Ranked 12 out of 14 actions
Venture capital firms should clearly communicate their investment strategies and commitment to diversity via their website and social media.
Overall effectiveness: Low
Potential to increase deal flow from a diverse group of founders; however, limited overall impact on improving diversity in venture capital investment
Target Audience
Venture capital firms seeking to increase inward deal flow from a diverse group of founders
Relevant investment stage
Seed, venture and growth
Ease of implementation
Easy – this action requires development and publication of an investment strategy (if it does not already exist).
Wider considerations
It is important that strategies are clear and specific in how a diverse group of founders is sourced and supported, and can be easily located on firms’ websites.
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-ready entrepreneurs (42%) said this action is effective, in comparison to venture capital-backed entrepreneurs (33%).
- Gender: Women were more likely to say this action is effective than men (43% and 31%, respectively).
- Education (socio-economic): Over half of those who did not attend university said this action was effective (56%) in contrast to over a third of those with an undergraduate degree (38%).
- Ethnicity: No major variance observed.
- Age: Nearly three quarters (71%) of founders aged 20-29 years old said this action is somewhat effective; in contrast to just over a third (34%) of respondents aged 50-59 years old, indicating this action may be more effective with younger entrepreneurs.
Venture capital firms’ feedback:
Many firms agreed this could be helpful in making founders from underserved communities aware that the venture capital firm is committed to supporting diversity.
However, often it was considered to be virtuesignalling and not necessarily backed by action.
Existing research:
There was limited evidence available on the effectiveness of venture capital firms communicating their investment strategies. Four papers were identified, based on surveys and author opinions.
Based on the survey findings, the research suggests that developing a comprehensive strategy and communicating a firm’s commitment to diversity, through a website, partner communities and social media, is important to ensure accountability and to make founders aware that a firm is actively championing diversity in its hiring and sourcing processes (GenderSmart, 2021; Morgan Stanley, 2019).
Data Analysis:
Investing in Women Code signatories are more likely to invest into founding teams with at least one female or Ethnic Minority member. Around 30% of the top 50 venture capital firms on Beauhurst (by an index of the number and proportion of deals with underserved founders) are Investing in Women Code signatories.
In the wider pool of venture capital firms, there is a large group of companies that do not invest into underserved entrepreneurs at all (i.e. over the 20182022 period have no record on Beauhurst of investing into founding teams with at least one member from underserved groups). When removing these firms from the sample and examining only venture capital firms that have invested in at least one firm with a female or Ethnic Minority founder, Investing in Women Code signatories and non-signatories invest in the same proportion of underserved founders.
Venture capital firms that publicise their commitment to diversity online (according to an analysis of information on 250 webpages of UK venture capital firms) are more likely to invest in female founders.