Who’s afraid of diversity quotas?

Fashion: a sector known for influencing trends, creatives and perhaps the future of equity for Black entrepreneurs.

Last week was the second Fifteen Percent Pledge gala, hosted by the nonprofit of the same name, to honor Black entrepreneurship and the organization’s efforts to increase equity in the fashion industry.

The nonprofit stems from a callout that designer Aurora James posted in 2020, urging retailers to stock at least 15% of their shelves with items from Black-owned businesses. (This number isn’t arbitrary; Black people make up about 15% of the U.S. population.) That callout turned into a pledge, then into a nonprofit working with 29 retailers — including Yelp, Rent the Runway, Sephora and Nordstrom — that claims to have shifted over $10 billion worth of opportunities to the Black community since its launch three years ago.

The pledge has boosted opportunities for Black entrepreneurs. The foundation itself launched a Google-sponsored marketplace. At the gala, it gave out more than $250,000 worth of grants to Black businesses, a life-changing sum for many. The average Black business begins with around $35,000, compared to around $100,000 for the average white founder. Their efforts in venture capital are equally as harrowing, and most of their businesses do not survive the startup stage.

“I would really love someone from grocery to take the pledge,” James told TechCrunch at the event, pointing out that Walmart and Target have yet to sign on. “There’s still a bunch of space to support and see Black-owned business grow. Finding a lot of creative ways for a lot of different people to take the pledge, I think, is really important.”

A banker who sat next to me at the gala agreed that the pledge was brilliant. She said she wanted to bring a similar pledge to finance, especially because the industry also struggles with hiring and retaining Black talent. That point got me thinking: Is this something that could also work within the world of venture capital, which also struggles with hiring, funding and fostering Black talent?

The Fifteen Percent Pledge is not technically a “diversity quota” with a fixed objective; rather, it is an encouragement to set goals, using a target percentage point as the place to start. “Diversity quota” has a stigma attached to it these days anyway, and it’s true that those efforts often do not address the root causes of inequity. The effort of incentive, however, perhaps without the stigmatized expression, could at least motivate people to think critically about long- and short-term solutions for addressing inequality.

“As much as I want something like the Fifteen Percent Pledge to work within the startup funding community, I’m unsure if it will,” Stevie Cline, a general partner at Vol. 1 Ventures, told TechCrunch.

She said investors are likely to slip into making excuses as to why they won’t sign the pledge, similar to the excuses made as to why they don’t fund women and people of color. Cline also wondered what mechanisms would hold investors accountable. Venture capitalists and their firms must want to change to undertake a commitment such as this, and the pressure to follow through would have to come from prominent organizations. Technically, the ideology of the entire startup ecosystem doesn’t have to shift, only the minds of a distinguished few who can then help lead the charge. There are more than enough people already waiting for change to occur who will follow suit.

The support from power players is important as their influence is aspirational to many and they’ve already garnered the respect of their peers. For example, James was already an industry player with her fashion brand before she launched the Fifteen Percent Pledge, and Emma Grede, the nonprofit’s chairwoman, had already established herself as the brains behind the Kardashian retail brand empire before joining the board.

Christopher Deutsch, the founder of Lofty Ventures, said he was mixed on pledges. He sees some positives but also believes it could detract from efficacy. “I’m way above that number,” he told TechCrunch, referring to the fact that more than 15% of his portfolio consists of women and people of color. “And it’s not because it’s from a quota or a pledge; it’s because it’s good business.”

He said that a “quota of any kind” could cast doubt on an investor’s decision to back a company, especially because there is a lot of “follow-the-leader and don’t-want-to-be-the-first mentality” within the venture ecosystem. He worries that a pledge could have a harmful effect on those it intends to help and could “undermine the market’s trust” in the due diligence process that investors should be doing before they back a founder.

“I don’t want anyone to think I invested in a woman, BIPOC, LGBT founder, for any reason other than because they are badass and deserve the investment 100% on merits,” he continued.

Some form of quota within venture isn’t necessarily new. Many firms in France have signed the SISTA charter, which is a promise to put women in at least 30% of all partner positions, hire teams that are 50% women and make at least a quarter of the fund’s portfolio consist of companies with at least one woman founder by 2025, eventually hitting 50% by 2050. Meanwhile, Denmark has the Diversity Commitment, in which investors pledge to hit certain percentage marks to increase the number of women in their portfolios and teams.

Its implementation in the U.S. could be tricky from a legal standpoint. (The pledge doesn’t have to just focus on race; gender and class, for example, also fall under the diversity umbrella. Race, however, is arguably the most controversial of these topics and, therefore, one of the most essential to tackle.)

Regarding race, though, Cline echoed somewhat similar thoughts to Deutsch, saying there is a possibility that a pledge could force the label of “token investments” onto underrepresented founders, which could come across as demanding and create a negative investor-founder relationship. One could start to see founders get funded with “abhorrent terms and onerous oversight,” she said.

“There’s then a chance that we see these founders and startups receiving less help and support from their funders,” Cline continued. “This only creates a self-fulfilling prophecy for those aforementioned excuses.”

The idea of “token diversity” is also not a new phenomenon, and, whether true or not, is always a light that people of color within majority white spaces are put under. The fact that fear exists that such groups could be treated poorly, regardless of what circumstances led them into the room, is indicative of American society. The tension in the white, male gatekeepers seeing this being a bad thing, historically, has only been referenced when minorities started entering rooms.

I asked diverse founders if, at this socioeconomically perilous point, they even cared about being a token if that’s what it would take to get more funding and opportunities.

Lan Pham, the founder of Sang, a food and beverage brand, told TechCrunch she would take the money if a pledge was implemented and an investor decided to fund her as a diversity investment. Funding is already so arduous that taking the money to get back to work quickly is a good trade-off, she said, even if she’ll have a less-than-ideal partner on the cap table.

“That should be enough to show you that there is a problem,” she said, referring to the rugged landscape of fundraising as a woman of color.

Suelin Chen, who co-founded Cake, an end-of-life planning platform, said, “Hell yeah; why wouldn’t I?” when asked the same question. Whether such a pledge would ever be implemented, though? “I don’t think they would feel pressure to sign a pledge,” Chen said regarding investors. “But I would love to be proven wrong.”

Mec Zilla, the founder of a web3 venture studio, also said she’d have no problem being a diversity hire or reward recipient. “I’m also a descendant of people who were enslaved in this country. A program like that might be the closest thing I’ll see to reparations in my lifetime,” she told TechCrunch. “No point in trying to decipher what ‘kind’ of money it is.”

But Jay Richards, the co-founder of Imagen Insights, a platform that helps brands target Gen Z customers, said that many Black founders he knows, himself included, are not looking for a free ride or to be part of some “quota.” They don’t want to be a “diversity investment” — they just want the opportunity to have equal footing with their white peers.

“We don’t want people trying to downgrade our efforts by saying that we were only chosen as a diversity investment,” Richards told TechCrunch. “Put me in the room and let me do what I do best.”

You can see where the tension arises: Many still insist the U.S. is a meritocracy and don’t want to admit that it obviously isn’t. The solutions needed to fix centuries of systemic and ideological inequality need to be as deliberate as the efforts taken to implement such imbalances in the first place. Even the Fifteen Percent Pledge is facing tension within retail, with the grocery sector a glaring omission in committing to supporting Black entrepreneurs. If anything, Zilla believes a pledge in venture would be another good way to ignite public discourse around discrimination within the startup ecosystem, even though she too, has doubts about its efficacy.

“It’s easy enough to encourage a large chain to choose a few stores in specific markets to put a product on the shelf for a reason and take it away if it doesn’t move,” she said. “It’s an entirely different thing to expect old money to change its ways.”

Would the Fifteen Percent Pledge ever expand into venture? Grede told TechCrunch there weren’t any plans, but “never say never.”