Diversity in the Venture Capital and Startup Ecosystem

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A Case Study of the Diversity in the Venture Capital and Startup Ecosystem


January 2020

Case Study (PDF Download): Diversity Case Study

LP Game (Word Download): LP Game

For my course — REL597: Silicon Valley Ethics: Case Studies in the World of High Tech — I researched and developed a concise case study that explored diversity in the venture capital and startup ecosystem. I was assisted by the former Managing Director of Firstmark Capital, Catherine Ulrich. 


Venture capital1 plays a significant role in Silicon Valley and the tech industry; some notable VC-backed companies include Tesla, Apple, Starbucks, Uber, WeWork, and Facebook. While less than 1% of total startups seek funding from venture capital, VC-backed companies make up almost half of all public US companies founded between 1979 and 2013; in 2018 alone, VC investors deployed nearly $131 billion across US companies with software being the largest industry. These investors — typically small partnerships of white men — determine the types of entrepreneurs that are backed, which in turn shapes the types of products that we use in our daily lives.

The capital that flows into venture capital funds are usually from pension funds, institutional endowments, foundations, finance companies, and high-net-worth individuals. These investors in venture funds are called limited partners (LPs). LPs aim to minimize risk and aim for a target financial return; since investing in VC funds is much riskier than investing in the S&P 5002, LPs have to strategically select which VC funds to invest in to outperform the stock market and produce good returns. Simply put, LPs invest their money in selected VC funds which in turn invest money, time, and guidance in selected portfolio companies/startups.


The VC industry, historically a boys’ club, suffers an underrepresentation of females on both sides of the table as investors and as company founders. According to All Raise, a nonprofit organization focused on diversity and inclusion efforts in the VC space, less than 10 percent of decision-makers at VC firms are women and 74 percent of U.S. VC firms have zero female investors. Of the $131 billion venture capital investment, only 2.2% of it went to female-founded startups and 15% of it went to mixed-gender founding teams. Despite being known to be one of the least diverse industries (with respect to gender and race), VC decides which companies and founders are given oxygen for their ideas. Do venture capitalists have a responsibility for driving greater diversity in the start-up ecosystem and within VC itself?

Even though there has been an increase in diversity-focused venture capital funds and funds that are run by diverse teams of general partners (GP)3, their relative lack of track record, proprietary deal flow4, and experience working together make them unattractive to LPs who are focused on proven returns and wise investments. According to Catherine Ulrich, an Exeter alumnus and a venture partner at FirstMark Capital5, responsible LPs are supposed to make the best returns; in order to do that, they may not invest in diverse VC teams as current mainstream VC teams/funds, run mostly by white men, have more experience, better track record, better networks and are proven to work. Should LPs then be forced to invest in venture funds run by diverse teams? Overall, who’s responsible for improving diversity in this space