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Diverse By Default

This document provides a summary of a report on increasing diversity in startups and venture capital. It begins with defining diversity and acknowledging issues with lack of common definitions. It then outlines the current lack of comprehensive data on diversity across regions, funding stages, and identity groups. The report proposes several frameworks to analyze diversity, including a diversity mapping to assess one's position and a 3-tier framework connecting ecosystem players, solutions, and factors. It also provides recommendations and examples of solutions for different players, with a focus on founders. The goal is to present an all-encompassing, forward-looking set of solutions to improve diversity in startups and venture capital.

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Diverse by Default
A collaborative report
September 2023
About this report
This is the first ‘Diverse by Default’ report. In it, the aim is to set
out a constructive and solution-focused vision and a path for the
startup and the venture capital (VC) ecosystem.
The inspiration for the report stems from discussions with the
ecosystem players across the years. There are reports covering
surveys and fundraising data, though the diversity topic deserves
much more. The goal here was to present an all-encompassing,
forward-looking solutions-focused view.
Diversity doesn’t belong to one group/association/ethnicity/VC/
person. Hence, this report is titled ‘A collaborative report,’ as it
belongs to the community.
Independence and pragmatism were paramount in conducting
research, interviewing, and writing this report. Simultaneously, it
was strived to remain open and collaborative. Next, building an
independent bi-sided lens to view the diversity topic was
prioritized, i.e., people often want to see arguments through
their lens and disregard or overlook other viewpoints. Such
behavior is deteriorating diversity discussion instead of
propagating a healthy outcome.
Thoughts have been put together carefully, 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.
About What Why How Future
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.
Diversity is also personalized; hence, this report can’t answer
everyone’s questions. The examples quoted are non-
exhaustive, and the solutions presented are set in stone.
Readers are strongly recommended to assess their diversity
alignment and focus on building their paths.
1. What?
Two essential starting points to the
diversity topic are covered:
(a) What does diversity mean?
(b) What is the current status of
diversity in the startup and the VC
ecosystem?
2. Why?
Establishing the diversity issue is not
enough! There needs to a healthy
connection between diversity and
‘Why’ the issue is big enough to
deserve attention and solutions.
2. How?
‘How’ section is most existential for
report. Three core elements:
(a) ‘Diversity Mapping’ for readers to
assess their diversity alignment
(b) 3-Tier Framework to analyse the
diversity topic
(c) Solutions for various ecosystem
participants
4. Future
Future is what comes after this report.
But more importantly - what aspects or
questions can different ecosystem
players support in answering.
‘‘ Maximum efforts in this
report have been spent on
the ‘How’ section because
that is where the ecosystem
conversation should move
towards to create the most
signi
fi
cant value-add.
About What Why How Future
Diverse By Default | Page 3
What is diversity*?
Diversity can be described as the representation, in a group, of various facets of identity, including
(but not limited to) race, ethnicity, nationality, gender identity, LGBTQ+ status, socioeconomic
status, ability, religion, and age.
*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.
About What Why How Future
One of the issues is that the de
fi
nition
of diversity is not commonly
established or agreed upon.
‘‘ Is the word diversity overused-yes! Too many investors are just
using it conveniently for their bene
fi
t. Neither do phrases like
under-represented and under-funded do justice. The language
implies that white men are at the centre of the ecosystem
Investor, Europe Investor, U.S.
‘‘
Diverse By Default | Page 4
What?
Many reports and articles have been
highlighting issues related to diversity 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 are stark and visible gaps for the
diverse founders and diverse investors.
Data providers, investors, and tech
companies seldom sponsor or conduct
surveys/reports. The goal often leads to
undeniable numerical data on diversity.
Such data then becomes underlying facts
for countless other blogs and articles.
There are limited additions in this report
w.r.t such numerical ‘What.’ Instead, the
focus was on collecting these disparate
data/information and putting them
together to build an overarching diversity
image. To our surprise, it wasn't easy.
Read on👇
About What Why How Future
1
3
4
5
6
7
8
10
2
9
Diverse By Default | Page 5
11
Diversity discussion is too disparate!
There is limited global comprehensive data on a single time-line.
Black
*
Gender
1.9% = Women-only led
13% = Women (co-
founded)
1% = Black-founded
88% = self-funded Black-
founders (UK)
1% = capital managed by all-
women GPs in Nordics
1% = VC funding was raised
by women-only GP teams
2% = raised by Black VCs
Startup Funding VC Funding
Startup Founders
5% = VC partner investors
are women
15% = VC partner investors
are women
< 1% = Black VC investors
54% of Black VC partners did
so by starting own funds
VC Investors
Ethnicity
0.7% of total unicorn
funding = all minority
ethnic founder teams
Startup executives=2.1% Black
1.4% of unicorns = all minority
ethnic founder teams
Startup executives=2.6% Latinx
About What Why How Future
The Diversity Puzzle
Global focus
U.S. focus
Europe & UK focus
8
6
6
3
4
11
1 7
4
12
4
9
11
15% = Tech startup founders
are women
5
2
Data figures are captured from different reports. Caution, not every data point is from the same year. Check references for more.
* ‘Black’ is a subcategory in this representation. It is chosen to capture max. data availability. Intersectional data is unavailable for different geo’s. Diverse By Default | Page 6
10

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Diverse By Default

  • 1. Diverse by Default A collaborative report September 2023
  • 2. About this report This is the first ‘Diverse by Default’ report. In it, the aim is to set out a constructive and solution-focused vision and a path for the startup and the venture capital (VC) ecosystem. The inspiration for the report stems from discussions with the ecosystem players across the years. There are reports covering surveys and fundraising data, though the diversity topic deserves much more. The goal here was to present an all-encompassing, forward-looking solutions-focused view. Diversity doesn’t belong to one group/association/ethnicity/VC/ person. Hence, this report is titled ‘A collaborative report,’ as it belongs to the community. Independence and pragmatism were paramount in conducting research, interviewing, and writing this report. Simultaneously, it was strived to remain open and collaborative. Next, building an independent bi-sided lens to view the diversity topic was prioritized, i.e., people often want to see arguments through their lens and disregard or overlook other viewpoints. Such behavior is deteriorating diversity discussion instead of propagating a healthy outcome. Thoughts have been put together carefully, 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. About What Why How Future 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. Diversity is also personalized; hence, this report can’t answer everyone’s questions. The examples quoted are non- exhaustive, and the solutions presented are set in stone. Readers are strongly recommended to assess their diversity alignment and focus on building their paths.
  • 3. 1. What? Two essential starting points to the diversity topic are covered: (a) What does diversity mean? (b) What is the current status of diversity in the startup and the VC ecosystem? 2. Why? Establishing the diversity issue is not enough! There needs to a healthy connection between diversity and ‘Why’ the issue is big enough to deserve attention and solutions. 2. How? ‘How’ section is most existential for report. Three core elements: (a) ‘Diversity Mapping’ for readers to assess their diversity alignment (b) 3-Tier Framework to analyse the diversity topic (c) Solutions for various ecosystem participants 4. Future Future is what comes after this report. But more importantly - what aspects or questions can different ecosystem players support in answering. ‘‘ Maximum efforts in this report have been spent on the ‘How’ section because that is where the ecosystem conversation should move towards to create the most signi fi cant value-add. About What Why How Future Diverse By Default | Page 3
  • 4. What is diversity*? Diversity can be described as the representation, in a group, of various facets of identity, including (but not limited to) race, ethnicity, nationality, gender identity, LGBTQ+ status, socioeconomic status, ability, religion, and age. *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. About What Why How Future One of the issues is that the de fi nition of diversity is not commonly established or agreed upon. ‘‘ Is the word diversity overused-yes! Too many investors are just using it conveniently for their bene fi t. Neither do phrases like under-represented and under-funded do justice. The language implies that white men are at the centre of the ecosystem Investor, Europe Investor, U.S. ‘‘ Diverse By Default | Page 4
  • 5. What? Many reports and articles have been highlighting issues related to diversity 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 are stark and visible gaps for the diverse founders and diverse investors. Data providers, investors, and tech companies seldom sponsor or conduct surveys/reports. The goal often leads to undeniable numerical data on diversity. Such data then becomes underlying facts for countless other blogs and articles. There are limited additions in this report w.r.t such numerical ‘What.’ Instead, the focus was on collecting these disparate data/information and putting them together to build an overarching diversity image. To our surprise, it wasn't easy. Read on👇 About What Why How Future 1 3 4 5 6 7 8 10 2 9 Diverse By Default | Page 5 11
  • 6. Diversity discussion is too disparate! There is limited global comprehensive data on a single time-line. Black * Gender 1.9% = Women-only led 13% = Women (co- founded) 1% = Black-founded 88% = self-funded Black- founders (UK) 1% = capital managed by all- women GPs in Nordics 1% = VC funding was raised by women-only GP teams 2% = raised by Black VCs Startup Funding VC Funding Startup Founders 5% = VC partner investors are women 15% = VC partner investors are women < 1% = Black VC investors 54% of Black VC partners did so by starting own funds VC Investors Ethnicity 0.7% of total unicorn funding = all minority ethnic founder teams Startup executives=2.1% Black 1.4% of unicorns = all minority ethnic founder teams Startup executives=2.6% Latinx About What Why How Future The Diversity Puzzle Global focus U.S. focus Europe & UK focus 8 6 6 3 4 11 1 7 4 12 4 9 11 15% = Tech startup founders are women 5 2 Data figures are captured from different reports. Caution, not every data point is from the same year. Check references for more. * ‘Black’ is a subcategory in this representation. It is chosen to capture max. data availability. Intersectional data is unavailable for different geo’s. Diverse By Default | Page 6 10
  • 7. About What Why How Future 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, and ecosystem. We couldn't have done a more value-adding and detailed job than the researchers with the personalised interview methodology followed in this report. Instead, the focus was to establish two critical structures: (a) Diversity Mapping: After acknowledging the 'What' and 'Why' of the diversity, readers need to assess where their ideology falls on the diversity mapping. (b) 3-tier framework: connects different diversity elements - ecosystem players, solutions, and delivery factors. 1 2 3 4 5 6 7 8 9 10 Diverse By Default | Page 7
  • 8. Diversity Mapping / 1 Having understood the ‘What’ and the ‘Why,’ and having read the two cases above, assess your diversity alignment and map yourself on the diversity chart. We have raised money from investors to deliver outstanding returns so they can pay it forward to their clients. I don’t have space for emotional investing. I want to invest in the founders and the business cases that make sense. ‘‘ Hypothetical case - An established VC Venture capital is a private club with no easy entry for us. The percentage of money allocated to diverse founders is a slap on our face. We should be getting more allocations from investors. It’s a must. ‘‘ Hypothetical case - A diverse founder Business focus Diversity focus Where do you place yourself? About What Why How Future Diverse By Default | Page 8 The graph above is an illustrative view.
  • 9. Diverse By Default Why is ‘Diverse By default’ position important? One word - ‘pragmatism.’ When we align ourselves to extremes, it is unlikely to leave room for collaboration. ‘Diverse By Default’ is a position where we appreciate each other’s views and, MOST IMPORTANTLY, make a conscious effort to move forward along a growth path. Business focus Diversity focus Diversity Mapping / 2 Previous hypothetical case - An established VC Previous hypothetical case - A diverse founder What does ‘Diverse By Default’ path mean? • Browse through evidence of diversity w.r.t increased team performance and better investment outcomes. • Track internal pipeline w.r.t diversity metrics. • Track investment outcomes w.r.t diversity metrics. • Open up discussions with diversity-focused VCs. • Broaden your negotiation and argument toolkit by bringing attention to business and investment outcomes. • Educate investors on the business area or specific geo. • Focus conversation with investors on joint exploration of future positive outcomes. About What Why How Future Diverse By Default | Page 9 The graph above is an illustrative view.
  • 10. 3-Tier Framework Ecosystem Players: Founders and VCs are not the only players in the diversity discussion. It’s also the government, media, organizations, employees, experts, etc. Majority of the ecosystem players are covered in separate sections. Solutions: This report has curated and proposed several solutions for different ecosystem players. The solution list is by no means complete, though care has been taken to remain all-encompassing. Awareness-Action (AA) classi fi cation: All solutions are not created equal and should be separated based on a logical pattern, making it easier for everyone to create a workable strategy for themselves. Awareness Action Solutions Ecosystem Players About What Why How Future Diverse By Default | Page 10 The graph above is an illustrative view.
  • 11. About What Why How Future Founder Solutions Following topics are covered: 1. ‘Build Basics’ approach for founders 2. Founder solutions mapping 3. Solution descriptions 4. Connecting ‘Build Basics’ approach with the solutions The fi rst piece of advice I give founders is to learn on someone else’s dime. Hone the craft in established or emerging startups. Make mistakes and assimilate personal learnings. Once you are prepared - go build your startup. ‘‘ Founder/Investor, UK Diverse By Default | Page 11
  • 12. About What Why How Future Build Basics (BB) Approach Most diverse founders cite either (a) lack of funding, (b) lack of support, or (c) lack of knowledge - as their most significant pain points when building startups. This report first proposes a Build Basics (BB) approach for diverse founders. Six basics that diverse founders must excel at: 1. Sell it before you build it: Before building upon your idea, test whether you can sell a version zero. A likely reason for startup failure is not enough demand for the product. 2. Understand the market and the alternatives: It’s more than doing a competitor analysis. Being on top of future trends and developing own ‘secret sauce’ is the key. 3. Understand what VCs look for: Not every startup needs VC funding. Understand the alternatives, and if VC capital is the chosen route - be sure of what VCs expect from the startup. 4. Create better decks: It is easiest for investors to pass on an opportunity because the deck is poorly articulated or misses critical slides. 5. Raise before raising: It is far easier to anticipate the capital needs and build one’s investor network in advance than stressing out when only a few months of runway are left. 6. Build your tribe*: The startup journey is tough. Surrounding yourself with people who understand and can support you through challenges is crucial. The BB approach will not solve all issues for the diverse founders but will likely improve their odds of building a successful startup tremendously. Diverse By Default | Page 32 * Suggestion to include from an interviewee
  • 13. Goal for founders should be to shift their maximum learning curve to the ‘Awareness’ bucket. Competition for capital is ruthless. It’s not ‘learning on the job' environment anymore. About What Why How Future Awareness Action 1 2 3 6 7 4 5 1. Founder Groups 2. Getting-Stuff-Done Programs 3. University Groups 4. Startup Education 5. Ask An Alumni 6. Mentorship 7. Startup Events 8. Raise Before Raising 9. Support Programs 10. Grants 11. Pitch Events 12. Research Founder Solutions Mapping Awareness focus Action focus 9 10 Diverse By Default | Page 13 11 8 12 The graph above is an illustrative view.
  • 14. Founder Groups Important: • Be quick to judge the value of a group. • Some groups boast big community numbers, but there is not much activity. While in others, there is too much self-promotion content. • Be there to learn and not tarnish anyone. Remember, what you will post - stays in the system. How to go about it? • Ask a fellow founder, if they are part of any interesting founder group and if you can be included. • Most groups also allow early-founders (only with an idea) to become a part of the group. • Platforms like Slack can be meaningful as there is a record of past conversations. Browse extensively to level-up. • Such platforms can also help you find your co-founder. • Examples specific to diversity angle: Female Foundry (Link), Founderland (Link). Communities like NoCodeFounders (Link) present a more generalist to Founder communities. What is this? • Founder focused groups on various channels like WhatsApp, Slack, Discord, etc. • Primary goal of joining such groups could be building community and knowledge. ‘‘Few female founders tell me that their female- only WhatsApp peer groups are the number one go-to source to get support on any startup topic. Investor, Europe ‘‘The fi rst time I built my app was using React. It took time. Had I been part of any community - I would have realized how easy it is to create an MVP with no-code tools these days. About What Why How Future Founder/Investor, Europe Diverse By Default | Page 14
  • 15. What is this? • Focus is on hands-on development and execution. • A bit newer trend, though can be extremely effective in supporting founders in building their MVP’s, getting traction, instilling confidence in first-time founders, and building network. • Such groups can also help you find your co-founder. Who is doing it right? Case Study: Nights & Weekends (Link) N&W absolutely 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 program is free. Excerpt from their email - "90% of our base started their idea from from zero in nights & weekends. meaning, these are ideas that otherwise may have never come to life. and, 40% of them want to go on to actually start a legit company + give it their all.” How to go about it? Treat these groups as testing grounds or building version-0 of your idea. Get-Stuff-Done Programs About What Why How Future Important: • Many groups are overwhelming tilted towards software. As a founder, if you don’t want to build tech expertise, focus on finding a buddy. • Such groups/programs can be very fast paced. Don’t be surprised if you loose steam or enthusiasm. The idea is to keep going. • Since these groups are melting pot of people and ideas, it’s recommended to soak in as much as possible. You may find an interesting pivot to your own idea; or might come to conclusion that your idea needs more refinement. Diverse By Default | Page 15
  • 16. What is this? • Many engineering and business schools have alumni groups. Think entrepreneurship clubs, startup clubs, tech clubs. • Because there is a sense of common-belonging, such groups become instant go-to for anyone wanting information, connections, knowledge, or additional resources. • Most groups/communities are diversity friendly and can also help you find your co-founder. How to go about it? Find about groups from university, or fellow alumni/students. If something doesn’t exist - create it. For example - few students saw a gap in their MBA program, which didn’t offer any club focused on entrepreneurship. Determined to do something, they initiated a startup club and organised chapter events. Don’t wait; take the initiative. University Groups About What Why How Future Startup Education What is this? 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 startups topics via excellent blogs, curated article repositories, and videos. How to go about it? Try the free ones first. Don’t get locked up to one program/investor/association. Go for 1-2 programs simultaneously - to understand the subtle differences in what they teach and hone your ability to question the differences. Who is doing it right? YC StartupSchool (Link). Antler Ignite program (Link). Collections like Failory (Link), Founder Secrets (Link), etc. You need 3X your network, anytime you need to pull-off a startup task. Want to fi nd your co-founder? 3X your network fi rst. University groups are excellent way to get started. ‘‘ Investor, Europe I read venture deals book from Brad Feld inside-out 3 times. It’s not even that long. Maybe the data and market has evolved; but the basics and term sheet intricacies have remained the same. ‘‘ Founder, U.S. Diverse By Default | Page 16 What about diverse founders who didn’t go to any university. How are we enabling them? Education based bias and discrimination is a real thing in the VC world.’ ‘‘ Operator/Investor, Europe
  • 17. What is this? 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. Important 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. • Using alums to get intros to others (investors, corporate contacts, etc.) could be less effective. Without a healthy relationship, limited people would be willing to get you introductions. • It’s a fact that ‘Warm intros are awful for diversity’ (Link) How to go about it? Make sure to send a well crafted and thoughtful message with a clear ask. Alums are likely busy in their own lives. Don’t get demotivated if you aren’t getting any meaningful response. Change the tone and content of your intro email. You should likely change the format based on the platform (a Twitter message should differ from a LinkedIn note). Check out examples of crafting a great message (Link, Link, Link, Link). Realize that there is no perfect way of writing such messages. There is no silver bullet that will get you a reply, every time. ‘‘It’s a numbers’ game. I sent out 80+ emails and LinkedIn messages to my alumni before fi nally getting my fi rst meaningful response. Founder, Europe Ask An Alumni About What Why How Future Diverse By Default | Page 17 What about diverse founders who didn’t go to any university. How are we enabling them? Education based bias and discrimination is a real thing in the VC world. ‘‘ Operator/Investor, Europe
  • 18. What is this? • Mentorship not only works in the corporate world; it also works wonders in the startup world. • Ideally, everyone should have at least one. A founder 2-3 steps ahead of you could be of great help. How to go about it? • Look for these = 1. Can you respect the mentor? 2. Is the mentor helpful? 3. Is the mentor knowledgeable? • First connect with people in your immediate network (LinkedIn contacts, alumni, 2nd-degree network). Expand your horizon thereafter. Mentorship About What Why How Future ‘‘All my co-founders and I have at least 2-3 mentors. We have mentors for different areas of our startup e.g. M&A mentor to help us understand potential exits scenarios and what unicorn startups look at before acquiring smaller startups such as ours. Founder, Europe Important • Having 2-3 mentors is a luxury for most founders. Aim for having at least one. • With mentorship, issue is about the fit (mentor-mentee). • Instead of finding a perfect fit, start with someone you can trust and is helpful. • Don’t make mentorship a uni-directional relationship. Offer your support to the mentor. • Beware of mentors asking for startup equity. • Separate the board membership topic from mentorship. Diverse By Default | Page 18 Language is so crucial to fundraising. More decisiveness will pull conversations in diverse founders' favor. State your track record unapologetically.’. Operator, U.S. ‘‘ Women need to speak up more. Especially the ones who are role-models. We need all - we need the brash ones, and we also need the articulate ones. Plus, more voices from the non-startup world, like Sports stars. It’s not the time to be polite. ‘‘ Founder, UK Founders who don’t want to be labeled ‘diverse’ - understood! However, also think about inspiring others by sharing your stories and journeys. Do it for others, if not for yourself. ‘‘ Operator, Europe
  • 19. What is this? In-person, hybrid, and online events + meet-ups which are not specifically focused on startup pitching. How to go about it? • Treat them as one of the best ‘awareness’ recipes out there. • There are many 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. • Keep an eye on social media, especially on top VCs in your area - as they organize sessions worth attending. • Also, great to attend multiple IRL events, early in your startup journey, if they happen in your city. Startup events About What Why How Future ‘‘Product was front-and-center for my startup. I attended multiple online sessions on PLG topic. There are so many great Product in fl uencers on LinkedIn who also hold sessions. Plus, Lenny’s Slack community and online newsletter are awesome. Founder, U.S. Important • 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. • Not all events are created equal. It is a good sign if fellow founders or investors recommend an event. Diverse By Default | Page 19 Diverse founder-support-events have become what CSR was fi ve years back. It’s good for the VC’s image. However, too much coaching is delaying fundraising and confusing founders. Plus, some events are asking for money from Founders. This should not happen. ‘‘ Founder, UK ‘‘You do see women and minority groups in different startups and investors events, however, it is not enough. The event organisers need to focus on setting up diverse panelists and inviting diverse audience in the ecosystem. Operator, Europe
  • 20. What is this? • If founders start raising when they need capital, it is already late. • Especially for diverse founders who constantly find it difficult to raise capital, irrespective of the environment • Hence, if you can - raise before raising. It means (1) anticipating your funding needs, (2) building network among potential investors months/years in advance, and (3) keeping them informed via regular updates. • Pitfalls - Investors don’t reply, and founder gets frustrated; Or founders can’t keep the interest alive e.g., no regular communication Raise Before Raising About What Why How Future We participated in a ClimateTech founder showcase. We didn’t win or anything but we got contacts of all angels who attended. We reached out and asked for their time, feedback. By the way we were raising all this time. ‘‘ Founder, Europe I had no pre-built connections in the investor ecosystem. So I used the funnel system. On average, for every 50 investors I reached out to, ca. 11 replied and 7 converted to fi rst time calls. When we actually started raising, 3 did DD on us and 1 invested. ‘‘ Founder, U.S. The best time to start raising was when you thought about the idea. The next best time was yesterday. ‘‘ Investor, Europe This strategy execution should be tactful. Don’t exhaust all your contacts without getting any meaningful investor interest. Investor, Europe ‘‘ Diverse By Default | Page 20 Founders should raise from investors who are best aligned with their business idea and personality. It’s a long-term relationship. Fundraising shouldn’t be an outcome of the founder’s diversity alignment. ‘‘ Investor, UK Founders can gain better access to funding with diversity focused funds. However, if the cap table consists of 'only' diversity focused funds, one might question 'why' and it can subconsciously become 'signaling effect' to established VCs of emotional investing. It's a thought, balancing act. So pick the best diversity focus investor who brings value beyond capital. ‘‘ Investor, UK/Europe Instead of a ‘spray and pray’ approach with investors, founders should fi rst arm themselves with more knowledge about the investors and their investment preferences. ‘‘ Founder, UK
  • 21. What is this? Largely supported by VCs (a) sector specific startups, or (b) focused on element of diversity e.g. female-only. Example: Sie Catalyst (Link) How to go about it? • 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. Support Programs About What Why How Future Grants What is this? If you are eligible, government grants or perks from other associations are a must-have, especially in Europe, where grants from organisations could be sizeable. How to go about it? Getting grants is a challenging feat, too. First, ask around in your founder network. After getting inputs from various sources, file for a grant. Once rejected, it can make it tough to get it. A VC organized a funding- readiness program but did not follow up with any VC funding commitment. It’s like stopping ten steps away from the destination. There is so much advice but not enough capital. Founders need VCs who invest. ‘‘ Founder, Europe My co-founder has a doctorate. So, he knows well how to write grant applications. We have survived on such grants, but they are insuf fi cient for our growth phase. ‘‘ Founder, Europe Diverse By Default | Page 21 I didn’t opt for the incubator in my city because it had just 5% females in the program. I joined one in another town because it had a better ratio. Besides family considerations, what matters in my startup is the kind of people I surround myself with. ‘‘ Founder, Europe Don’t paint founders with the same brush. Some of us have little/no network and limited knowledge due to our backgrounds. But VC event invites and outreaches are happening more for those who already know better. There is a mismatch. ‘‘ Founder, UK
  • 22. What is this? In-person, hybrid, and online pitch events How to go about it? • 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. Pitch Events About What Why How Future Research What is this? 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. How to go about it? • VCs announce their investments in new startups. Understand why and read their investment memo’s. • Tools like Crunchbase has a huge list of startups and their funding - all updated regularly. If you don’t have access, follow magazines/platforms like TechCrunch, EU-Startups (Link). • Look at market maps and sector reports. Examples: Holon (Link), Dealroom (Link), CBInsights (Link) Five months before starting my company, I attended every online pitch competition, there was. I massively boosted my con fi dence in pitching, and these pitch events became a way for me to do competitor analysis. ‘‘ Founder, Europe If only the startup team I chatted with this month had researched the market well, they would have known there are already tens of climate analytics platforms. Plus, they could have answered my question better - ‘What’s your secret sauce. ‘‘ Investor, Europe Diverse By Default | Page 22 Choosing the location of the startup can also have an impact on the founder’s success. How is the community in the city? Is it a melting pot of people and ideas? Is there an open mindset? ‘‘ Investor, Europe
  • 23. 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 your raise 6. Build your tribe About What Why How Future Connecting BB approach with solutions Founder Groups, Getting-Stuff-Done Groups, University Groups Startup Events, Pitch Events, Research, Educational Programs Educational Programs, Founder Groups, University Groups, Ask A Mentor Pitch Events, Educational Programs, University Groups, Ask An Alumni, Ask A Mentor, VC Support Programs, Educational Programs, University Groups, Ask An Alumni, Ask A Mentor Founder Groups, University Groups, Ask A Mentor, Ask An Alumni, Diverse By Default | Page 23
  • 24. About What Why How Future More quotes Diverse By Default | Page 24 Every diverse founder I know has views on the topic, but they either don’t get the right platform to voice their thoughts or, more importantly - no platform is well designed for them to speak out openly without fear of repercussion. When one of us gets too frustrated, vent- outs happen on social media. There should be a way of resolution between those extremes. ‘‘ Founder, Europe Geopolitical tensions shouldn’t come in between speci fi c topics like startups and diversity. If we are favouring/rejecting founders from a particular country, we are just trying to close one diversity gap but opening up another discrimination angle. ‘‘ Operator/Investor, Europe Diverse founder-focused groups need to balance discussions carefully. It shouldn’t become a bubble of emotions and shouldn’t only be used to vent. ‘‘ Investor, Europe We don’t have an underrepresentation issue; we have an underestimation issue. There is an unconscious bias to underestimate diverse founders in achieving results at par with anyone else. We are not creating enough data points. ‘‘ Investor, UK Throwing money at the issue is not the perfect solution. We need ‘Diversity’ in thoughts and minds. ‘‘ Investor, Europe The media is glorifying unicorn founders. Stop building with the sole aim of becoming a unicorn because many aspects, like luck and timing, play a role. Instead, we should focus on building an ecosystem where we can fail better. ‘‘ Investor, Europe We need people like Michael Jackson (link) who have a social media presence and don’t shy away from a taking a critical view of what they see wrong in the ecosystem. ‘‘ Founder, Europe Venture Capital is actually a simple business! Founders should focus on their product and strive for PMF. Capital will follow. If founders listen to too much advice, they forget to build. ‘‘ Founder/Investor, Europe
  • 25. About What Why How Future Investor Solutions Following topics are covered: 1. ‘Cautious Care’ approach for investors 2. Investor solutions mapping 3. Solution descriptions 4. Connecting ‘Cautious Care’ approach with solutions We are all smart people. We know the solutions. It’s not about any missing knowledge. But; are we all accepting of diversity issues? Willing to solve it? or, Are we even pushed enough to take action? I don’t think so. We are too boxed in our investment mandates. ‘‘ Investor, Europe Diverse By Default | Page 25
  • 26. About What Why How Future Cautious Care (CC) Approach In this report, a Cautious Care (CC) approach is proposed for investors (Venture capital firms, Angels, Accelerators, etc.). After this, solutions for investors are proposed. In the end, solutions are connected with the CC approach to provide a wholesome 360 degree action plan. Let’s explain what is 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. Diverse By Default | Page 26
  • 27. About What Why How Future If you look inside many established investors, even basic de-biasing of the investment process is missing. How do you expect to move the needle? ‘‘ Awareness Action 1 2 3 4 5 6 7 8 13 12 1. Diversity Aware IC 2. Compensation Equality 3. Diversity Aware Pipeline 4. Maximise Feedback 5. Promote Incoming Talent 6. Training Programs 7. Portfolio Diversity Data 8. Investment Diversity Data 9. Associations 10.Certifications 11. Wider Adoption 12. Investor Support Programs 13. Diversity Focused Funds 14. Diversity Quotas 15. Support Diverse VC Investors 16. Founder Office Hours 17. Dedicated Person/Page 18. Dedicated Policy Investors Solutions Mapping Investor, Europe Awareness focus Action focus 11 Diverse By Default | Page 27 8 9 10 14 15 16 17 18 The graph above is an illustrative view.
  • 28. What is this? Raise cognitive diversity of investment decision makers. De-biasing approach should aim to mitigate individual investment committee (IC) member biases by curating standardised questions, insights and analysis through a rigorous process. Draw inspiration from other asset classes were time and again research has proven that negative outcomes are associated with conscious and unconscious biases. Everyone likely struggles with biases, more often than not. An investor mentions an arrogant founder here - (Link). Similarly, it is not difficult to get swayed away by emotionality, looks, and connection - all likely pitfalls for founders. Diversity Aware IC About What Why How Future Compensation Equality What is this? Equality in compensation is not only for employees of VC firms but also pushing equality in compensation inside portfolio companies. Portfolio companies are more attuned to listen to investors. Pushing for equality in compensation will make for a better level playing field in the portfolio companies. It will positively influence internal team satisfaction and startup business outcomes. How will diverse founders win when late-stage VCs invest largely in repeat founders these days? Most repeat founders are white males. There is no winning circle for diversity here. ‘‘ Investor, Europe There are compensation discrepancies for diverse folk in the tech and the investor world. Full stop. ‘‘ Operator, Europe Diverse By Default | Page 28 There is a pipeline issue. At pre-seed, most startups don’t have many KPIs or traction to show. Diligence, by default, hinges on evaluating diverse founders - which is an issue in itself. It then exacerbates pipeline problems as even less diverse founders reach later stages. ‘‘ Founder, UK Ecosystem has come a long way - from ‘No attention’ to ‘More attention.’ It takes time, and then it happens very fast. But w.r.t on-the-ground fundraising numbers, I haven’t seen any meaningful difference pointing to any sort of signi fi cant change. ‘‘ Founder/Investor, Europe
  • 29. What is this? • 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. Diversity Aware Pipeline About What Why How Future Maximize Impactful Feedback What is this? • Investors have a startup funnel. Eventually, they only invest in ca. 1-2% of the deals they see. How VCs look and interact with the remaining 98% of startups matters significantly! • Expand the feedback funnel, especially for diverse founders, to 100%. Impact An apt, insightful, and truthful feedback can work wonders for the founding team. There is genuine apprehension on this topic as well (Link). I see upwards of 1000+ pitches a year. That’s more than 2.5 pitches a day. It’s impossible for me to give detailed feedback on each. There should be a way through which VCs can adopt a few diverse startups to support. That could help. ‘‘ Investor, Europe Founders crave genuine, tangible feedback on improving their decks and pitches. Do they get it - No! Most times, they walk away with generic answers and rejections. Maybe we don’t need more startups. Perhaps we need to vitalize the startups we already have. ‘‘ Founder, Europe Diverse By Default | Page 29 Putting founders in categories is an ‘effect’ of decision-making. It might make it ef fi cient for some in the ecosystem, but it takes out critical thinking to judge people+opportunities effectively. ‘‘ Investor, Asia
  • 30. What is this? Three ways to effectively promote incoming talent 1. De-bias hiring pipeline. A lot of content is available on how to do this well. 2. Train more diverse candidates via internships and residence programs. 3. Build and promote internal diverse candidates. Promote Incoming Talent About What Why How Future On-The-Job Training What is this? • Training programs apply in general to all investors, not just diverse hires. It’s about training them on diversity-awareness topics or building their skills in practical investment analysis. • Buddy systems, peer-networks, external coaching, and certifications are excellent training forms. We are, by nature, global and have an outward outlook. We balance men and women 50-50 in ICs. We have made sure women are in leadership positions. We have a diversity- centric hiring process. ‘‘ Operator/Investor, Europe Diverse By Default | Page 30 Most VCs project diversity by doing a lot at the most junior levels, think internships, analysts, etc. When we talk about promoting to senior or partner levels, they have questionable performance. ‘‘ Founder, Europe VC is a challenging and competitive business. Not all analysts will become Partners. There also needs to be a higher self-awareness amongst VC employees. Many have taken over senior operating roles in startups. We need to make this jump look and sound - ‘cooler.’ ‘‘ Investor, Europe Discussions on diversity are ongoing in the VC ecosystem. However, execution is missing or low. Too few female VC Partners who have check writing ability. Plus, associates don’t have the power to push the deals through. ‘‘ Founder, UK
  • 31. What is this? 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. Portfolio Diversity Data About What Why How Future Investment Diversity Data What is this? • Investors have a startup funnel and publishing data+KPIs on topics like diversity in startup leadership, deal flow, and final investment portfolio diversity - is powerful data-driven approach to supporting the ecosystem. It can also become a strong pull for diversity-aware LPs. • Uncovering data: Is this why women-led startups aren't getting funded? - Link. Frontline Link - as B2B VC majority of deals they saw were not within their scope. • Some examples to showcase: Link I’m nervous to ask my portfolio companies about diversity KPIs because I know not much is happening there. It’s a neutral topic for them, and I don’t want to change that. I want them to focus on business. ‘‘ Investor, Europe Data is becoming a powerful tool for VCs. Tracking all kinds of data, not just diversity, has a great potential for us to differentiate and add alpha. ‘‘ Investor, Europe Diverse By Default | Page 31 If we peel the layers of underfunding, we might uncover lesser-known reasons. We crunched our community data two years back and realized female founders primarily build consumer-focused startups. However, VCs were funding mostly B2B Enterprise SaaS. ‘‘ Operator/Investor, Europe
  • 32. What is this? Associations like the BVCA in the UK and NVCA 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. VCs should aim to become part of diversity-focused founder associations, not only investor-focused associations. They can closely work with them and join discussions to aid knowledge dissemination. Joining discussions on various forums is just a starting point. Having a voice and opinion is next. Enabling employees to speak up on the topic and voice VC firm’s thoughts effectively keeps the discussion going. Associations About What Why How Future Certi fi cations What is this? • Getting certified in internal VC processes is another approach to aligning with diversity. • Diversity VC standard (Link) is one such example. Then there is IIWC Investing in Women Code (Link) which allows organisations to become signatories and embed certain standards internally. • Maintaining regular dialogue with different VC firms can help establish best practices even without certification. There needs to be more formal startup/VC associations in Europe which also have a focus on diversity. One can see positive movements as discussions are increasing. But a long way to go. ‘‘ Investor, Europe Certi fi cations and associations can be costly endeavors for emerging managers. If there was a discounted option available, many would consider joining. Otherwise, it’s just an elitist VC play. ‘‘ Investor, Europe Diverse By Default | Page 32
  • 33. What is this? Looking at each country's fundraising landscape, we will 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. Example: Instead of looking at FinTech alone, investors should begin exploring FinTech's intersection with ClimateTech and promising startups in those areas. Wider Adoption About What Why How Future Investor Support Programs What is this? There are multiple ways we can support investors 1. Nudging and supporting more diverse folk to become angels in startups. Programs like ĀVA (Link), AngelInvestingSchool (Link), She Angels Series (Link), Black Venture Institute (Link), Fempire (Link) 2. Supporting diverse talent in the VC ecosystem to succeed. Programs like IncludedVC (Link), Newton Program (Link), VC Include (Link). 3. LP education programs to make them aware of diversity and the untapped opportunities. Europe is about a decade behind the U.S. and the UK on diversity. In Europe, we are mostly stuck on the ‘Gender’ topic in diversity conversations. Ethnicity and other issues are standing in the line way behind. ‘‘ Founder, Europe Due to lower tech salaries, there are fewer angels in Europe. Compare a U.S. engineer's compensation and personal spending with a European engineer. You will get what I'm saying. ‘‘ Investor, Europe Diverse By Default | Page 33 Part of the LPs' reluctance is that they haven't dealt with a diverse geography or market before. But they won't know on their own. One part of the solution is - LP education, communication, and coaching. ‘‘ Investor, UK Diverse founder funding is a systemic problem. Diversity is people-oriented but this funding imbalance is structural. We can’t just solve it by people calling us with different nouns, nor it can be fully solved by trainings. We solve it by positive actions. ‘‘ Founder, UK
  • 34. What is this? Building a diversity-focused fund (centered on topics like female founders, immigrants, or geographical regions) can be an effective solution 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 fulfil 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). Diversity Focused Funds About What Why How Future Diversity Quotas What is this? 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 can be established as softer-goal posts. Sometimes, asking LPs' capital for a diversity-fund feels like charity. It shouldn't feel that way. One LP argument went like this - "The U.S. VC I know has many top-tier contacts, so why should I give you the money?" It's not an apples-to- apples comparison. ‘‘ Investor, UK Quotas and diversity-focused funds can become controversial. Look at the current case of the ‘Fearless Fund’ lawsuit in the U.S. How should we, emerging managers, keep working effectively? ‘‘ Investor, U.S. Diverse By Default | Page 34 The Venture Capital industry is on a transformational path. Diversity- focused VC funds play a role in the short-mid term because a section of founders strongly associate with this topic. However, many diverse founders don’t like to be labelled as such. ‘‘ Investor, Europe GPs need to resonate well with LPs for them to receive funding. The issue is LPs might not understand some of the diverse manager’s core business areas or geo’s. We need to have more discussions in conferences on such topics and increase LP participation. ‘‘ Investor, Asia
  • 35. What is this? • 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) - referred to as Seeding. 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 deal/startup to the collective means, deck is presented to all VCs in the collective. Example: SeedChecks (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. Support Diverse VC Investors About What Why How Future Founder Of fi ce Hours What is this? 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. The fi rst believer in my Fund 1 was another established investor in the ecosystem. He invested in me and gave me contacts for other LPs. It was a perfect start to my VC journey. ‘‘ Investor, UK Some VCs want to support with stuff like ‘female-founder-hour.’ It’s a step in the right direction with much potential, but it isn’t happening effectively. For example - there is no follow-up mechanism, and advice is sometimes generic. ‘‘ Investor, Europe Diverse By Default | Page 35 We VCs keep repeating the same basic fundraising and startup stuff on social media. It’s actually crazy how common it is among investors. Worst - still, so many founders make the same basic mistakes. This is beyond my comprehension. Investor, Europe ‘‘
  • 36. What is this? • Since diversity is a crucial topic, it makes sense for bigger VC investors to dedicate a contact person on the topic. Founders can reach out for more than just fundraising questions. It doesn’t need to be someone dedicated full-time; instead, someone in the team who is enthusiastic to work on the topic along with the founders. • The key is to enable this dedicated person with a central repository of all perspectives aligned to one’s VC firm. It could include answers to common founder questions, documents, links to top resources, templates, and more. Dedicated Contact Person About What Why How Future Diversity Policy What is this? • Having a dedicated person is a good start and could be a stepping stone to building a dedicated diversity policy for one’s VC firm. • It helps in setting clear guidelines and processes internally. It also acts as a good talking point with diversity-aware LPs. • Example: 2150 (Link) Setting up a central knowledge repository was a good value-add for us. Topics like - What does my VC fi rm stand for? What are our thoughts on important issues like fundraising? - are all captured. ‘‘ Investor, UK Let’s start with a simple task. Let’s all publish our internal diversity policies publicly. If someone doesn’t have it already, then create one. It will be a game-changer. ‘‘ Investor, Europe Diverse By Default | Page 36
  • 37. 1. Cautious about diversity in deal pipeline 2. Cautious about diversity in investments 3. Care by supporting diverse founders 4. Care by supporting diverse investors About What Why How Future Connecting CC approach with solutions Diversity aware pipeline, Maximise Feedback, Training Programs, Dedicated Person/Page, Dedicated Policy Diversity aware IC, Investment diversity data, Training programs, Promote incoming talent, Certifications Wider Adoption, Diversity focused funds, Diversity Quotas, Dedicated person/page, Founder Office Hours, Dedicated policy Support Diverse Investors, Investor Support Programs, Associations, Portfolio diversity data Diverse By Default | Page 37
  • 38. About What Why How Future More quotes Diverse By Default | Page 38 VCs receive pitches all the time. Diversity is not the primary reason for rejection - likely, it’s others like PMF, FMF. However, I do think there is unconscious bias at play. Example: A VC who has never worked with a female CEO might not see an all-female-led startup favorably. The key to this is more multicultural investing teams. ‘‘ Investor, UK Anonymized pitch decks or using AI to score decks are a few ways to remain objective when assessing diverse founders. ‘‘ Investor, Europe Remove bias in investing by focusing on founders' updates for the last 12 weeks. Check the quality of updates and KPI growth. Hide names! ‘‘ Operator/Investor, Europe On - startup selection On - removing bias in investment analysis Founders are getting rejected in fundraising left and right in the current environment. Diverse founders are impacted hard, but I don’t think diversity plays much of a role in the challenging environment. I have rejected many white-male founders. Investors are just trying to protect their a**es. ‘‘ Investor, Europe Impact, investing, and returns can go hand-in-hand. ‘‘ Investor, Europe There is extra focus on diverse emerging managers. If one of us makes a small mistake or underperforms, the bullet is shot on all of us. The stakes have become much higher for us to deliver. ‘‘ Investor, UK LPs are the key to solve for the diversity topic. And all GPs listen to LPs - that’s the key. LPs can also back micro managers or emerging managers who are focused on investing with a diversity lens. ‘‘ Investor, UK For LP’s, one issue of investing in "diverse" managers is they can't conceptualize it if they can't visualize it. One solution is to make more LPs. That's what's started to happen with new Angel training programs. ‘‘ Investor, U.S. On - LP speci fi c topics
  • 39. About What Why How Future Startup Employee Solutions Diverse By Default | Page 39
  • 40. About What Why How Future ‘‘I have talked with many IT engineers. Their fi rst argument for shifting to a new country/region - is higher GDP. What will GDP do if you can’t grow at your job? Operator, Europe Research Prepare My fi rst job offer was considerably less than what my other university friends were getting. I had to accept just to survive. Operator, Europe ‘‘ The tech hiring ecosystem in some regions is slow-moving. It isn’t easy to shift quickly. I’m forced to be nice to my toxic boss, fearing not getting my next job or a bad recommendation. Operator, Europe ‘‘ ‘‘Many of us in the engineering and tech ecosystem continuously undersell ourselves in salary negotiations. There is a cultural aspect to it - do more with less. Operator, Europe If you audit the corporations, you would 100% see salary discrepancies for diverse employees. Extrapolate the same for the startup world. Operator, Europe ‘‘ • It is what it sounds like - do in-depth research before interviewing for a startup or 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 well for your interviews. 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 Diverse By Default | Page 40 To grow our Tech ecosystem, we must make it easier for foreign talent to fi nd and get jobs. One way to bring that change is to speak ‘English.’ It’s more inclusive and global. Operator, Europe ‘‘
  • 41. About What Why How Future Media Solutions Diverse By Default | Page 41
  • 42. Highlight What’s Hidden 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. Write More About What Why How Future 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? • Instead of writing just a short background on 30 angels in ClimateTech - Why not write about their latest investments? What do they look for in the investments? How do startups reach out to them? • 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. Often, only the portfolio startups from top VCs or startups with ‘right’ connections are featured in media articles. That one startup in London is not the only one working on ClimateTech analytics; there are 20+ others. Sorry, but this is paid advertising. ‘‘ Founder, Europe Similar, diverse angel faces are at the top of the investing lists every year. Their efforts are welcome, and it is easier for magazines to highlight them. But I know so many founders whose decks and emails don’t get a response from these angels. ‘‘ Investor, Europe Diverse By Default | Page 42
  • 43. About What Why How Future Government and Industry Association Solutions Diverse By Default | Page 43
  • 44. Capital Like many examples in the past have shown, right nudges or mandatory requirements enforced by the governments can pull industry together and move it forward in a set direction. Reporting is a key 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. Reporting About What Why How Future Guidlines 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). 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. Our industry is lazy. Investors are lazy. Tell me, when was the last time any investor was happy with the increased workload? No one likes the extra burden of reporting. Now, think about the ‘carrot vs. stick’ analogy. Governmental and LPs’ push is the best ‘stick’ approach. ‘Carrot’ isn’t compelling enough—harsh reality. ‘‘ Investor, Europe Diverse By Default | Page 44 Most organizations (trade associations, non-pro fi ts, communities) focused on increasing access to capital for historically marginalized leaders in asset management are in the process of compiling data and resources on their demographic and/or asset class, a much- needed exercise. There is a tremendous need to centralize this data and reshape the learning process for advocates, accelerating the unlock of leverage, capital, and impact. ‘‘ Operator, U.S.
  • 45. About What Why How Future Future Diverse By Default | Page 45
  • 46. Six Intriguing Solutions About What Why How Future Capital answer Most emerging managers focus on niche strategies and are diversity aware. However, emerging managers often face challenges starting up their business. A governmental initiative to allocate capital (EUR 1-5mil per fund) to emerging managers as an LP (either directly or via FoFs) could significantly boost and usher in a new era for startup buildup. ‘Elder sibling’ effect Instead of looking at emerging VC managers as a competition, established managers should instead build a healthy and mutually beneficial relationship. How? Regular discussions, knowledge sharing, deal flow sharing, LP intros, Seeding (invest in emerging managers). Publish diversity policy A big unlock is being transparent on diversity topics - internally and externally. One way to do that is by publishing a diversity policy. Such a policy can build clear guidelines, capture essential ingredients of investment processes, and become an internal north-star to guide the actions forward. It also acts as a good talking point with diversity-aware LPs. Awareness shift Diverse founders need to shift increasingly to awareness solutions. Following a 'Build Basics' approach and taking a knowledge empowerment route is one of the best ways to increase the odds of one's startup success. Adopt hidden champions Investors often focus on the top of their funnel. However, many diverse founders, albeit having solid business cases, need more feedback and support to level up their pitch. When VCs adopt a few such startups from their pipelines, they create an effect that positively impacts fundability. Treat such diverse startups as hidden champions and support them to shine. Collectives Collectives is a simple yet innovative way to accomplish many objectives. For example - building VC collectives of diversity- focused investors can solve a significant issue for founders of warm intros. Collectives can also help share VC resources amongst many investors, creating synergies. Diverse By Default | Page 46
  • 47. Looking Forward 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. About What Why How Future 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. To everyone who discussed the diversity topic while writing this report, took time out of their busy schedules, opened up to share deep emotions on the issue, and genuinely shared a passion for changing the status quo - A BIG THANK YOU! The door is always open for feedback to improve this report. Diverse By Default | Page 47
  • 48. Appendix Methodology In writing this report, a personalized interview approach was taken. It differs from the survey-based or data-driven approach, where respondents' answers or transactional data underpins the study's outcomes. At the same time, such survey/transaction-based reporting style effectively answers the 'WHAT' question of diversity, though 'HOW' is not thoroughly covered. Next, interviewees are kept anonymous to empower them to express their real emotions. The belief here is that the ecosystem is 'heard, but unseen,' i.e., generally, we understand and hear the tricky corners of the diversity issues, but it remains largely unpublished. Common starting questions asked during the interviews: (1) What positives do you see in the ecosystem w.r.t. diversity? (2) Is diversity becoming dismissive for investors? (3) Is allocating capital specifically for diversity, effective? (4) Share your diversity-related experiences. This report is an outcome of 38 interviews/discussions. All interviewees are considered diverse in the context of this report. Although detailed data is not captured, - initial tentative splits are 80%-20% EU/UK vs. U.S. interviewees, 70%-30% female vs. male interviewees, and 50%-40%-10% investor vs. founder vs. operator interviewees. Due to the constraints of personalized interview approach, the focus was limited to the U.S., Europe and UK geographies only. ‘Investor’ is a catch-all term used for VCs, angels, accelerators. ‘Operator’ is a catch-all term used for startup employees, association leaders, etc. Diverse By Default | Page 48
  • 49. Appendix Diverse By Default | Page 49 References What - Slide 1. Report - The Funding Divide (Link) (Dropbox Descend) 2. Report - Extend Ventures (Link) 3. Report - McKinsey - Underestimated start-up founders (Link) 4. Article - Sifted - VC diversity needs to change (Link) 5. Article - Wired (Link) 6. Article - PrivateEquityReview & Morgan Stanley report (Link) 7. Report - Diversity VC - The Equity Record (Link) 8. Article - QZ magazine (Link) 9. Report - BBG on Seed funding to underrepresented founders (Link) 10. Report - Deloitte - VC Human Capital Survey Link 11. LinkedIn post - Ilya Strebulaev (Link) The Diversity Puzzle - Slide 1. Article - PitchBook data for 2022 & TechCrunch article (Link) 2. Dashboard - PitchBook (Link) 3. Report - The Black Report, 2020 (Link) 4. Report - State of European Tech, 2022 (Link) 5. Article/Survey - Startup Genome, 2023 (Link) 6. Report - KaufmannFellows, 2020 (Link) 7. Report - Unconventional VC, Data based on 2022 (Link) 8. Article - Crunchbase data for 2022 & Businessinsider article (Link) 9. Article - Sifted & European women in VC report (Link) 10. Article - Women in VC report 2020, Forbes article (Link) 11. Article - Crunchbase data for 2022 & TechCrunch article (Link) 12. Article - Forbes, BLCK VC report 2022 (Link) Why - Slide 1. Magazine - HBR - The other Diversity Dividend (Link) 2. Report - McKinsey - Underestimated start-up founders Link 3. Report - Illumen Capital & Stanford study (Link) 4. Blog - Forbes - Diversity: The Holy Grail Of Venture Capital Link 5. Report - Illumen Capital & Stanford study (Link) 6. Article - Kaufmann Fellows (Link) 7. Guest Post - Reggie Tucker - Crunchbase (Link) 8. Blog - SpinLab - Why Do We Need More Diversity In Venture Capital (Link) 9. Deloitte report - VC Human Capital Survey (Link) 10. Article - Gartner - Diversity and Inclusion Build High-Performance Teams (Link) Photos Page 1 - Photo by Meagan Carsience on Unsplash Page 4 - Photo by John Schaidler on Unsplash Page 11 - Photo by Jaime Lopes on Unsplash Page 12 - Photo by James Sullivan on Unsplash Page 25 - Photo by Nakaharu Line on Unsplash Page 26 - Photo by James Sullivan on Unsplash Page 39 - Photo by S O C I A L . C U T on Unsplash Page 41 - Photo by George Pagan III on Unsplash Page 43 - Photo by Jason Leung on Unsplash Page 45 - Photo by Frederik Löwer on Unsplash