Diversity Boosts Profits in VC firms by Michael Blanding

  • Source link:https://hbswk.hbs.edu/item/diversity-boosts-profits-in-venture-capital-firms
  • TL;DR: Great survey of the current state of the VC industry, the consequences of homogeneity, and the benefits of diversity
  • How helpful?: 5/5
  • Topic Tags: diversity, demographics, VC firms
  • Relevant questions addressed:
  • What is the current demographic makeup of the VC industry and what are the financial implications of homogeneity?
  • Summary bullet points
  • VC industry consists mostly of white men who attended liberal arts colleges who majored in economics and went to business school.
    • 25% of Venture capitalists are Harvard Business School graduates
  • Women in VC has stayed disproportionately flat when compared with the increased amount of women getting Business degrees and going into STEM
  • Homogeneity has financial consequences
    • Partners who came from the same school had an 11.5% lower success rate for acquisitions and IPOs
    • Ethnic homogeneity saw success rate 26 to 32% lower
  • In the firms studied, having at least one female in the firm increased performance by 10%
  • “having women as partners increased the percentage of successful startups supported by those firms—that either went public or sold for more than their total capital investment—from about 28 percent to about 31 percent.”
    • Why?
      • Possible that since the odds are already so stacked against women, those who did make it to partner level are extremely talented
      • Possible that women are more willing to invest in women entrepreneurs, thus spotting opportunities men might miss
      • Possible that gender diversity spurs more innovative thinking
  • What firms can do
    • Be aware of biases that might cause them to hire homogeneously
    • Understand that the benefits of wiser decision-making due to greater diversity are realized over a long period of time

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