*OPINION: White Male -Dominated VC Paradigm Needs to Change
The VC system created by white men is broken and there’s no incentive to change it.
That was just one of the opinions expressed yesterday during a spirited panel conversation at a diversity innovation forum hosted April 30 by the Alliance for Socal Innovation at the Skirball Cultural Center.
The forum’s goal was to explore how the diversity of ideas, talent and perspectives fuels innovation.
The opinion about the broken system was espoused by Tracy Gray, founder and managing partner of the 22 Fund, a growth equity fund focused on increasing the export capacity of SoCal companies. She’s also the founder of We Are Enough, with the mission of educating women globally – at every socioeconomic level and age — on why and how to invest in women-owned businesses and/or with a “gender lens.”
She said that she “does not want to be in a broken system with heels and blackface.”
Another voice on the panel was Hamet Watt, who noted only 1% of VC’s are people of color. Watt is a partner with Upfront Ventures in L.A.
He acknowledged that most VC’s look for patterns. So, he warned, diversity cannot be the only strategy. An important strategy, yes, but not the only one.
Also on the panel, Eva Ho, a partner with Fika Ventures, an LA-based boutique seed fund that invests in founders who are taking on systemic challenges through the use of data, related AI-enabled technologies and automation.
She cited data that female entrepreneurs-to-be at universities like Stanford have a much higher abandonment rate of their ideas/companies than male founders. The reasons for that are still being researched, she said.
Another panelist, Renee LaBran, has established a network of women, the Women Founders Network. These women provide access to capital, visibility and mentorship to female entrepreneurs.
LaBran has personally invested, along with a few other women, in some of the startups founded by the winners from the network’s annual pitch competition.
And, with this paradigm, she’s not beholden to any limited partners and not judged by any endowments on the fund’s return.
She said this network recognizes that many women just don’t have the connections typically needed to get access to VC investors. So, that’s what her network strives to provide.
The network provides in-person workshops, coaching and the fast-pitch competition, as well as funding, to accelerate growth for early-stage companies led by women.
In terms of ways to fix what some of these panelists say is a broken system, Gray suggested that there needs to be some sort of “risk capital” — less risky than typical — that would be the first to invest, as “catalytic capital” so to speak – in women and minority fund managers.
“The research shows that investing in women and people of color is less risky and you see higher returns,” she told OC Startups Now.
Ho cited some local success stories of companies founded on diversity. One is BlackLine, founded by Therese Tucker in LA in 2001. It went public three years ago. Tucker spoke on a different panel Tuesday and said she grew up in OC but decided intentionally to launch her company in LA because of the lack of diversity in OC.
In terms of getting Series A funding, Watt acknowledged the seed “valley of death,” and said it’s not exclusive to women and people of color.
It’s hard for everyone, he said, just harder for women and people of color. Anyone seeking Series A investment has to show hard data of growth and market traction to convince Series A investors to bite.
Gray echoed that, noting that LA ranks 31st for “growth entrepreneurship,” according to the Kauffman Index of Growth Entrepreneurship. This ranking considers three components: rate of startup growth; share of scale-ups; and high-growth company density.
She seemed to offer the most dramatic suggestion for change: She said she wanted to see a whole new paradigm of funding that doesn’t include the same people, places and patterns.
“I don’t hang out at the same (VC) events on the Westside all the time,” she said. “I look at hardware because manufacturing is where blue collar workers of the past were. But you can’t be just blue collar anymore. You need basic analytical skills (and the like). I want to upskill blue collar workers and go outside of Silicon Beach, Silicon Valley, anything with the word ‘Silicon’ in it.”
This raises the question here in OC. Look around. How many investors are white men? How many are women? How many are people of color? Are any conversations taking place here in OC to diversify the investor demographic? Or do these convos only take place in LA, which is much more ethnically diverse? OCSN is interested in getting feedback on this.