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Action 14

In this section:

Finding What Works:

Pathways to Improve Diversity in Venture Capital Investment

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Ranked 14 out of 14 actions

Venture capital firms should actively monitor social media to identify strong propositions from a diverse pool of entrepreneurs.

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

Medium – this action requires venture capital firms to dedicate resource to actively monitoring social media, tools for which are freely available.

Wider considerations

It is important that venture capital firms look beyond their existing online networks in order  to broaden their deal flow.

A column graph showing that more than of the VCs scored this action a 2, around a quarter scored it 3, 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 27% 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: Nearly half of venture capital-backed entrepreneurs said this action is effective (47%), compared to less than a third of venture capitalready entrepreneurs (29%).
  • Gender: No major variance observed.
  • Education (socio-economic): No major variance observed.
  • Ethnicity: No major variance observed.
  • Age: Nearly half (49%) of respondents aged 50-59 years old said this action is effective, in contrast to just over a third (35%) of respondents aged 60+; the same proportion of this group (60+) also said this action is ineffective (35%).

Venture capital firms’ feedback:

Many venture capital firms agreed that using social media could widen the network that propositions are sourced from.

However, social media could potentially reinforce existing network biases, and/or exclude propositions from underserved founders that are not active on these channels.

Existing research:

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

Analysis of Twitter and Crunchbase data from 2007 to 2016 found Twitter to be effective in helping less-connected individuals (e.g. women or those with low social capital) obtain finance by alleviating information asymmetry between founders and investors (Wang, Wu and Hitt, 2022).

Analysis of social media activities (on Twitter) and venture financing data (from CrunchBase) found that an active social media presence and strong Twitter influence (followers, mentions, impressions, and sentiment) increase the likelihood a start-up will close the round, the amount raised, and the breadth of the investor pool (Jin, Wu and Hitt, 2017). The analysis controlled for ‘start-up quality’, including firm characteristics (e.g. age and employee count) and founder experience (e.g. prior start-up experience).

Data Analysis:

Venture capital investors with a known LinkedIn profile are more likely to invest into ethnically and gender diverse founders.

There is no evidence to suggest that a larger proportion of their deals is with underserved entrepreneurs (compared to other firms without a LinkedIn account that invest into diverse founding teams).