Venture capital leaders: ‘We need to change the way it’s always been done’

A strategy of diversity and inclusion in the venture capital industry involves more than just providing financial backing to a startup founder who is female, Black or Hispanic.

It also involves mentoring those founders, taking them to events they’ve not had access to before, and introducing them to business leaders or investors they otherwise might never meet. And, panelists at a Florida Venture Forum webinar said, it involves changing the culture of venture capital firms.

Panelists at the Florida Venture Forum’s discussion on diversity and inclusion in venture capital

The Black Lives Matter movement has highlighted diversity and inclusion in most industries, including venture funding.

A recent Pitchbook study found that female-owned and minority owned business are among the keys to a vibrant venture ecosystem, said Carolyn Mathis, panel moderator, vice chair at Florida Venture Forum and a partner at Harbor View Advisors.

The venture capital industry has made some progress towards increasing diversity and inclusion over the past two years, said Natalie Buford-Young, managing director at Deloitte.

Deloitte has partnered with the National Venture Capital Association in an ongoing look at the industry. Their most recent report, completed in 2018, found that about one-third of VC firms nationwide say they have a diversity or an inclusion strategy, compared to 2016 when less than 20 percent of firms reported having such a strategy.

Despite the progress, the amount of venture capital that goes to firms that are owned 100 percent by women hasn’t changed in 20 years, said Leslie Frécon, founder and managing partner at LFE Capital. Female-owned firms get about 3 percent of all venture capital, she said.

“Until there are more women in decision-making roles in private equity and venture capital firms, it will be challenging to move the needle,” Frécon said.

Culture change is key at investment firms, said Leigh-Ann Buchanan, managing partner at Venture Café. “How can we change our culture to not just include more diverse people, but so that the folks who have the privilege and power and influence, who right now are overwhelmingly represented by white males – how can we shift the culture so they are looking at diverse founders, they are connecting and building relationships with under-represented founders?”

Too often, industry leaders will say “It’s always been done that way,” said Dave Chitester, co-founder and CEO of Seedfunders, an early stage investment firm in St. Petersburg. “We need to change the way it’s always been done.”

The JOBS Act, which passed in 2012, was one of those changes, he said. It allowed entrepreneurs and small businesses to use crowdfunding platforms for fundraising and allowed non-accredited investors to invest in private transactions for the first time.

“Before the JOBS act, for an entrepreneur to get an investment, you had to know somebody. You had to have a previous business relationship,” Chitester said. “It basically fostered systemic racism.”

Seedfunders took a look at its own business model recently and found a gap. While Seedfunders invests in pre-revenue technology companies in Florida, it also requires a minimum viable product.

“There are a lot of Black entrepreneurs that don’t have that first friends and family round to get to an MVP. That systemically excludes them from us even seeing them at the early stage we look at,” Chitester said.

That’s why Seedfunders just launched the Seedfunders Opportunity Fund, focused on Black entrepreneurs, with the goal of supplying the money that would come in a friends and family round of funding.

Although the investments from the Opportunity Fund will be relatively small, generally $25,000 to $50,000, Seedfunders prepares a standard term sheet and other documents so the startup founder knows what to expect when he or she gets to the next funding round. In addition to capital, a Seedfunders partner works with the startup company, providing mentoring.

Relevant mentorship from someone experienced in raising money is important, said Raemonn Soto, CEO of Sensatek, a Daytona Beach company that makes wireless, high-temperature gas turbine sensors. So is access to investor events, where a minority entrepreneur can see what a pitch deck looks like and hear what an ask sounds like, Soto said.

The panelists agreed that the future looks promising for inclusive venture investing.

“We’ve realized during this pandemic that humans are hard-wired for connection. We’ve leveraged technology to stay connected,” Buchanan said. “So I think the future is bright because we’re now at a moment where we’re thinking about how we can diversify and democratize access to relationship-building. I think some of the doors were previously closed to folks that look like me. I’m now able to reach out and build meaningful relationships that can connect funders with more diverse founders, and play a role in building more connections.”