Diversity VC reports 1.87% of venture capital allocated to women and minority-owned startups

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Only about 1.87% of the $31 billion held by 200 venture capital funds has been allocated to startups with diverse leaders, according to a report from the nonprofit profit. Diversified VC.

In a study analyzing capital allocation with Penn State, Diversity VC focused on how much money would go to minorities and underrepresented women.

The report shows the difference between promised diversified, equitable, and inclusive investments (DEIs) and real assets committed at the general and limited partner levels. The sample from 213 companies represents more than $31.6 billion in combined assets under management, and $582 million, or 1.87%, is dedicated to DEI investments.

The conclusion is that funds related to DEI, underrepresented minorities and women are still underfunded, despite many institutional investors and VCs claiming otherwise.

The report captures the first previously uncollected set of data directly related to continued inequality in DEI-related funds, across the entire VC ecosystem.

Diversity VC partnered with Penn State researchers and economists to evaluate the survey, focusing on fund size, DEI mandate, gender and race, etc. Silicon Valley Bank and AWS did assisted Diversity VC in developing the report and bringing it to market, including a series of upcoming exclusive events with industry stakeholders.

Diversity VC has been in business for 5 years with the aim of building a more diverse and inclusive VC ecosystem around the world. It looked at the groups that received venture capital funding in 2018 and 2020 from the most active funds across the US.

Sarah Millar, COO of Diversity VC, in the report. “The data has barely changed in two years.”

However, the team discovered that they were beginning to see the roots of more systemic change taking place. Household names among institutional investors – from Goldman to Citi to Carta – have announced commitments to funds run by emerging managers and/or with unrepresented general partners face

Many branded VCs create a portion of their assets under management (AUM) or raise their own funds to invest in underrepresented founders.

“Overall, we have seen billions of dollars being invested in non-majority investors and entrepreneurs,” says Millar. “The exact language of these pledges varies, but overall, the goal is similar: to put more capital in the hands of underrepresented investors and founders who will invest in new ventures. underrepresented communities. There are several studies that confirm this hypothesis, but funding numbers for underrepresented founders remain disappointingly low. “


Only 1.87% of the $31.6 billion in VC money was allocated to women and minority-led companies.

Diversity VC wants to understand how to balance availability of “DEI Capital” with actual capital allocation. In other words, if the money is out there, where does it go? How do the limited partners determine where it’s going and to whom it’s going? And most importantly, what role do Diversity, Equity and Inclusion play in their decision making?

Diversity VC, in collaboration with backers and partners, drafted a survey to gather fund-level information from venture capital firms with a US presence. That survey – including high-level categories and specific questions – is available in the report’s appendix.

The survey was conducted from June 28 to September 20, 2022. Funds gained through
combination of direct email, Slack community and strategic partner communications. Of the thousands of funds exposed to the survey, the nonprofit received 393 responses. Each response represents a single VC fund, and each respondent filled out the survey on behalf of their respective organizations for both corporate and individual level questions (e.g. one respondent only provided all information on GP demographics).

Not every respondent answered all questions, but the analysis was based on the responses of 213 VCs.

Smaller DEI Fund

The first and most obvious difference between DEI funds and other funds is size. DEI funds average around $57 million in AUM, compared with $354 million for non-DEI funds.

The majority of funds surveyed use a multi-stage strategy, but DEI funds are more likely to focus on the earliest investment stages (pre-seed and seed). In fact, 100% of DEI funds surveyed are seed stage investments; 64.6% invest in pre-seed and 58.3% invest in Series A. They are slightly less likely to focus on later stages than non-DEI funds.

Since DEI funds tend to be over-represented in Series A pre-seed portfolios, that means overall fund sizes will be smaller. According to Crunchbase data, DEI funds represented in the survey also participated in smaller rounds: $10.8 million on average, compared with $21.4 million for non-DEI funds.

Gender data

Diversity VC analyzed investments from 213 VCs.

Of the 172 general partners for whom the survey collected demographic data, 59 identified as women or 34% of the total sample. Thirty-two of the 141 funds with complete gender data included only male general partners (general practitioners) – only 22.7% of the total. Ten funds (or 7%) are 100% female GPs. The rest – 99 funds – have at least one GP who identifies as a woman.

On average, 31% of GPs are women per VC – that is, the average fund will have about a third of its general partnerships be women.

Of the 172 general practitioners for whom we collected demographic data, 25 identified as non-white, representing 8.9% of the total sample. Fifty of the 92 funds for which we have full data on non-GP racing are not white (54.3%). Only six funds (or 6.5%) are 100% underrepresented minority GPs. The rest – 46 funds – have at least one GP identified as a URM. On average, 14% of GPs are a representative minority per VC – that is, the average fund will have about 14% of its general partnership made up of an underrepresented minority.

An early finding was that DEI funds were more likely to have a female or white GP. For women, about 23% of non-DEI funds have female GPs; 40.5% of DEI funds made. Meanwhile, only 5.9% of non-DEI funds count non-white GPs in their partnerships, compared with 25.3% of those with DEI mandates.

Interestingly, the difference varies slightly when considering DEI authorized funds. Funds with DEI
mandate is more likely to have a female GP, white GPs are almost equally represented at foundations with and without DEI authorization.

What does it mean

One interpretation of this data is that the presence of a woman in a general partnership increases
the ability of a fund to have its capital allocated to invest in DEI/URM investments.

This is true whether the fund simply has a DEI investment, or whether the fund has a clear mandate to make DEI investments (100% of its own capital).

Meanwhile, a non-white GP increases the likelihood that the fund is allocated capital to DEI investments,
but does not increase the likelihood that the fund is obligated to invest 100% of its capital in DEI
investments. In other words, a non-white partner indicating some, but not all, of the AUM will be reserved
for DEI investments.

In general, a fund with white women or doctors is more likely to be allocated capital to invest
in the founders of URM / DEI investment. This could also mean that non-white women and GPs are more attracted to funds with DEI capital pools.

All funds are allocated fairly geographically, although DEI funds are more popular in the South (highly concentrated in Texas) than funds without DEI. Northwest and Southwest do not have
any DEI funds presented in the form.

The majority of funds said their LPs do not have an investment-required DEI (63%); 12% said they were unsure. Just under a quarter said their investors were on duty.

Overall, DEI-focused funds and URM talent-managed funds remain disproportionately undercapitalized
compared to their peers. While large commitments from large institutions can have a lasting impact, there are still some ways to access equity and equity capital in the venture ecosystem, the report says.

None of this information is necessarily new – but the report says it’s important to analyze and set a benchmark from which to improve. Capital allocation for DEI and URM fund managers continues to face challenges
structural barriers, from limited Partner due diligence requirements to GP commitment expectations. And until these barriers are lifted, it will be difficult to make progress in creating a fair system in venture capital investments.

The report urges all stakeholders in the VC ecosystem – and in particular Limited and General Partners – to consider using their DEI as a prism for capital allocation.

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