Action 13

Finding What Works:

Pathways to Improve Diversity in Venture Capital Investment

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Ranked 13 out of 14 actions

Entrepreneurs should actively engage on social media to raise awareness of their business/proposition and connect with venture capital firms.

Overall effectiveness: Low

Could enable founders from underserved communities to access alternative networks, however, this is not guaranteed.

Target Audience

Entrepreneurs seeking to connect with venture capital firms

Relevant investment stage

Seed, venture and growth

Ease of implementation

Easy – this action requires entrepreneurs to actively use social media to promote their business and connect with venture capital firms.

Wider considerations

Not all entrepreneurs use social media and know how to be effective online. Social media training may be required.

A column graph showing that around three quarters of the VCs scored this action a 2 or 3, around a quarter scored it 1, and the remaining scores were split between 1, 4 and 5.
Venture capital firm ranking
A bar chart showing that 41% of entrepreneurs perceived this action as highly effective, while over a third percieved it as somewhat effective, and just under a quarter as ineffective.
Entrepreneur perceived effectiveness

Perceived effectiveness score 1 = Least effective, 5 = Most effective

Findings by entrepreneur characteristics:

  • Venture capital-backed/venture capital-ready: A higher proportion of venture capital-backed entrepreneurs (44%) said this action is effective, in comparison to venture capital-ready entrepreneurs (34%).
  • Gender: Almost half (47%) of female respondents said this action is effective compared to just over a third (37%) of male respondents.
  • Education (socio-economic): A greater proportion of respondents who have an undergraduate degree said this action was effective (44%) compared to those who did not attend university (22%).
  • Ethnicity: Over half (55%) of Ethnic Minority respondents said this action is effective, in contrast to just over a third of White respondents (37%).
  • Age: Over a third (36%) of respondents aged 30-39 years old said this action is ineffective, in contrast to 15% of 40-49 year olds.

Venture capital firms’ feedback:

Firms were broadly dismissive of this action.

Being active on social media may help entrepreneurs from underserved communities access/make themselves known to venture capital firm networks that otherwise would not be possible. However, this would not necessarily address information failures and takes the onus away from venture capital firms.

Existing research:

Four academic papers on the effectiveness of using social media were identified. The studies primarily used statistical analysis (e.g. regression analyses).

In a study of IT start-ups, social media was found to be effective in helping less connected individuals obtain financing by alleviating information asymmetry between founders and investors (Wang, Wu and Hitt, 2022).

Networking and digital signals, such as social media presence, have been found to positively impact access to financing for digital start-ups (Nigam, Benetti and Johan, 2020). Social media was found to be significant for technology-based start-ups in their success or failure in fundraising (Yang and Berger, 2017).

Data Analysis:

In the period between 2018 and 2022, venture capital-backed firms with Twitter accounts tended to raise more rounds of funding and higher totals.

This result accounts for the fact that businesses that had their first fundraising earlier had more time to attract follow-on funding. In other words, it ‘controls’ for the year of first fundraising.