Diversity, Equity and Inclusion at VC Fund Operations

Why is diversity important in the workplace?

The data surrounding DEI is now irrefutable. A more diverse workforce creates an environment which enables better decision-making and improved business results. Long-term and quantitative data-based research from Harvard Business School makes a similar case. Gompers and Kovvali, through examination of the decisions of thousands of venture capitalists and tens of thousands of investments, have shown that diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns. 

However, there is some consensus that we, as an industry, veer towards ‘diversity theatre’ and that there is still work to be done if we are to go from hollow virtue-signalling to real, meaningful change. One of the key reasons for this view of the industry is that the vast majority of VCs are still white – minority ethnic VC employees account for roughly 8% and males for 77%.

How can we build a culture of diversity, inclusion and mutual respect in the workplace?

The first step VC funds should look into is to codify into a public DEI policy or statement. Publicising the specific actions that the fund is taking, as well as their targets, forces the fund to be accountable if they don’t fulfil their promises. It also ensures that everyone within the fund knows the policy and can work in tandem to reach it.

A second step that a fund can take to foster a diverse and inclusive environment within a firm involves representing diversity and inclusion. We consider how to source and hire more diverse people and second, how to create an environment where that talent feels included and on an equal footing with the rest of the workforce. 

What are good practices for a working environment? 

One of the first steps is to put in place a code of conduct, which is a set of rules commonly written for the employees of a company. This document does not need to be complex nor does it need to have elaborate policies, but rather, should simply reflect the core values of a company and set boundaries as to what constitutes a violation of these values. Funds must also think about how best to embed it in their firm’s culture, including how to make it a part of a new joiner’s onboarding process, before subsequently revisiting it with the team at key junctures. 

Hiring and retaining talent is a crucial component of running a VC fund, with people having the biggest impact on the creation of a strong and cohesive team culture. When a key employee or partner leaves, a firm loses expertise and resources. Such a loss can heavily impact team dynamics, as well as set the alarm bells ringing for LPs. VC funds should therefore pay close attention to people, one step being to implement feedback mechanisms to maintain awareness of employees’ wellbeing. 

Finally, there is a danger that team issues live with the head of HR, but for strong cultures to thrive within a VC fund, they must have senior buy-in at the partner level. Without these initiatives being widely supported at senior levels, employees are unlikely to put up with a firm with a bad culture for too long.