Diverse By Default

1. About

This report is dedicated to the startup and venture capital industry. The aim was to build a constructive, forward-looking, and solutions-focused path.

The value-add of the report is five-fold:

1. All-encompassing = covers different ecosystem players
2. Solution-focused = exhaustive forward-looking solutions for different players
3. Frameworks = Establish multiple structures starting with (1) Diversity mapping, (2) Three tier-framework to diversity, (3) AA approach to segment solutions, (4) BB approach for Founders, and (5) CC approach for Investors.?
4. Reality touch points = Comments and quotes from the ecosystem people on every solution/idea/recommendation.
5. Real-life examples = Connecting solutions with on-the-ground examples to make them more tangible.

Deck

View or download the presentation ???????? HERE.

A shorter LinkedIn version is below.

Thanks

To everyone who discussed the diversity topic while writing this report, took time out of their busy schedules, helped with intros, opened up to share deep emotions on the issue, and genuinely shared a passion for changing the status quo -?A BIG THANK YOU!?

(listed alphabetically) Adhrita Nowrin, Agata Leliwa Nowicka, Amie Lin, Anna Natsvlishvili, Doris Clemenz, Drishdey Caullychurn, MBA, Ebony Utley, Eugenia Dunaeva, Gbite Oduneye, Johanna Broell, Johanna von Herman-Kim, ??Jonathan Sun, Katharina Riederer, Katy Huang , CAIA, FDP, CWMA, Kathryn Parsons, Kevin Withane (FRSA), Louise Asaye, Michael Jesswein, Perdie Alder, Poulami Bhowmick, Rohit Mathur, Rupa Ganatra Popat, Samantha Katz, Triin Linamagi, and others who choose to remain anonymous.

2. What?

What does diversity mean*?

Diversity is a representation, in a group, of various facets of identity, including but not limited to gender, race, ethnicity, age, location, socioeconomic status, religion, and education.

What is the current status of diversity?

Heaps of reports and articles have been highlighting diversity issues in the startup and the VC ecosystem for a long time.?Whether we look from the angle of pipeline or funding, support or mentorship, networking or connections - there is a stark and visible gap for the diverse founders and diverse VC investors.?

The focus was on collecting these disparate data/information and putting them together to build an overarching diversity-issue image. It wasn't easy.

3. Why?

'What' often leads to 'Why.'?

Again, much research has been done that concretely proves diversity's role in ushering in better outcomes - for our communities, companies, countries, and planet.?The focus was to establish two critical structures:?

(a) Diversity Mapping:?After acknowledging the 'What' and 'Why' of the diversity topic, readers need to assess where their ideology falls on the diversity mapping.?

(b) 3-tier framework:?which is pivotal in connecting the different diversity elements - ecosystem players, solutions, and delivery factors.

4. How?

Founder Solutions

Build Basics (BB) approach: The BB approach will not solve all issues for the diverse founders but will likely improve their odds of building a successful startup tremendously. Five basics that diverse founders must excel at:

1. Sell it before you build it
2. Understand the market and the alternatives
3. Understand what VCs look for
4. Create better decks
5. Raise before raising
6. Build your tribe

Founder Groups:

Founder-focused groups on various channels like WhatsApp, Slack, Discord, etc.?The primary goal of joining such groups could be building community and knowledge. Example: NoCodeFounders (Link) community. Female Foundry (Link), Founderland (Link), Amela

Get-Stuff-Done Groups:

Focus is on hands-on development and execution. A newer trend, though, can be highly effective in supporting founders in building their MVPs, getting traction, instilling confidence in first-time founders, and building a network. Such groups can also help you find your co-founder.?

Case Study: Nights & Weekends (Link) from buildspace : N&W hits the nail in nudging people to get up and get things done. There is no bar on the ideas (people are creating music albums to building next-gen AI tools). N&W gives creators/builders/founders a framework to work with and achieve their goals. With a focus on execution, N&W is an enabler for diverse founders who join with just an idea. Another diversity enabler is that the program is free.

Startup Education:

Startup-focused education programs are excellent for founders who want to cover the basics. It doesn’t need to be a formal program or startup knowledge in the broader sense. One can also focus on specific startup topics via excellent blogs, curated article repositories, and videos. Examples: Y Combinator StartupSchool (Link). Antler Ignite program (Link). Collections like Failory (Link), Founder Secrets (Link), etc.?

Ask An Alumni:

Reaching out to one’s experienced university alums (Founders/Operators/Sector experts) for startup or business-focused advice is one of the oldest tried and tested methods. Check out examples of crafting a great message (Link, Link). Recent ones from Stéphane Nasser (Link, Link) are also good. Realize that there is no perfect way of writing such messages. There is no silver bullet that will get you a reply, every time.

Culture plays a massive role. Example - An emerging VC manager raised millions for his upcoming VC fund in the U.S. by contacting his MBA alumni. On the other hand - a diverse founder in the EU could not even get his MBA alumni to respond to his email/messages.?

Mentorship:

Mentorship works in the corporate world and works wonders in the startup world. Ideally, everyone should have at least one. A founder 2-3 steps ahead of you could greatly help. Look for these = 1. Can you respect the mentor? 2. Is the mentor helpful? 3. Is the mentor knowledgeable??

Example: A recent post from Eugenia Dunaeva is a good checklist (Link)?

Startup events:

In-person, hybrid, and online events + meet-ups not explicitly focused on startup pitching. Treat them as one of the best ‘awareness’ recipes out there. There are tons of online startup events happening at any given time. It’s the best equalizer for any diverse founder who can attend from anywhere in the world and get the same content as everyone else.

Go with an outcome mindset in such events and take notes of the top takeaways. Implement them.?Attending many events without a plan will lead to exhaustion and frustration.

Raise Before Raising:

It means (1) anticipating your funding needs, (2) building a network among potential investors months/years in advance, and (3) keeping them informed via regular updates.?Pitfalls - Investors don’t reply, and the founder gets frustrated, or founders can’t keep the interest ignited, e.g., no regular communication.

Support Programs:

Largely launched by VCs to support either (a) startups in their sector i.e., ClimateTech, or (b) focused on some element of diversity, e.g., female-only.

Make sure to align your fundraising timelines to join this type of program a few months ahead of the fundraise to make the most value out of the programs. Be mindful of which programs you attend and speak to past participants and other founders. Some programs only add value with mentorship; others can truly move the needle for your fundraising and expand your investor network.

Example: Sie Catalyst from Sie Ventures takes 50% less time than other accelerators because it only focuses on what the founders need.

Pitch Events:

Treat them as virtual playgrounds. Listen to a pitch and run a mental analysis. Try to answer the following questions - What is missing in the pitch, and what could have been better? Note what you loved about the pitch. YouTube has numerous past pitch videos from accelerators, pitch competitions, etc. Search for terms like ‘startup pitch’ on Eventbrite, and you will see tens of online events. Also, attend international online events in your business area. Most have low or no fees for founders.?

Other great examples: Focal (Link),Sandhill Markets

Research:

Research is about maximizing awareness - what is missing in the market? What better can be done w.r.t competition? How to develop one’s secret sauce? etc.

• Tools like Crunchbase have a massive list of startups and their funding - all updated regularly. If you don’t have access, follow magazines like TechCrunch, EU-Startups.
• Market maps and sector reports. Examples: HolonIQ (Link), Dealroom.co (Link), CB Insights (Link)

Investor Solutions

Cautious Care (CC) approach

1. Cautious: Be mindful of the hidden biases in different parts of the entire value chain of a VC business. It included the deal pipeline, hiring process, promotions, evaluation, and investment process. ?
2. Care: Provide meaningful value by supporting diverse founders and investors in the ecosystem.

CC approach will not solve all issues but will likely improve the odds of promoting and investing in diverse founders.

Diversity Aware Investment Committee:

Raise cognitive diversity of investment decision makers. The de-biasing approach should mitigate individual investment committee (IC) member biases by curating standardized questions, insights, and analysis through a rigorous process.

Example: Everyone likely struggles with biases, more often than not. Here Jenny Fielding mentions an arrogant founder (Link). Similarly, it is difficult not to get swayed away by emotionality, looks, and connection - all likely pitfalls for diverse founders.

Diversity Aware?Pipeline:

A typical established pattern is investors selecting startups from their extended networks.?A practical approach could be to partner up with diversity-focused investors and see their deal flow.?Another method could be consciously reaching out to lesser-known deal sources or becoming more visible on social media to support diverse founders. Expanding deal pipelines enriches the inflow, increasing the likelihood of funding them.?

Tech solutions are a great enabler. Two solutions that could level the playing field and build a better founder-investor connection than the spray-n-pray approach.

shipshape.vc wants to empower people with knowledge. Instead of sending a poorly thought-out message, studies show that one is seven times more likely to get a response when research is appropriately done.

OpenVC, as a tool, has a better response rate from investors due to the 'no ghosting' policy. Investors are verified, which is a win from the limitless spam lists. Follow-up and feedback mechanisms increase the learning curve for founders.

Signal tool fromNFX is another excellent example of finding the right investor in different business areas.

Maximize?Impactful Feedback:

Investors have a startup funnel. Eventually, they only invest in ca. 2%. How VCs look and behave in the remaining 98% of startups matters significantly!?Expand the feedback funnel, especially for diverse founders, to 100%. An apt, insightful, and truthful feedback can work wonders for the founding team.?There is genuine apprehension on this topic as well (Link). But, the good that this can generate can far outweigh the bad.

There is also genuine apprehension on this topic (Link), as some founders' reactions are inappropriate or harsh.

Promote Incoming?Talent:

De-bias hiring pipeline. Much content is available on how to do this well. Train more diverse candidates via internships and residence programs. Build and promote internal diverse candidates.

Portfolio Diversity?Data:

Establishing the baseline diversity data for portfolio companies can be very effective in pushing the topic forward. To make this easy, include the ‘diversity data’ topic in initial discussions while investing in the startup. Data examples: Hiring pipeline data, compensation data, and other abstract employee data like gender, ethnicity ratios, etc.

Example from Jennifer Keiser Neundorfer's post shows a minimum basic structure investors can follow - (Link)?

Investment?Diversity Data:

Investors have a startup funnel, and publishing data+KPIs on topics like diversity in startup leadership, deal flow, and final investment portfolio diversity - is a powerful data-driven approach to supporting the ecosystem. It can also become a strong pull for diversity-aware LPs.

Uncovering data: Hotbed's post "Is this why women-led startups aren't getting funded?" - Link crunched their community data two years back and realized female founders primarily build consumer-focused startups. However, VCs were funding mostly B2B Enterprise SaaS.

Frontline Ventures's post (Link) suggests that as B2B VC, most deals they saw were not within their scope.

Associations:

Associations like the British Private Equity & Venture Capital Association (BVCA) in the UK and National Venture Capital Association in the U.S. have dedicated efforts to promote diversity in the startup and VC ecosystem. NVCA also launched VentureForward non-profit, which organizes initiatives like LP office hours.

Wider Adoption:

Looking at each country's fundraising landscape, we would see an overwhelming tilt towards one-or-few cities. The same is the case with business areas in which investors are investing. There are specific 'hot topics' where most like to invest, and the fight is on for the rest, e.g., while many investors focus on healthcare, FemTech needs to get the focus it deserves.

Widder adoption w.r.t investment thesis is an effective way to start capturing the edges of the issue. Instead of looking at FinTech alone, investors should begin exploring FinTech's intersection with ClimateTech and promising startups in those areas.

Investor Support?Programs

1. Angel Investor Support: Nudging and supporting more diverse folk to become angels in startups. Programs like āVA (Link) from Araya Ventures are empowering the next female angels. More examples: AngelInvestingSchool (Link), She Angels Series (Link), Black Venture Institute (Link), Fempire (Link)
2. Diverse Talent Support: Supporting diverse talent in the VC ecosystem to succeed. Programs like Included VC, Newton Program, VC Include, Women in VC, Future VC
3. LP education programs to make them aware of diversity and untapped opportunities.

Diversity?Focused?Funds & Accelerators

Building a diversity-focused fund (either centered on topics like female founders, immigrants, or geographical regions) is a very effective way to tackle one of the biggest challenges of the ecosystem - capital availability for diverse founders.?

A few points to think about and discuss are (a) Supply vs. Demand (how many diversity-focused funds are required to fulfill the supply of startups); (b) Stage imbalance (most diversity-focused funds are smaller sized and focus on Pre-Seed/Seed stage; leaving the fate of diverse founders, in the late stages, to established VCs); and (c) Signalling (having diversity-focused funds on cap-table should signal strength of the startup and not emotional investing); and (d) Labelling (a diverse founder seeking funding from diversity-focused funds should not be treated dismissively by other VCs)

Female-founder-focused (list by no means complete). Funds: Sie Ventures, Female Founders Fund, Auxxo Female Catalyst Fund. Accelerators: Grace - Accelerate Female Entrepreneurship, Radia Accelerator.

Extended list of Funds and accelerators for Black Founders: (Link). Also from AWS (Link), gener8tor (Link), Google (Link), Barclays (Link), Open Opportunity Fund

Immigrant-focused Funds & Accelerators: Unshackled Ventures, One Way Ventures , The Migrant Accelerator

Additional lists:Link, Link, Link

Diversity?Quotas:

Embedded within the investment thesis could be diversity-focused quotas. They could be hard-coded into the VC thesis with specific limits. However, to ease the implementation and to make a healthy start, such quotas could be established as softer-goal posts.?

Support Diverse?Investors:

• Established investors have seen it and done it all. Supporting emerging managers with the knowledge and LP contacts can go a long way.
• Many VC investors also invest in new and upcoming managers (as LPs). It is a way to capture broader deal flow and supports developing a more diverse ecosystem.

Collectives: This is a newer trend where VCs (including emerging ones) come together to build a collective. Submitting a deal/startup to the collective means the deck is presented to all VCs in the collective. Example: SeedChecks (Link). Another example is gofocal (Link).

Suggestion is to form similar collectives for diversity-focused VCs. Combining forces and sharing resources with other investors is a great way to attack funding issues for diverse founders.

LaFamilia Foundation's ALZAR Program is a perfect example of support emerging VC managers in a specific diversity category.

Founder Office?Hours

More and more investors are holding office hours to educate and support diverse founders.?The momentum behind such an initiative is enormous. Typically, one session can be dedicated to a single founder topic, and participants can be asked to send questions in advance. If possible, do recordings.?Experiment with office hours on social media platforms to see what gets the most attention.

Startup Employee Solutions

Research:

It is what it sounds - do an in-depth research before interviewing for a startup or before taking a job in a new country. De-bias your thoughts. ‘Grass is not greener on the other side’ - don’t just look at the positive future outcomes. Before accepting, talk with at least six+ people (e.g., from the startup, industry, country ) about the new role.

Prepare:

Prepare well for your interviews. Though don’t forget to prepare for salary negotiations. Look at comparable salaries. There are a lot of data points available now via companies like Figures?Syndio?OpenComp?Comparably?getagora.com?comprehensive.io?Salary.com ?

Media Solutions:

Write more:

Articles on diversity should be more frequent. Increased media coverage from different angles can generate critical awareness. Media should cover not just the ‘fundraising numbers’ or present a rehash of a report. Some ideas - monthly digest on conferences, pitches-deadlines, diversity-focused events, etc. Monthly highlights of 50-100 diverse founders. Monthly highlights of 50-100 startups run by diverse founders.

Go Beyond:

Few suggestions on ‘going beyond’

• Instead of publishing an article about 25 active female business angels - Why not list the top 250 female investors???Example: Sifted article (Link) provides a detailed list at the end of the article.
• Instead of writing just a short background on 30 angels in ClimateTech - Why not write about their latest investments?, What they look for in the investments?, and How startups can reach out to them?

Highlight what's hidden:

• Highlight angels and investors who are ‘hidden champions’, i.e., active and helpful, yet hidden from the limelight.
• The ‘long tail’ impacts diversity positively. That is where the real value-add lies. Sometimes, the angels investing 5K support the startup much more than others investing 250K.

Government and Industry Association Solutions

Reporting:

Like many examples in the past have shown, the right nudges or mandatory requirements enforced by the governments can pull the industry together and move it forward in a set direction. Reporting is a critical element of this strategy.?

Governments are cognizant of the diversity topic - EU report (Link,?Link), UK committee (Link). There is also a precedent on enforcing reporting regulations - EU corporate sustainability reporting (Link). Combining the two, pushing, especially the LPs who are institutional investors and professional investors, to report diversity data will result in a cascading positive downstream effect.

Guideline:

While government actions typically take time, associations need not sit on the sidelines. They can push for a ‘Guideline’ adoption and enforce it among its members.?With a certain level of willingness, such an approach can be implemented shortly, as there are existing examples to draw inspiration from. Example: United Nations PRI’s Asset Owner Charter Toolkit (Link).

There are also others like Finnish Venture Association (Link) FVCA - P??omasijoittajat Inklusiiv producing guidelines.

Capital:

While reporting and guidelines are nudges towards diversity outcomes, capital injection is a concrete action example.?Such government initiatives are late-stage focused?(Link).?To solve for diversity, the answer lies in the early stages.?Being primarily early-stage focused and more diversity-aware, emerging managers can be supported via. allocating initial anchor LP capital. This unlocks the formation of more startups from diverse founders, increasing their likelihood of making the deal pipeline healthier and more robust for later stages.

Future

Diversity doesn’t belong to one group/association/ethnicity/VC/person. Hence, this report is titled ‘A collaborative report’ - it belongs to the community. Readers are strongly recommended to assess their diversity alignment and focus on building their individual paths. Thoughts have been put together carefully in this report, though there is no corner cut in hitting hard where needed. If this genuinely hurts anyone’s sentiments, please treat this as an unintended consequence.

This report raises many questions that are worth pondering over. For example, the talks around the ‘Signalling’ topic in cap-tables and ‘Labelling’ thoughts among founders. On the VC fund side, questions like - How can we better support the growth of emerging managers? Should there be a push to build diversity quotas in established funds? And many more. Hopefully, the upcoming discussions in the ecosystem via conferences and panels can start to capture these.

The report has been built on agility principles, and the final product is a deck that, by default, is ‘dynamic.’ It means there is scope to update the deck as and when required. Examples: typo = deck updated, new data = deck updated, awesome suggestion = deck updated, new feature = deck updated.?

Another vision is to publicly track the progress on the ground for all the solutions mentioned. It requires thinking about a methodology to capture and highlight such ecosystem changes. Is it a tech tool? Is it a blog? Is it just social media updates? All is still undecided. However, there was an overwhelmingly positive response to the report, and the interviews were conducted until the last minute of the cut-off date. There is an opportunity to widen the scope and add more voices to this collaborative report.

The door is always open for feedback to improve this report.

*For a lack of better consensus and for the sake of everyone’s ease of understanding, we are using the word 'diversity.'?Also, we are using the word diversity in the same breath as other ecosystem words like under-represented, etc. Inspired by the definition used by Deloitte.