6 Ways VC Firms Can Make Entrepreneurialism More Equitable for People of Color

“White people get an advantage that they didn’t earn and Black people get a disadvantage that they don’t deserve.”

This isn’t a statement from Black Lives Matter (BLM). And it isn’t from the National Association for the Advancement of Colored People (NAACP).

It’s a statement by Barbara Millicent Roberts – better known as ‘Barbie’ – the blonde-haired, blue-eyed doll that burst onto the toy scene in 1959. Following the police killing of George Floyd, the animated version of Mattel’s iconic doll delivered an impassioned plea to fight against racism. Barbie’s call to action was perfectly-timed.

According to a report commissioned by American Express, women of color accounted for 1,625 (89%) of the 1,817 businesses opened every day in the U.S. between 2018 and 2019, but despite women of color starting businesses faster than anyone else, they receive less than 1% of VC funding annually.

Serendipitously, the global BLM protests against police brutality have turned the spotlight on systemic racial inequities throughout the U.S., which have historically prevented people of color (PoC) from realizing their full potential.

One area in need of change is the vehicle of entrepreneurship and its fuel – namely, the venture capital (VC) system.

By presenting the following arguments, VC firms can make the business case for diversity and inclusion (D&I), paving the way for more racially equitable practices.

A diverse and inclusive workforce maximizes profitability

In an ideal world, fairness alone would warrant a diverse and inclusive workforce. But in the real world, fairness can’t move a company’s bottom line – finances can. A recent McKinsey report found that ethnically diverse companies outperformed non-diverse companies by 36% in profitability.

A diverse and inclusive workforce maximizes innovation

A homogenous team can evoke feelings of ‘sameness,’ which may feel comfortable, but it often leads to complacency. After notching up a series of successes, the team starts to believe all their decisions are correct because there’s no internal disagreement (Think Unilever-owned Dove’s 2017 social media ad, which showed a Black woman turning into a white woman after using Dove body lotion).

But with diverse and inclusive teams, the risk of ‘groupthink’ is significantly lower.

A 2018 Boston Consulting Group study revealed that diverse and inclusive teams are better positioned to “innovate, take risks, solve problems creatively, bounce back from failures and turn challenges into opportunities” than their homogenous counterparts. Having made the business case for D&I, it’s time to foster entrepreneurial growth and success among PoC by providing equal access to funding, resources, support, mentorship and representation at all tiers including board-level.

Here are six ways VC firms can do this:

1. Recruit people of color at all levels

In the words of Peter Drucker, inventor of ‘management by objective,’ “You can’t manage what you don’t measure.”

Set time-specific equity targets to ensure PoC are fairly represented at all levels – including technical, management, executive and board roles. The tide is already turning in this direction particularly after the momentum built-up by the BLM movement over the summer.

Last month, 55 U.S. companies, including Nasdaq, launched The Board Challenge, “a movement to improve the representation of Black directors in corporate U.S. boardrooms by challenging companies to take the pledge to appoint a Black director within the next year.”  

To date, 39 ‘Charter Pledge Partners’ already have at least one Black director while 16 ‘Founding Pledge Partners’ have committed to adding at least one Black director within 12 months.

2. Assign sponsors to newly-hired people of color

It’s one thing for PoC to get their foot in the proverbial door, but successfully navigating what is sometimes a labyrinthian system is quite another.

Assign sponsors to incoming PoC who often lack relationships with people who “have a seat at the table” and are in prime position to petition for their advancement.

3. Hold all leaders and managers responsible for meeting diversity and inclusion targets

Workplace D&I should be everyone’s business, not just HR. From the CEO down, hold all leaders and managers accountable for making progress in D&I. They should be visible and vocal change advocates.

4. Consult a third party expert to review diversity and inclusion efforts

What are the odds of eradicating racial inequity by enlisting the same people who consciously or unconsciously enforced unfair practices in the first place? Slim to none.

Consult an independent, third party expert to review D&I policies, procedures and metrics.

5. Embrace public accountability for diversity and inclusion goals

Accountability significantly increases the chances of success in any endeavor, not least when it’s public. Publish ethnicity data and declare how these numbers will be improved. Moreover, outline how a workplace culture will be created where talented PoC have a fair opportunity to thrive. Intel (INTC) has already made headway here. The company publishes racially disaggregated data by job type on its website.

6. Confront racial inequity as a business imperative

D&I isn’t just a moral imperative. It’s a business imperative, which should be handled with the same rigor and tenacity used to resolve a business-critical issue such as product development. According to a 2020 Edelman report, the rise of ‘belief-based buyers’ means 60% of Americans will buy or boycott a brand based on its stance on racial injustice.

Doing good isn’t just good for society. It’s good for business, too.

Eradicating systemic racial inequities

BLM raised global awareness of the inequities of systemic racism and calls for the structures that upheld them to be reckoned with and reimagined.

“There has been a long legacy of historical forces that have created a vicious cycle of persistent and systematic differences in opportunity for Black people,” says Shelley Stewart III, a partner at McKinsey. “Black families in the U.S. possess about a tenth of the wealth white families do and, if that wealth gap were closed, $1 trillion to $1.5 trillion in economic output could be created annually.”

Investing in businesses owned and operated by PoC is one sure-fire way of creating a racially equitable entrepreneurial ecosystem and a thriving U.S. economy.

Joseph Heller, CEO and founder of apparel and fashion company, The/Studio, put it best when he said: “There is no better way to change the world than to build a company in the image of the world that you want to create.”

When it comes to fighting racism, if a 61-year-old doll named Barbie can throw her hat into the ring, surely VC firms can, too.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Diversity & Inclusion Board and Leadership Leadership Venture Capital