Apart from sparking widespread protests and renewing conversation around inequalities in the United States, George Floyd’s murder in the spring of 2020 also spurred a slew of promises from Corporate America that they’d do something to address the inequities in the system.
But how much has actually been accomplished? Reading our coverage of those months, it feels like the venture capital and startup world was on to something, going by their commitments to start doing something to address the lack of diversity in their corner of the corporate ecosystem. In the past three years, a lot of companies launched DEI (diversity, equity, and inclusion) initiatives, and we even saw a brief period when those promises were fulfilled. But now it seems a lot of those promises have disappeared.
When the market was on the up and up, Black founders, like many other founders out there, were raising record amounts. But come 2022, the market dipped, interest rates skyrocketed, investments nearly froze, hiring slowed, and widespread layoffs hit everyone. Indeed, 2023 saw 44% fewer DEI job postings compared to last year, and Google and Meta have reportedly laid off some employees in charge of recruiting workers from underrepresented backgrounds.
Today, it almost feels like many of the promises the venture capital industry made in 2020 have gone unfulfilled. To find out exactly how many kept their word, we checked up on some of those that made commitments to DEI following the BLM protests in 2020.
Who kept their word?
We first reached out to Sequoia. In 2020, the investment firm had said that it would build a more “inclusive team” and start working more with historically Black colleges and universities (HBCUs) to diversify its limited partner pipeline. In June 2020, Insider reported that Sequoia did not have a Black partner, but it appears the firm has since hired one, per its website. A rep at the firm told TechCrunch+ that Sequoia did add more HBCUs as investors to its funds but declined to share more details.
Honestly, that was heartening to hear. HBCUs lack the economic and social opportunities that many predominantly white institutions already receive, and having influential funds like Sequoia work with them is essential for creating wealth-building opportunities for the schools and their students. Sequoia did not comment on its hiring plans.
Nearly all the firms we called had one or two Black partners on staff. That’s great, considering that only 3% of investors are Black, per a survey by NVCA and Deloitte, and only 2% of decision-makers at venture firms are Black.
These numbers have pretty much stayed stagnant since Richard Kerby, the co-founder of Equal Ventures, did his 2018 analysis of the industry and found that just 3% of investors were Black. Last year, The Information found that 86 out of the 102 firms it surveyed had no Black partners in positions to make investment decisions.
Kerby said there are a few reasons for the lack of progress at venture firms. Hiring is often slow at such firms, which means in any given year, there is little to no movement on a team. And often, hiring one or two Black people is not enough to make a dent in increasing the demographic percentages. Rather than waiting around to be promoted, he said, most Black partners left for new funds or are out on their own. The challenging fundraising environment has also made it quite difficult to add people to new funds.
At the same time, Kerby said he’s seeing more Black people hired at the junior ranks — at the associate and principal levels — which means there is potential for them to eventually climb the ranks. That could, in turn, send a positive signal to other venture firms to start hiring more Black talent.
“Of course, there is definitely a segment of folks that don’t care. Obviously, if you don’t care, you’re not going to make any efforts to change your team structure,” he added.
In 2020, venture firm Work-Bench spoke about potentially creating a database of Black SaaS companies for investors. The firm recently told TechCrunch+ that it launched the database but is no longer fully updating it due to the firm’s small team size.
Work-Bench now has a Black-founded company in its portfolio, set to be announced soon, though it still has no Black people on staff, according to its website. “We don’t have plans to expand our team at this time, but are always mindful of diversity when hiring, and are proud to have a 50/50 male/female team split,” Kira Colburn, the firm’s head of platform, told TechCrunch+.
Meanwhile, Act One Ventures in 2020 created a diversity rider for firms to embed in term sheets. The rider is a promise made by the company and its lead investor to make efforts to include a person from a minority background as a co-investor in the round. Alejandro Guerrero, the firm’s co-founder, said they still use the rider each time the firm leads a round.
He said that since it launched, more than 200 firms have also made the commitment, though he isn’t sure how many still follow through on the promise. At the time of its launch, several firms, including Greycroft, Lerer Hippeau and First Round, have committed to using the rider. Lerer Hippeau told TechCrunch+ it still uses the rider. Greycroft and First Round did not respond to requests for comment.
Initialized Capital had also revealed in 2020 that 7% of its portfolio consisted of Black founders, and the firm said it intended to do more for the Black community. The firm told me recently that the fund they raised after 2020 has seen a “large increase in the percentage of portfolio companies with Black founders.”
The firm is currently doing an “open search” for a new partner to attract someone who’s not in its current network. “The belief is that a team from diverse backgrounds is stronger and makes for better investing,” a spokesperson said.
Some new funds were launched in 2020 as well. SoftBank launched an Opportunity Growth Fund, now rebranded to Open Opportunity Fund, to back founders of color; and a16z created its donor-advised TxO fund and program that’s managed by a charity.
Benchmark and Bessemer Venture Partners had released supportive statements after Floyd’s murder, but they did not respond to requests for comment on the progress they’ve made with DEI initiatives in the past couple of years.
What happens next
There’s been some progress on this front, but not how we usually see things pan out: Separate funds and initiatives are all aiming for the one goal of equality in venture capital.
Michael Basch, a general partner at Atento Capital, said that the traditional gatekeepers of venture are probably just not qualified to access or work with underrepresented founders. Circumventing that would need to happen on the institutional level, by funding firms led by marginalized groups who are better equipped to access underserved markets.
Kerby also referenced this point. A few years ago, he said, LPs simply told GPs at their funds to hire more Black investors and back more Black talent. Most notably, David Swensen, the then-investment head at Yale, stated in 2020 that the school was going to start putting more pressure on fund managers to diversify investments.
Swensen passed away in 2021, and since then, Yale has not made any public comments on its progress toward diversifying investments or its fund managers. Yale did not respond to requests for comment.
Kerby believes there is no use in trying to change the minds of those who don’t want progress; instead, he said, the industry should focus on those who want change. The good news is that the industry is today overall more cognizant of issues regarding diversity than it was a few years ago.
Monique Woodard, the founder of Cake Ventures, said the lawsuit against Fearless Fund, and other such suits, will probably have a longer-term cooling impact on support for Black founders and diverse and emerging fund managers.
“Some allocators are already employing a ‘wait and see’ stance,” she said. “[But] I believe that smart LPs see their investment in diverse and emerging managers as a business strategy that has a bigger opportunity to be a long-term strategy that will not be fully derailed by these lawsuits.”
Basch said that without a catalyst, progress is unlikely to pick back up after the market cools, but he hopes transparency requirements could help the industry better support diverse founders. Recent legislation around transparency is encouraging, though: California passed SB 54, which brings transparency to venture capital investment decisions, and the Endowment Transparency Act is explicitly targeting university endowments and is currently stalled in the Senate.
“There is no one pill that can solve this,” Kerby said.
Though progress has been slow, it’s still progress, which is something to be thankful for. The DEI backlash currently happening in tech is typical of the resistance to change in times of social upheaval, but let’s hope that when the ice melts and the markets rise again, investors’ and companies’ interest in promoting diversity, equity and inclusion also makes a return.