Action 7

Finding What Works:

Pathways to Improve Diversity in Venture Capital Investment

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Ranked 7 out of 14 actions

Venture capital firms should provide constructive feedback on the quality of propositions and reasoning behind investment decisions.

Overall effectiveness: Medium

Likely to support the development of underserved founders; however, is not sufficiently targeted to improve diversity in venture capital more broadly.

Target Audience

Venture capital firms seeking to provide additional support to underserved founders

Relevant investment stage

Seed, venture and growth

Ease of implementation

Medium – this action requires an investment of time from venture capital firms to provide detailed and honest feedback to founders.

Wider considerations

Feedback should be tailored and reflect learnings from the process of considering a proposition

A column graph showing that half of the VCs scored this action a 3, a quarter scored it a 2, and the remaining scores were split between 1, 4 and 5.
Venture capital firm ranking
A bar chart showing that more than three quarters of entrepreneurs perceived this action as highly effective, while 15% perceived it as somewhat effective, and 6% as ineffective.
Entrepreneur perceived effectiveness

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

Findings by entrepreneur characteristics:

  • Venture capital-backed/venture capital-ready: Both venture capital-backed (76%) and venture capital-ready (76%) entrepreneurs said this action is effective.
  • Gender: No major variance observed.
  • Education (socio-economic): A higher proportion of respondents that did not go to university said this action is effective (89%), in comparison to respondents with a postgraduate degree (67%).
  • Ethnicity: No major variance observed.
  • Age: The majority of participants aged 20-29 years old said this action is effective (86%) in comparison to just over two thirds of respondents aged 40-49 years old (68%). No major variance was observed between the other age groupings.

Venture capital firms’ feedback:

Venture capital firms interviewed expected that constructive feedback should be given as part of the investment process. However, it was recognised that this is not always feasible due to high volumes of propositions.

Firms recognised the benefits of providing feedback, particularly to help founders refine their proposition, and to add transparency to the investment process.

Providing feedback to underserved entrepreneurs specifically was also considered to prevent the ‘feedback loop’ of people in privileged positions receiving more feedback due to their existing networks.

Obviously, people from backgrounds with more education initially get more feedback anyway, so I think venture capital firms should have to provide feedback to everyone they speak to. I think that's a good way of making [it] more of a meritocracy. Venture Capital Consultee Occupation / Organization

Existing research:

There was limited evidence on the effectiveness of providing constructive feedback. Three papers were identified, based on surveys (2) and author opinions (1).

The findings from the stakeholder survey support certain findings from existing research:

  • Providing constructive and honest feedback and support during the investment process as well as fostering an environment of mutual respect is beneficial to underserved entrepreneurs (GenderSmart, 2021).
  • Direct challenge and feedback on areas that need addressing should be given to founders regardless of their gender, ethnicity or background (BVCA, 2021).