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Just how inclusive is your venture capital fund’s DEI strategy?

Sustaining a diverse culture is nearly impossible if team members don’t feel equally welcomed, valued, and heard, says this managing partner of a women-owned funding platform.

Just how inclusive is your venture capital fund’s DEI strategy?
[Source illustrations: wildpixel/iStock; Symbol Systems/iStock]

When it comes to diversity, equity, and inclusion (DEI) strategies, the “I” is often overlooked or considered half-heartedly—without any tactical plan to achieve and maintain a culture that is genuinely inclusive. But for DEI strategies, missing the “I” is missing the point.

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Why is the “I” so critical? Sustaining a diverse culture is nearly impossible if the individuals in that culture don’t feel equally welcomed, valued, and heard—if they don’t feel included. I have seen women and other underrepresented investors at firms that claimed to focus on building a diverse workforce, but that “focus” never made its way into firm culture, never helped those individuals to legitimately feel like a valued member of the team, and so they left—some even to start their own firms. These sorts of anecdotes are surprisingly common and only underscore the vast difference between simply building a team of diverse individuals versus sustaining an inclusive culture for that team. 

The data is clear: Diversity of team drives outsize returns for venture capital firms. A range of lived experience and perspective provides a distinct competitive advantage; managers with diverse partnerships are simply better positioned to build the firms that can identify, invest in, and support the best companies fostering future innovation. Now, anybody can assemble a diverse team by hiring top-tier diverse talent. (And, let’s be honest about the “pipeline issue,” which blames the lack of diversity in key sectors on a dearth of qualified talent from diverse backgrounds—there is plenty of evidence to prove that there is no pipeline issue.) But once you have a diverse team in place, if that team doesn’t function healthily and/or has high turnover, the potential for outsize returns, in large part as a result of that diversity, is lost. 


Related: Why more women-owned startups don’t IPO

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General partners (GPs) of established firms and those who are building new firms must focus on creating cultures designed to help diverse teams feel supported. Limited partners (LPs), who are closely evaluating funds, must exercise equally thoughtful consideration of a firm’s DEI approach, by evaluating not only the diversity of the team but also the inclusivity of the team, and incorporating those insights into their investment decisions. Your returns depend on it.

While all of us are still looking for the best answers, I’ve noted a few thoughts that may be useful when building an enduring, diverse, and inclusive team:

Take the Time to Get It Right

To start, if you’re viewing DEI as a requirement rather than a welcome improvement, know that it’s almost impossible to move forward. 

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If you are open to increasing the diversity of your team, there are likely several people at your firm who would champion the initiative. Unfortunately though, a report published this year stated that “more than half of professionals focused on diversity do not have the resources or support needed to execute the programs and strategies” to help their firm implement a true culture of DEI, and that “only 35% had access to company demographic metrics.” While this study didn’t include venture firms, I would bet the stats are similarly bleak. It’s crucial that those champions of diversity and their teams have the resources they need to implement a sustainable DEI strategy. This means empowering team members with the agency and data they need to do so.  So, take note of your team make-up, recognize where you’re falling short, and spend the time to identify candidates at all levels to help create a team that offers a range of perspectives and experiences.  

Newer and smaller firms: It’s about doing it right from the beginning. This means an integration of DEI into your team from the start.  

Conduct Inclusion Surveys

I hear some of you saying, “Sara, I get it. We have a diverse team and understand it’s important!” And of course, that’s a good start.  But do you know if your team members feel valued, seen, included? Turns out most firms don’t know. 

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Feedback from your team is naturally the best source to assess inclusivity, but according to the 2020 VC Human Capital Survey, “Few firms conduct inclusion surveys. While diversity can be more easily measured, inclusion depends on how employees of different groups perceive the workplace and whether they feel they can be themselves and are valued. Yet, while 41% of firms reported having an inclusion strategy, only 26% said they conduct surveys of their employees to assess inclusion.” 

What do you ask in an inclusion survey? A recent article in the Harvard Business Review shares thoughts on how to measure inclusion in the workplace, and highlights the new Gartner Inclusion Index as a place to start. The Index “allows organizations to confidently ask just seven questions to get a holistic view of inclusion from their workforce:

  1. Fair treatment: Employees at my organization who help the organization achieve its strategic objectives are rewarded and recognized fairly.
  2. Integrating differences: Employees at my organization respect and value each other’s opinions.
  3. Decision making: Members of my team fairly consider ideas and suggestions offered by other team members.
  4. Psychological safety: I feel welcome to express my true feelings at work.
  5. Trust: Communication we receive from the organization is honest and open.
  6. Belonging: People in my organization care about me.
  7. Diversity: Managers at my organization are as diverse as the broader workforce.

To put it simply: The greater the degree to which employees agree with these statements, the more inclusive the organization.”

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For smaller firms, an inclusion survey is not necessarily appropriate. The onus lies on the senior members of the team to have thoughtful conversations with each of their team members, touching on these important areas highlighted above.

Inclusion Means Always Evolving 

Once armed with the important data from your team, senior team members can understand the firm’s inclusivity baseline and identify areas where improvement is necessary. It is important to note that creating a culture of inclusivity is an ongoing responsibility and one that requires dedicated attention on a regular basis. Additional feedback from the team is required as policies are developed and implemented, communication strategies adjusted, new team members onboarded, etc. 

Overall, you have to be committed to change. And that may be uncomfortable. But your returns depend on it. 

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Thoughts for Limited Partners

While focusing on the diversity of a given fund partnership is a good start, it’s also critical for potential LPs to assess the diversity of a firm’s broader team and its culture. Does each individual feel heard? Is the environment open and transparent? These are important questions to ask in order to understand whether a firm has what it takes to implement an authentically inclusive environment. And an inclusive culture is key to driving returns. The teams who feel included become empowered to drive fresh ideas, new innovation, and create remarkably profitable opportunities for the LPs who will support them. 

LPs need to encourage diversity and more inclusive cultures with their dollars. Many are doing this already, but we need to see more of it. Much more.


Sara Zulkosky is the cofounder and managing partner of Recast Capital, a 100% women-owned platform supporting and investing in emerging managers in venture, with a focus on diverse partnerships.

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