How Investors Can Invest in More Underrepresented Founders

It seems that there is no shortage of venture capital firms declaring their solidarity with the Black Lives Matter movement. That’s wonderful, so let’s capitalize on this energy with meaningful action. There have been some excellent articles written about ways to increase investment in Black and other underrepresented founders, and I wanted to share a couple of practices, from the perspective of a white male investor, that have helped Beta Boom broaden our deal flow and invest inclusively. Half of our portfolio startups are led by Black founders, and 80% are led by founders from all underrepresented groups.

One of the biggest factors determining the level of investment in underrepresented founders is deal flow, or the leads that investors see. Currently, the investment community primarily relies on warm introductions from their professional network. It does not take much brainpower to realize that investors’ networks tend to mirror themselves. So if you are a white Stanford University alumnus, there is a fair chance that your network is not replete with economic and ethnic diversity. If your own network lacks diversity and you rely on your network for deal flow, how can you expect to see startups led by diverse founders?

The common rebuttal from investors is that if a founder is worth their time, they will find a way to get a warm introduction to them. Not only does this philosophy disrespect the very real perception and bias problems that underrepresented founders face, it also defies basic math. Fundraising is a probability game, and if a founder has more network connections to an investor, his probability of getting a warm introduction is higher. Therefore, the investor is much less likely to get warm introductions to underrepresented founders notwithstanding their merit. Not only that, given that the vast majority of venture capital investors hail from elite institutions like Harvard, Princeton, and Stanford, what is the likelihood that they will be exposed to many economically diverse founders as well?

Stop over-relying on warm introductions

Instead of relying primarily on warm introductions for deal flow, you could also make your email available for founders seeking to pitch you or take pitches via Twitter. One challenge that many investors face when opening their inbox is an increase in low-quality deals since your network often serves as a screening mechanism. To counteract this, investors might be well-served to utilize an application form that can screen out deals for factors like traction benchmarks or industry fit.

Work harder to broaden your network

We’re here to help

Our emails are: kimmy [at] betaboom [dot] com and sergio [at] betaboom [dot] com.

Originally published at https://betaboom.com.

Helping to develop the next wave of tech founders via Beta Boom (betaboom.com).