Funding for all-women founding teams is stagnant, capital invested in Black founders is falling, and increased awareness of these issues has moved past an era of prolonged think pieces; the next stage in the fight for venture equity is now at the policy level.
Concurrently, lawsuits against helping more marginalized founders raise capital are progressing through the courts while new legislation is passed to also help said underrepresented talent. The tension between legal efforts to stymie attempts to invest more in Black founders and women and efforts to legislate more support for those individuals is a struggle between two directions for the nation as it works to move forward from its racist and sexist past.
“Entrepreneurship is at a crossroads right now,” Imani Augustus, a director for entrepreneurial equity at the think tank Third Way, told me. “There is a move on the right to weaponize any assistance to disadvantaged communities as overly ‘woke,’ but this effort on the right fails to appreciate that we shouldn’t be taking away opportunity in the country — we should be expanding it.”
Legislation shapes the facts on the ground in this country, even when the ideas of the general public disagree. That’s also why, after years of callouts, protests and no change, some diverse fund managers told me this is the last option, that equity would not come just via a gesture of goodwill; it now must be ratified in the courts.
Lawmakers and policy advocates are indeed paying attention. Augustus and her team at Third Way started working with the National Urban League to suggest venture policy changes to Congress, such as having firms track and disclose who they back. That sentiment is not unlike California’s SB 54, which requires firms to report founder diversity breakdowns back to the state. Massachusetts is looking to pass two bills to help extend discrimination and harassment clauses to venture capital, with the hopes of helping more women and minorities progress through the industry.
There are other efforts afoot. Missouri Rep. Emanuel Cleaver is trying to pass a bill forcing university endowments to reveal where they are allocating money. Even the U.K. is weighing policy that could fix its own harrowing landscape where, between 2009 and 2019, only 10 Black women raised venture capital.
It makes sense that policy would become the latest battleground in this venture equity fight. Historically, policy is what first put women and minorities, mainly the African American community, in disadvantaged positions in the first place. Since legislation is what codified many prejudices, it may be the only thing strong enough to undo them.
Venture capital is a massive industry, serving as the backbone of innovation in this nation. “Yet it has been operating for generations without any regulation or public transparency,” said Allison Byers, a founder and policy advocate. “As we’ve seen time and again in other industries marked by inequitable resource distribution, policy measures are essential to facilitate feasible and lasting change.”
Many venture firms do take public money, meaning there is an argument to be made that at the very least, lawmakers should be aware of what is happening to that money. Even the banking industry needed policy changes in order to stop its racially discriminatory practices.
“People tend to be motivated more by the fear of loss than by the prospects of potential gain,” Bernard Coleman, the founder of the Coleman Law Firm, told me. “Greed can counter their fear if the financial incentive is sweet enough.”
This moment of tension is a fitting place for tech to find itself. If the industry is one that fixes problems, then who is responsible for fixing its own persistent discrimination? “I firmly believe those who see an issue and have the power to address it bear a responsibility to do so,” said Langston Tolbert, a startup attorney at his eponymous law firm.
More pressure is being placed on private actors, like venture capitalists, because the public sector and government are struggling to lead the way, Tolbert said. The recent court wins against public agencies like the Small Business Administration and the Minority Business Development Agency, which have been sued for offering programs for disadvantaged groups, means that people are depending even more on private institutions to tackle problems since those organizations are right now the only ones with the flexibility to act as they see fit.
“The tech industry was built by people who aspired to solve the world’s biggest issues, which should include racial and gender-based discrimination,” Tolbert said. “After the death of George Floyd, private institutions poured out support for Black entrepreneurs. Now presents an even greater moment for these institutions because they are more equipped to take a stand where others may not be able to do so.”
This is only the start of venture capital’s battle against anti-discrimination policy. Overall, there is a backlash to diversity, equity and inclusion brewing in the industry against the tide of emerging, more diverse fund managers and the mission of funding more women and minorities.
Edward Blum, the man who helped overturn affirmative action, has made it his mission to overturn any program with a racial qualifier attached. Against Fearless Fund, he’s using a Civil Rights clause to fight against the community it was enacted to protect. A founder I spoke to called this “intellectually insidious” and the “last gasps of white supremacy.” This case shows that policy is coming to the industry regardless of who benefits and who strikes first. If U.S. history reveals anything, it’s that the fight for racial and even gender equality always ends up in the court system.
But right now, reactions to how to go about diversifying the industry seem split. For example, there were those who were excited to hear about the premise of SB 54, while others took to X (formerly Twitter) to complain and make fun of it.
There were valid concerns, but the root of the matter, to those who supported the bill, was that transparency is needed, whether existing data is right or wrong, so people can figure out what is happening. Others were wary that any change would happen but were not against such efforts. Many just trolled the bill, which was most indicative of where they stood on the matter as a whole. It’s this loud faction, this old guard group, that makes it feel like legislation is what will finally make them listen. In a sense, that is true. I had covered the idea of the bill before to crickets; when it finally passed, people started paying attention.
It goes back to what an investor told me when I first started covering venture capital: The industry is shrouded in mystery and opaque on purpose. Efforts on the ground will be made to keep it that way. But soon, even those who wish for silence will not have a choice.
It’s venture capital’s time to take the stand. Finally, the market timing is just right.