3.1 Pathways to success for venture capital firms that want to invest in more underserved founders

These pathways are each associated with a – sometimes overlapping – selection of the 14 actions that were tested through interviews with venture capital firms. These firms were the highest ranked in the industry in terms of investment into underserved founders, so qualitative findings reflect what has been effective for the most successful firms.

We analysed characteristics of venture capital firms whose approach to improving diversity in their investments aligned with each of the three pathways, considering the number and percentage of deals they made with diverse founding teams, stage of their investments, and their location.

Our analysis of interview responses revealed three groups of venture capital firm consultees with common views on the effectiveness of actions. This suggests that, when it comes to stimulating a more diverse community of venture capital-backed entrepreneurs, there are at least three different pathways to success that venture capital firms have taken.

We also analysed personal characteristics of consultees – such as their age, ethnicity, and education – against the pathway with which they most aligned. There is no conclusive evidence of common characteristics, suggesting success could depend more on execution and monitoring than the specific characteristics of each venture capital firm. However, this is an area where further research would be valuable, given the sample size of 40 venture capital firms interviewed for this research. Further exploration of this can be taken forward through industry initiatives such as the Investing in Women Code and the Diversity VC Standard, which require reporting of actions taken across all three ‘pathways’ and could be analysed in relation to firms with similar characteristics.

Pathway 1

Diversity at the Top

These firms focus on increasing diversity among key decision makers, particularly the Investment Committee. A broader range of views ‘at the top’ can result in a larger number of investments into underserved founders.

Pathway 2

Inclusion in the pipeline

These firms place a greater emphasis on increasing the pipeline of investment opportunities from underserved founders. They actively seek out diverse founding teams in various ways, for example, engaging scouts with their own diverse networks to source investment opportunities, and using incubators and accelerators for earlier stage firms.

Pathway 3

Transparency and Accountability

These firms subscribe to the notion that ‘what gets measured gets done’. They view accountability for measuring and delivering progress as essential, supported by strong emphasis on external communication, genuine commitment, and active participation in industry-wide data collection.