why venture is connected to early whaling business models — what made you think to take a step back to connect the industry model to that of slavery? Why don’t you think Nicholas did that in his book?
EB: The whitewashing of history happens all the time. It’s messy and uncomfortable to actually look at the fact that slavery is where it started, and I think that it leans into conversations about how decisions are made going forward and could also contribute to the reparations debate. I think you probably need to ask him why he didn’t go back a little bit further, but the whaling industry and the marine industry would clearly output slavery. It only took a little bit of going back further to then link back to slavery. So I’m not sure why he didn’t see that. I think that rather than shying away from the conversation, it’s important to lean into it. It’s important to understand where we come from so that we’re not continually repeating historical mistakes.
Are your advice and methods for improving DEI and profitability for startups and venture the same for those based in the U.K. and U.S.? If not, how does your advice differ depending on where a firm, company or person is located?
EB: In the U.K. and Europe, and the U.S., startups need three Cs to survive. They need connections to the right people. They need capital to be invested in them, and they need contracts. They can start to encourage companies across the globe to think about diversity when they are either allocating capital or looking at who’s in their networks and who they’re procuring services from, and that will really begin to move the conversation along. You mentioned in the last question, looking at the existing LP structure and making sure that we push responsibility to them to create changes, and I think that we need to do that as well as introduce a whole new set of LPs into the mix so that those people are able to start to make different decisions.
What are the main takeaways you hope people get from this book?
JL: I think we tried to be very honest and straightforward. White men right now manage 95% of the money — you need to step aside, and you need to be inclusive. We need to shift the pressure.
EB: We need to direct our time and resources toward educating the people with the purse strings so that they can make different decisions and allocate capital fairly. That’s what this book does. It starts to look at providing a resource for the venture capitalist or the LPs in the system that wants to begin to think about making these changes.
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