Building diversity into the venture capital ecosystem

It’s well-documented that female and minority founders don’t have the same access to capital as their white male counterparts because of structural racism, institutional bias, the lack of a network and generational wealth, and many other reasons. That uphill climb means fewer of them have successful exits. Investors can then use those lower exit numbers as justification to deny funding.

Three masked individuals dressed in business attire sit at a desk, one is African American, discussing plans or a possible partnership or investment.

Frederik Groce, principal at Storm Ventures and co-founder of BLCK VC, and Melissa Bradley, managing partner at 1863 Venture, spoke during a livestream of Leading Diversity@Wharton, an ongoing speaker series hosted by Wharton management professor Stephanie Creary, who is a diversity and identity scholar. Creary and her guests discussed the funding problem as a vicious circle.

Bias is so ingrained that even the simplest questions are loaded, Groce said. For example, female founders are typically asked how they will avoid losing, while male founders are asked how they will win. Women make up 38% of business owners in the U.S. while getting less than 3% of venture capital.

When she was a college graduate looking to start her small business, Bradley went to the Small Business Administration for help with her startup financial services company, and she was turned down flat.

“They told me there was no way in the world I would get funding because I was Black, I was a female, and they didn’t know any successful Black women in financial services,” Bradley said.

Creary asked her guests to be more specific about what changes are needed to transform the system. Groce and Bradley said white male colleagues who represent the majority need to educate themselves on the facts, spread the knowledge and learn to fight for the underrepresented. They also need to get comfortable with being uncomfortable, because the fight is not an easy one.

“First and foremost, be an advocate. That signal effect is no small thing,” Bradley said. “You’ve got to be willing to be uncomfortable, and you’ve got to be willing to learn. It’s a long tail.”

Groce said if allies aren’t feeling discomfort, they’re probably not doing enough.

Read more at Knowledge@Wharton.