Investors and startup founders think tech’s diversity problem will solve itself

The situation is as depressing as it is well known: Diversity in startupland and venture capital barely exists. Female founders received just 7% of the $60 billion in venture capital deployed last year while Black male founders received 2%. And those who control the money look like those who they’re funding: 98% of VCs on senior investing teams are white or Asian males. And this is despite the data that shows that diversity leads to better results and helps companies make more money.

So why if this is so well known and so well-covered in the media, have we seen so little progress?

That’s the question we wanted to answer with a LinkedIn member survey -- the first of its kind -- on the state of diversity in venture capital and startups and the strategy toward changing the situation. We received more than 600 responses from startup investors and founders across industries who self-identified their gender and race to share their experiences and opinions on the shortage of diversity in venture capital and startups. We then asked tech leaders like Project Include’s Ellen Pao and Homebrew’s Hunter Walk to help explain the numbers and provide possible solutions.

What the numbers showed is stark: a world of difference between how women, minorities and white men see their situation and how VCs see themselves; a massive gap between attitudes toward diversity and prioritizing any action; and a massive barrier of entry to the venture capital world for both female and non-white founders. ["Non-white" refers to the following: American Indian, Alaska Native, Asian, Native Hawaiian, Other Pacific Islander, Black, Hispanic, Latino, Spanish origin or another race or origin besides white.]

Our hope is that the results of this survey and the insights from your posts will make it clearer how we can all get there together. And we want to hear from you: have ideas of your own on the state of diversity in startups and VC? Join the series with an article or share. Be sure to include #TechTalksDiversity somewhere within the body of the post.

The findings:

Creating (and investing in) diverse teams remains a fringe issue for both investors and founders.

Less than 5% of investors surveyed by LinkedIn rated diversity as their “top concern” as compared to macroeconomic conditions, raising capital, hitting revenue targets, or hiring the right people. More than half of investors ranked founder commitment to a diverse team as the least of their concerns when considering to invest. Several survey respondents told LinkedIn that they hire the most qualified candidates, regardless of gender and race. Others said they believe hiring with diversity in mind creates unfair preferential treatment to certain candidates.

A majority of investors and founders are not aware of any initiatives to increase diversity among founders in their portfolio or their teams.

Three out of 4 investors “in the know” (aka they felt like they knew enough about their firm or fund to answer the question) said that their firms are not supporting any initiatives to increase diversity among founders in their portfolio. Nearly 80% of founders “in the know” reported that their startups are also not supporting initiatives to increase diversity among employees

Despite a shortage of initiatives to increase diversity, VCs and founders are optimistic about how diverse their teams will be in the next five to ten years.

Investors estimated that within five years, 31% of their portfolio will be composed of female-founded companies and that 34% of their portfolio will consist of companies who are founded by racially diverse teams. Startup founders projected they will hire roughly 50% female, 50% racially diverse talent in the future. A recent analysis conducted by LinkedIn discovered that 27.8% of new hires in the venture capital and private equity industry were female, a 15.3% hiring change from 2008.

Investors say the "pipeline problem" is the top obstacle they face to creating more diverse teams.

Some 45% of investors attributed the meager percentages of diverse founders in their portfolio to a “pipeline problem” — there aren’t enough diverse founders with startups. Another 35% of investors say that don’t see any obstacles to diversifying their portfolio or investing team.

White founders say recruiting talented teams (regardless of diversity) remains the top obstacle to recruiting diverse talent. Non-white founders see this as less of a barrier.

White founders are significantly more likely to view “finding the best talent, regardless of diversity” as an obstacle to having more (racial or gender) diversity. Some 50% of white founders said the #1 obstacle was "finding the best talent, regardless of diversity" whereas 32% of non-white founders said the #1 obstacle was "finding the best talent, regardless of diversity." One white male founder who took the survey told LinkedIn that it was “somewhat silly” for founders to commit to building diverse teams. Another white male founder shared that making his company diverse has nothing to do with his business.

Investors and founders claim to invest in and recruit talent while being blind to both race and gender.

Several founders and investors felt that recruiting with either gender or race in mind is similar to enforcing either affirmative action or having quotas. One founder said that the only thing that is important to him in recruiting talent is if the candidate is capable of doing the role.

White male VCs and founders remain unaware of sexism and racism within the tech industry.

Nearly 80% of female investors have witnessed episodes of sexism in the industry (conscious or unconscious), whereas only 28% of male investors reported witnessing episodes of sexism in the industry. A majority of female founders said they have witnessed sexism while trying to raise capital, compared to 8% of male founders.

In comments left on the survey, one female venture capitalist told LinkedIn that  colleagues had asked her why she doesn’t want to go work in a more traditionally female industry. One female founder shared that investors routinely ask her in meetings when she plans on having kids.

Nearly 50% of non-white investors have witnessed episodes of racism in the VC industry, whereas only 23% of white investors reported witnessing episodes of racism. And 43% of non-white founders have witnessed racism while trying to raise capital, compared to 10% of white founders.

Female and non-white founders see multiple barriers to receiving fundraising.

Female founders are significantly more likely than male founders to feel that “most venture capitalists did not understand the product or service I was trying to sell.”  Non-white founders are significantly more likely than white founders to agree that “when I was looking for funding, I had a hard time getting venture capitalists to take my meetings.”

A survey respondent told LinkedIn that an investor once asked her how she plans on leading a company as a married woman. Another survey respondent told LinkedIn that as a Black founder, he has been introduced to Black investors who white investors say will be more interested in his company.

Male investors and founders continue to believe that the media spends too much time focused on the state of diversity in tech.

Some 40% of male investors and 37% of male founders believe the media spends too much time focused on the issue. Some 15% of female investors and 10% of female founders believe the media spends too much time focused on the issue.

Only one woman rises to the top of the most-admired list

92% of survey respondents picked a male as the leader they admired the most in tech. Elon Musk was the most popular choice, followed by Steve Jobs, Bill Gates, Jeff Bezos, and Mark Zuckerberg. Sheryl Sandberg is the only female who was chosen by more than 1% of investors and founders.

#TechTalksDiversity

Methodology: The LinkedIn Online survey was conducted August 25-September 21, 2016 among 285 investors at venture capital firms as well as private and angel investors. 322 founders or co-founders at startups spanning technical and non-technical industries with 200 or fewer employees were also surveyed. Respondents self-identified their gender and race and were invited at a random basis with no quota control on gender or racial background.