Diversity In Venture Capital

By Matt Cohen

There’s no doubt that venture capital has earned a reputation as being inaccessible to many underrepresented groups, but thankfully that is changing. This battleship won’t turn overnight, but there are some emerging trends accelerating both the accessibility and equitability of VC.

The traditional stereotype of checks being written by old, white men is being heavily disrupted by new structures like, rolling funds, SPVs and even DAOs. VCs are actively competing on how to bring more diverse founders and fund managers into the space as quickly as possible.

These onramps don’t create an immediate shift, but they lay the foundations for the next generation of venture capitalists to look, act and feel much differently than their predecessors.

Education

The most common place VCs are currently competing on this front involves educational programs that advance everything from teaching young, diverse people about startups and venture capital to accelerating the knowledge curve for the next generation of emerging fund managers.

These programs are great and I’ve seen some extremely positive results from Ripple‘s fellowship program, Ripple X, where we actively engage with college students in order to provide them with a path to startups and venture capital.

There’s no doubt that the next generation of college graduates will be the most diverse bunch to date. Finding ways for these young entrepreneurs to receive the education, mentorship and coaching required to onboard them into the space is going to create a long-term, fundamental shift in making the world of startups and venture capital accessible to groups of people that previous generations left behind.

Again, starting with young people is a 30-year play at shifting these dynamics, but it’s safe to bet that by 2050, the stereotype of who exactly is writing the checks in VC will be entirely different.

Other programs, like The Enablement Program run by Recast Capital, approach the problem from the other major attack vector: emerging managers. This top-down approach further accelerates accessibility in venture because instituting diversity at the fund manager level hopefully means that more venture capital dollars can find their way into companies led by diverse teams.

This isn’t just diversity for diversity’s sake either—there’s real economics to back this thesis up. And it’s needed. For venture capital to thrive over the next decades, new perspectives are needed as well as expanded dealflow sources.

The recent boom in venture has given rise to a generation of diverse fund managers (many of them first timers) who bring a unique (and extremely valuable) set of backgrounds and perspectives to the market. This is exactly what the founder community needs and is going to fundamentally shift the way venture capital looks, works and feels over the next decade.

Change agents

The real wild card in the room is Web3. Decentralized autonomous organizations are moving the model away from the beaten venture path and opening up possibilities for funding that didn’t exist just a few short years ago.

As these models mature and become more accessible, there’s a significant chance that entrepreneurs will be able to launch, fund and manage projects through structures that don’t require the outside influence of traditional VCs. There are obviously plenty of pros and cons to unpack here, and perhaps that will be the subject of a later piece, but the point is that new technologies are disrupting the old way—and for the better. It’s very possible that some of the biggest companies over the coming years are born through decentralized organizations, utilizing funding for their projects through community grants and other alternative vehicles.

Overall, there’s an enormous amount of momentum pushing accessibility, equity and inclusion in venture capital. Big strides are being made on all fronts, from pulling young, diverse people into the ecosystem, propelling a new generation of diverse fund managers, and opening up new avenues for underrepresented groups to gain exposure and prominence in the space.

It’s certainly an exciting time for the industry and I can’t wait to see what the future looks like. When it comes time for me to hang up my skates from venture capital, I have no doubt the industry will look much different than when I got started. I’m extremely proud of that.

Matt Cohen, founder and managing partner at Ripple Ventures, was founding investor of Turnstyle Solutions, which was acquired by Yelp in 2017. He is a frequent contributor to Crunchbase News, having written about why more VCs are becoming startup founders and other topics.

Illustration: Dom Guzman