Promoting Startup Diversity in VC Portfolios

Bracco Promoting Startup Diversity

The long-term goal of any portfolio should be a proper balance of risk-returns, which must be achieved through diversification. This can mean a myriad of opportunities such as different sectors, geographies, macro influences, but also diversity of thought.

Diversity remains a significant problem in the global VC space, and one I believe that every firm should address to pursue underserved markets. A frontier with amazing potential is the growing, yet still underrepresented market of female and minority or immigrant-owned startups.

In 2017, Pitchbook reported that women-run organizations received just over 2% of VC funding. The same year, A Rate My Investor report, which surveyed 135 U.S. VC firms and their 4,475 investments, found less than 23% of the startups’ co-founders identified as Asian American, Middle Eastern, Latinx, or Black.

Further south, the news is worse: less than half a percent (0.4%) of the $400 billion spent by VC firms on startups from 2009 to 2017 was awarded to Latin American women. This despite the fact that 35 percent of FinTech startups in the region have female founders, according to Finnovista.

The numbers of funded businesses do not accurately represent the growing swell of female and minority-owned innovation.

We deal with a lot of implicit biases in the business world, but I’ve never been able to understand this idea that women and immigrants are less likely to be successful entrepreneurs. Perhaps this is due to my own biases as an immigrant who grew up with a strong female role model. In my family, my father had a corporate career while my mother pursued an entrepreneurial one. She ended up being a lot more financially successful than my father, so it always seemed natural to me.

I believe that immigrants are naturally entrepreneurial. Leaving one’s home country to live in another culture, with no support network is a big step, whatever the reason, and our determination to pursue a better life elsewhere often is a testament to our drive to succeed.

That does not, however, mean that minorities are given equal opportunities. The VC landscape, including Scale, clearly has room for more diversity.

One startup with an interesting story is Microvi, a biotech company that develops, manufactures, and commercializes solutions for water, energy, and chemical industries. Iranian immigrant Fatemah Shirazi came to the U.S. at age 17 to attend college, and later graduated with a PhD in environmental engineering. In 2008, she founded San Francisco-based Microvi and was recently awarded the Breakthrough Technology Company of the Year for her high-performance biological tech innovations.

I would think that, like me, she believes that immigrants have that unique ability to become good entrepreneurs. According to Shirazi, “There’s a parallel, immigrants are taking risks and developing strategies to deal with completely foreign phenomena and creatively solve challenges.”

Another immigrant startup, and one that I am personally invested in, is called Stylebee, a mobile marketplace for stylists and cosmetologists. The app and website allow customers to make appointments with stylists willing to travel to their home, office, or hotel.

Stylebee was founded in 2014 by a fellow expat, Anna Santeramo, from Italy. For her, coming to the U.S. was a calculated decision because of how difficult it was to find professional opportunities in Europe. Once in the States, she based her business in California as well.

It’s been interesting to note each region’s different weaknesses in terms of entrepreneurial opportunity. Europe may lack a number of opportunities and offer cultural barriers or biases, while Latin America struggles to recognize female founders. Indeed, many South American countries are still working to reverse outdated laws related to divorce and couples’ finances. North America, of course, has its own issues within its borders as well.

But the innovation is there, that is clear. We are not lacking in diverse entrepreneurs with ideas and drive. This is just the first step of promoting diversity in the VC space, and I for one am looking forward to being part of it.

Key Takeaways

  • Diversity in VC continues to be a major problem globally, with women founders in the U.S. receiving just 2% of funding and Latin American women receiving 0.4%.
  • Each region in the world has its own unique issues when it comes to equitable entrepreneurial opportunity, making it difficult to come up with a global solution.
  • That said, minority- and immigrant-owned businesses are on the rise, and some are seeing great success.