What are some ways VC firms can create a more equitable distribution of resources in the investment industry?

My team and I were in our weekly deal review meeting and we were contemplating passing on a company that had designed a service to help women feel safer in public. We don't yet have a woman on our investment team so we decided it made sense to seek the advice of a female VC to ensure we weren't being biased toward the idea and the founder. We have a diverse team, but even still, this was a reminder that as a firm we need to continually challenge our biases so we're not missing out on what could potentially be great opportunities.

Today to establish the validity of their investment thesis, investors in early-stage ventures have the temptation is to apply pattern recognition. This is problematic for a number of reasons, but chief among them is that pattern recognition is the expression of all our biases, many of them unconscious in evaluating things that are new. Sounds malicious, but these things are actually small and innocuous enough to be ignored every day. There is confirmation bias affirming your existing thesis, recency bias based on the last podcast you heard, or the idea that someone fits a profile: wears a Patagonia vest and went to school X, reminding you positively of another successful person that you met (no doubt including mostly people like yourself).

Changes like: 1) TAM bias - Larger TAM is good to have but doesn't necessarily translate to good bussiness 2) Investment Horizon - Should be longer as any startup easily takes about 10 years to mature and give real returns, but that too would be dependent on many external factors 3) Founder bias - First time founders have every right to to capital as serial entrepreneurs or CXOs 4) Waiting for 'Lead Investors' - Loosing out on great early stage companies or jumping on a 'loss funding' bandwagon 5) Funding Losses - While market making can be tough and can incur losses for companies, acquiring customers at 'any cost' is just wasting investor funds which could have gone to sustainable, scalable and profitable early stage startups

En un mundo cada vez más complejo y en continua evolución, contar con un equipo diverso en cuanto a sectores, edades, nacionalidades, géneros, y multidisciplinar es una ventaja, y marcará la diferencia en el sector de venture capital y en cualquier otra industria.

VC firms can promote equity by diversifying their teams and implementing bias-free evaluation processes. They should target investments in underrepresented founders, build inclusive networks, and form partnerships with supportive organizations. Transparent reporting and accountability, alongside clear diversity goals, are crucial. Providing educational programs, resources, and equitable compensation structures further supports diverse entrepreneurs. Additionally, advocating for industry-wide diversity and sharing best practices can drive systemic change. These strategies collectively foster a more inclusive and innovative investment landscape.

Expand your horizon! Not only for better understanding your biases but also to be executing on a more equitable distribution it is crucial to expand your network. The network should be diverse and ways of expanding should go beyond staying in often similar bubbles of events, such as being open to alumni events, related communitites, e.g. also those focusing on those with participants from diverse backgrounds. Stay open to building connections in places you usually wouldn't expect them!

Diversifying your team enhances decision-making and performance, reflecting diverse perspectives. This diversification is not just a race thing, it includes ethnicity, religion, and the socio-economic upbringing of staff. It boosts your reputation, attracting diverse founders who value relatable investors. Achieve this through inclusive hiring, offering training for personal growth, cultivating a culture of respect and belonging, and tracking diversity metrics for continuous improvement. This approach not only elevates your firm's inclusivity but also resonates with a broader range of entrepreneurs, fostering equitable resource distribution.

Beyond addressing the inequitable distribution of resources, many current VCs are missing HUGE innovation investment opportunities because they are not connected with a diverse network of founders and are not appreciative of the substantial value these founders can create (due to biased pattern matching). This lack of attention to underrepresented Founders means most VCs miss out on the unique perspective these founders bring (with proximity to previously overlooked unmet needs and drive to create innovative solutions) and their unique potential to create significant market value. Not investing in more diverse founders creates a disservice for everyone - lost returns VCs, LPs as well as lost innovation for our world.

To achieve a more equitable distribution of resources, VC firms can: 1. Diversify decision-makers: Include diverse backgrounds in VC teams to reduce biases and increase inclusive investments. 2. Support underrepresented founders: Actively seek and fund startups led by women, minorities, and other underrepresented groups. 3. Educate and mentor: Provide knowledge and guidance to underrepresented entrepreneurs to navigate the VC landscape. 4. Create inclusive funds: Establish funds specifically aimed at supporting diverse startups. 5. Monitor and report: Track investment diversity metrics and share progress to ensure accountability and continuous improvement.

Offering investments in portfolio companies using crowdfunding can be a way to democratize access to venture capital. For instance, we have a portfolio company that has raised over $45 million in equity from over 7,000 of its existing customers under Reg A+.