DEI Efforts Growing Among VC Firms

Diversity, equity and inclusion (DEI) data from 315 venture capital (VC) firms, representing more than 5,700 U.S.-based, full-time employees and $594.5 billion in assets under management, is now available as part of the “VC Human Capital Survey,� powered by Venture Forward, the National Venture Capital Association (NVCA) and Deloitte.

This survey series takes a unique approach to assessing DEI in the VC industry. It gathers data confidentially from VC firms of all types and sizes, examines various demographic groups across all positions and evaluates firm talent management strategies, including DEI practices and goals.

The fourth edition of the survey provides a first glimpse into outcomes from initiatives that many VC firms made following the summer of 2020 when social justice and racial equity were a heightened focus for the country.

Key Takeaways

• More VC firms are incorporating DEI strategies. Nearly one-half (46%) of surveyed firms have a diversity strategy (up from 44% in 2020, 35% in 2018 and 15% in 2016), and 44% have an inclusion strategy (up from 41% in 2020, 31% in 2018 and 17% in 2016). In 2022, 60% of firms said they either have a staff person or a team responsible for DEI (an increase from 55% in 2020, 34% in 2018 and 16% in 2016). Majority of firms have established or plan to establish specific DEI goals. This new question found that 40% of the firms surveyed in 2022 stated they now have specific DEI goals, while 23% plan to implement goals within the next six months.

• More VC firms are seeing DEI interest from limited partners (LPs) and focusing on DEI at portfolio companies. In 2022, 47% percent of firms said that LPs requested their DEI details within the last 12 months, an increase from 41% in 2020 and 36% in 2018. In 2022, 38% of firms said they requested DEI details from their portfolio companies, an increase from 30% in 2020 and 19% in 2018.

• Women are far from parity, although their representation is steadily trending upward. Female employees represent 26% of investment professionals in 2022, up from 23% in 2020, 21% in 2018 and 15% in 2016. The proportion of women in junior-level investment positions grew in 2022 to 35%, up from 33% in 2020, 28% in 2018 and 25% in 2016. Among investment partners, women represent 19%, up from 16% in 2020, 14% in 2018 and 11% in 2016. In 2022, 57% of firms reported they did not have any female investment partners (compared with 65% in 2020 and 68% in 2018). Only 15% of firms said they had more than one.

• Racially and ethnically diverse women saw slim gains among investment partners. Black women comprised 1% of investment partners in 2022 compared to 0.25% in 2020 and 1% in 2018. Among investment partners, 5% were Asian/Pacific Islander women in 2022, compared to 3% in 2020 and 5% in 2018. Hispanic women were 2% of investment partners in 2022, increasing from 1% in 2020 and 2018. White non-Hispanic women comprised 13% of investment partners in 2022, up from 12% in 2020 and 11% in 2018.

• Female representation among investment professionals with senior decision-making responsibilities realized little or no gains. Women constitute a distinct minority of investment professionals with senior decision-making responsibilities such as originating deals (25% versus 24% in 2020), representing the firm on the boards of portfolio companies (20% versus 21% in 2020), serving as a member of the firm’s investment committee (20% versus 21% in 2020), and serving as an owner of the management company (17% versus 18% in 2020).

• Representation for Black professionals remains limited. Black employees comprised 5% of investment professionals in 2022, an increase from 4% in 2020 and 3% in 2018. Black professionals also comprise 4% of senior-level positions (4% in 2020, 3% in 2018), and 7% of junior-level investment professional positions (7% in 2020, 5% in 2018). Eighty-nine percent of firms report they do not have any Black investment partners (93% in 2020 and 2018).

• Some improvement in Hispanic representation. Hispanic employees comprised 6% of investment positions in 2022 (4% in 2020, 5% in 2018) and 5% of investment partner positions (4% in 2020, 3% in 2018). Hispanic representation among junior-level investment professionals also increased from 4% in 2020 and 2018 to 5% in 2022.

• Younger and smaller firms have more diversity among investment partners. VC firms founded within the last 10 years reported that a larger percentage of their investment partners were Black (8%), Hispanic (8%) and female (22%) as compared to older firms where Black (1%), Hispanic (2%) and female (17%) investment partners were not as prevalent. A more significant percentage of investment partners at small firms were Black (11%), Hispanic (11%) and female (25%) than at mid-size firms (Black 3%, Hispanic 5%, female 18%) and large firms (Black 1%, Hispanic 1%, female 16%).

Why This Matters

The VC industry plays a critical role in identifying and funding innovative startups that create jobs and economic value - and in the process, improve people’s personal and professional lives. A startup ecosystem with investors and innovators that better reflects the demographics of the country has the potential to unlock opportunities for even greater success, wealth distribution and economic value.

In addition to benchmarking data on gender diversity, racial diversity, ethnic diversity, age diversity, talent management and DEI practices - this year’s report provides strategies and insights to help VC firms improve and promote DEI to continue moving the needle.

“Top management must recognize a moral and business imperative to act on broader social responsibilities,� said Heather Gates, Audit & Assurance national private growth leader and managing director, Deloitte & Touche LLP. “While gains have occurred, they have been uneven and negligible in some cases, highlighting the need for strong leadership with intentionality towards making change. There is optimism for the future. The increasing diversity among junior-level positions indicates the potential for greater representation among senior positions as talent matures and rises through the ranks.�

“In addition to creating the systems and processes that advance equitable outcomes, it’s imperative for organizations to create a culture of inclusion and belonging where all individuals are empowered to thrive,� said Kavitha Prabhakar, chief diversity, equity and inclusion officer, Deloitte LLP.

“VC firms are recognizing that not prioritizing DEI is a barrier to funding innovation and achieving higher returns,� Bobby Franklin, president & CEO of NVCA. “At a high level, the data showed improvements across most categories. However, if the industry truly wants to make meaningful progress and reach its fullest potential, it needs to build upon this positive momentum and commitment around DEI efforts.�