Janus Venture Partners’ action plan towards creating a more inclusive venture industry
The venture capital industry has a major diversity problem that is both stark and systemic — and the statistics are startling. Entrepreneurs of color receive less than 1/3 of the total startup dollars as compared to their white counterparts while female-led companies raised only 2.2% of total industry dollars compared to their male counterparts.
We suspect that much of this has to do with the composition of who makes those decisions and how those decisions get made. According to the NVCA/Deloitte survey titled “Diversity & Inclusion in the VC Industry,” 76% of the entire VC workforce is white while 86% of all investment partners are male. Reinforcing these issues are many industry practices such as requiring warm introductions, over-weighting being a previous founder or reliance on “gut instinct” and rules of thumb to determine what investments to make in early stages.
We believe that change starts from within and we are eager and focused to begin implementing new diversity initiatives at Janus Venture Partners. Success often comes from focus and, as such, we have determined that our success in this area will ultimately be measured by a single metric: the percentage of our portfolio that includes an overlooked founder. Leveraging studies by Kauffman Fellows, First Round Capital and Boston Consulting Group, an overlooked founder will be defined as a co-founder who is Black, Latinx or female. This definition is not perfect, but it enables us to measure our progress as a firm towards a more inclusive investment process.
The plan of action that we are undertaking comprised of three key components:
- Measurement and Accountability: we will track diversity metrics for each startup that enters our funnel and review our diversity metrics on a monthly basis track our progress across all stages from initial screening to Partner pitch to term sheet. This will help us identify where our deficiencies are and enable us to make changes to our process to ensure a more inclusive portfolio.
- Intentional Expansion of our Network: we will set aside time each week to connect with funds, accelerators and entrepreneurs focused on and comprised of overlooked persons in the markets from which we source. Our goal is to create mutually beneficial relationships with these networks to collectively move the needle on inclusion within the venture community.
- Reduction of Bias in our Deal Review Process: we will continually refine our deal review process to reduce the bias embedded within its scoring algorithm. Areas of focus will be re-calibrating the scoring for referred deals, rethinking how we evaluate teams (less weight to where they went to school, where they have worked, and/or past entrepreneurial endeavors and greater emphasis on competencies such as integrity, ability to overcome adversity and market knowledge), and weighting team composition in a manner reflective of the data that supports diversity as a driver of economic outcomes. As we track our metrics through the funnel, we continually evaluate the way we score deals to determine where hidden biases may be reducing quality throughput.
In addition to these immediate operational changes, we are developing plans to increase diversity within our organization. This includes a thorough review and overhaul of our Venture Partner program, a more inclusive hiring process for future investment team members and actions to increase diversity within our limited partner ranks. Each of these steps are more nuanced in nature and challenging to implement for a smaller firm such as ours but we are fully committed to a long-term vision of greater inclusion and diversity of thought within JVP.
What does success look like? Our initial hypothesis is that our portfolios should more closely resemble the diversity of the markets that we source from. Using a combination of general population, working age population and educational attainment statistics, a more representative portfolio would be: 51–57% with a female founder, 12–21% with a Black founder, and 15–17% with a Latinx founder. These are not perfect measures and will serve as measuring sticks, not explicit quotas, to see how our funnel and portfolio compares to society more broadly. As we implement this action plan, we will provide public reports on the impacts of these changes and our steps forward to help with accountability on our end and to hopefully provide useful insights to and incite dialogue with our peers.
The action plan that we have outlined is not being undertaken purely because it is the right moral thing to do, but because it is an opportunity for driving returns to our investors. Companies with a female founder performed 63% better and are more likely to exit than investments with all-male founding teams while ethnically diverse founding teams were found to outperform all white teams by 30%. Thus, we realize that improving diversity in our portfolio is an opportunity in the marketplace where everyone wins.
Mary Engelbreit once said, “If you don’t like something change it; if you can’t change it, change the way you think about it.” At JVP, it is our hope that by doing the latter we will do our part in accomplishing the former. We recognize that the industry and our firm have a long journey ahead and that our announced actions today are the first steps in that journey. But we are also excited because these actions are not a change in our mission but are the culmination of much discussion and planning that we have been having as a firm to fulfill our stated mission of “Serving the Under-served”.
The Janus Venture Partners Team