Action 4

Finding What Works:

Pathways to Improve Diversity in Venture Capital Investment

Read the report

Ranked 4 out of 14 actions

Venture capital firms should participate in industry-wide surveys and make diversity data on their investments public.

Overall effectiveness: Medium

Likely to influence Venture capital firms’ investment behaviours and thus, potentially increase diversity

Target Audience

All venture capital firms

Relevant investment stage

Seed, venture and growth

Ease of implementation

Hard – this would require collecting additional data to capture diversity characteristics, and regularly report on this.

Wider considerations

It is important that this action is supported by meaningful change; this action is unlikely to be effective on its own.

A column graph showing that more than half of the VCs scored this action a 3, around a quarter scored it 4, around 1 in 8 scored it 2, and the remaining scores were divided between 1 and 5.
Venture capital firm ranking
A bar chart showing that 62% of entrepreneurs perceived this action as highly effective, while a quarter percieved it as somewhat effective, and 8% as ineffective.
Entrepreneur perceived effectiveness

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

Findings by entrepreneur characteristics:

  • Venture capital-backed/venture capital-ready: No major variance observed.
  • Gender: A higher proportion of females (69%) than males (57%) said this action is effective.
  • Education (socio-economic): No major variance observed. –Ethnicity: No major variance observed.
  • Ethnicity: Ethnic Minority respondents were more likely to say this action was effective (73%) than White respondents (59%).
  • Age: A significantly lower number of respondents aged 40-49 said this action is effective (35%), in comparison to respondents aged 20-29 (86%).

Venture capital firms’ feedback:

The majority of venture capital firms considered this to be an effective way to secure commitment to improving diversity, through regular monitoring and tracking.

Better evidence and understanding of the issue, through the publication of findings from industrywide surveys, could also promote further action.

For this to be effective, it needs to be backed by tangible action, or else it risks simply being virtuesignalling.

Existing research:

  • The evidence on this action was relatively weak. Five papers were identified; four are primarily authors’ recommendations (based on survey findings), and one is based on existing literature and business perceptions. The authors’ recommendations include:
  • In order to foster evidence-based policymaking, venture capital firms need to gather better data on entrepreneurial diversity (Centre for Research in Ethnic Minority Entrepreneurship, 2022).
  • To enable tracking and the ongoing reporting of the industry’s performance on diversity, venture capital firms need to make data on their investments publicly available (Brodnock, 2020).

Data Analysis:

Investing in Women Code signatories regularly report diversity data, and are more likely to invest into founding teams with at least one female or Ethnic Minority member than the general population of venture capital firms. The wider pool of venture capital firms has a large tail of companies that do not invest into underserved entrepreneurs.