Five Good Things Happening in Venture Capital

Often, the worlds of venture capital and tech investing seem almost totally full of bad news. But there are signs that change is coming:

1. Venture Capital Is Paying Attention

Many, many people – both inside and outside of the investing landscape – have worked for years to bring awareness and change to venture capital’s discriminatory funding practices. The limited view of stats we have points to a venture capital complex that consistently underfunds minorities in tech, even compared to their representation in the industry. Of VC-backed internet seed and series A companies, 83% are all-white teams. And women continue to be consistently and dramatically under-funded.

But recently there is a lot more scrutiny on venture capital firms’ investment patterns, and they are getting more mainstream press coverage than ever before. In response to the bad PR, in 2014 venture firms including 500 Startups and Y-Combinator have announced women-focused programs.

The outlook on highly visible VC firms working to increase investment in women is good; however, a focus on just this narrow dimension of gender too often results in just straight cis white women from privileged backgrounds making marginal advancements in the industry. The community needs to put equal priority on representation of PoC, investment in LGBTQ founders, and funding of people from different socioeconomic and academic backgrounds than what is currently “pattern matched” for.

Additionally, much of the focus on VC reform to date has fallen on the school of young and new firms, with relatively little attention paid to older and more established firms – firms that tend to both have larger funds, and provide more money to individual companies. While new entrants like YCombinator, which give only about $14-16k to founding teams (barely enough money to get started) get more press, they hardly represent the bulk of VC funding. We can’t let quieter but more financially significant firms go unchallenged.

2. New Projects and Organizations Dedicated to Increasing Representation of Underrepresented and Marginalized Groups

There are a number of organizations and projects that are investing in diversity within the venture capital ecosystem. The Pipeline Fellowship offers an angel investing bootcamp for women across the United States. In New York, Women Innovate Mobile invests in women-led mobile tech startups. Kapor Capital based in Oakland, California continues to invest in seed stage tech companies, with diversity as a strategic priority. A new incubator for women entrepreneurs is opening in Chicago, with investment from Google as part of a broader initiative to launch 40 woman-focused incubators worldwide. StartOut, a non-profit focused on LGBT entrepreneurs, recently partnered with two investment firms to launch a monthly speaker series focused on LGBT founders, and has a panel on queer women entrepreneurs coming up soon in San Francisco. DiversiTech is based in the Washington Metro area and is dedicated to fostering technology entrepreneurship in underrepresented groups.

While far from a complete list, these programs are all incredibly exciting, and happening in many places.

Something to beware, however, is that large corporate entities will often steal, co-opt, and subsume the work of smaller, independent activist and diversity groups for marketing purposes. Instead, it’s critical that larger VC firms work to partner with smaller, less established and independent organizations and projects working on radical change. It’s also critical that these initiatives are led by members of the groups they serve.

3. The JOBS Act Lifts Restrictions on Investing

The Jumpstart Our Business Startups Act reduces some of the major barriers to getting and providing startup capital. Title III allows non-accredited individuals to invest in startups online via crowdfunding – previously, there were much higher barriers to becoming an investor, such as requiring an individual to have income exceeding $200,000 in the previous two years, or have a joint income with a spouse of over $300,000 for the same period. That’s a lot of money!

Title III is still pending, but we can expect sites like Crowdfunder, AngelList and new companies that will inevitably arise to help facilitate a new wave of investors, and startups, working together. This will help broaden the options for funding available to new startups, and even make it possible for more people in tech to become investors themselves. Still, income levels aren’t the only barriers to participation in tech investment – and we often find that even when financial barriers are lifted, oppressive structures are replicated across new platforms. There will still be a need for platforms that can surface, support and advocate for startups founded by people from underrepresented and marginalized groups, and people from those groups becoming investors.

4. A New Women-Led, Women-Invested VC Firm Starts in Silicon Valley

Jennifer Fonstad and Theresia Gouw, two senior women venture capitalists, recently left their positions at top VC firms to start their own, Aspect Ventures, which invests in early-stage mobile startups and has clearly communicated their belief in the importance of diversity in technology.

The statistics about women in venture capital are bleak – only 4% of senior venture capitalists are women. Seeing women-founded and women-led venture capital firms that are visibly invested in funding diverse founders is a great sign, and we hope to see more of it – however, steps must continue to be made towards improving diversity in established VC firms, and ensuring that women make progress in their representation as senior partners.

5. Growth of Venture Capital Outside of the Bay Area

The homogeneity of the tech scene within Silicon Valley contributes to its oft-cited reputation as an echo chamber. Many of the structures, firms, and funding approaches that exclude marginalized and underrepresented people are heavily entrenched in the makeup and psyche of the region. While generally regarded as the center of the tech industry, other parts of the US and the world are quickly emerging tech centers of their own, and may offer new visions of VC.

For example, London’s Tech City is growing fast, and has new incubators creating new models of community support and investment, as well as new leaders from diverse backgrounds bringing different experiences and perspectives to the vision of London as a tech center. In the south and the Midwest, tech infrastructure in cities like Chattanooga and Kansas City is springing up with women-led venture capital, funding for tech education and training among underrepresented populations, and community-driven investment centered on local infrastructure and improvements. These are just two examples amongst a broader emergence of more global tech centers around the planet.

These new tech centers have the opportunity to develop more equitable systems, learn from Silicon Valley’s deep discrimination and choose to build healthier cultures. However, because Silicon Valley is so centered, and such a dominant producer of tech culture, and because Silicon Valley firms have invested so much time and energy into marketing that culture around the world, there’s a big risk that many of these emerging tech scenes, in simply striving to be “the next Silicon Valley”, will end up with many of its same systemic dysfunctions and inequalities.