The Pressure Is on for VC Firms to Take Diversity Seriously

Venture capital managers surveyed by Deloitte say limited partners are increasingly asking about their DEI efforts.

Illustration by II

Illustration by II

Venture capital firms are facing increasing scrutiny from limited partners for their limited progress on diversity, equity, and inclusion.

Forty-seven percent of VC firms surveyed by Deloitte said LPs had requested DEI information in the last 12 months, up from 41 percent in 2020 and 36 percent in 2018. The survey included responses from 315 VC firms with $595 billion in combined assets under management.

This rising demand for diversity data suggests that VC firms that lag their peers in DEI efforts may face more obstacles in what is expected to be a difficult fundraising environment, according to the report.

“VC firms are recognizing that not prioritizing DEI is a barrier to funding innovation and achieving higher returns,” Bobby Franklin, president and CEO of National Venture Capital Association, commented on the report. “If the industry truly wants to make meaningful progress and reach its fullest potential, it needs to build upon this positive momentum and commitment around DEI efforts.“

Deloitte found that 46 percent of VC firms had implemented a diversity strategy as of the end of 2022, up from 44 percent in 2020 and 35 percent in 2018. Sixty percent of the firms had a staff person or team responsible for DEI policies, up from 55 percent in 2020 and 34 percent in 2018.

Despite the increased DEI efforts, representation for women and racial minorities is still limited among venture capital firms. According to the survey, female employees made up 26 percent of investment professionals in 2022, up from 23 percent in 2020 and 21 percent in 2018. Black and Hispanic employees represented 5 percent and 6 percent of investment professionals last year, respectively, compared to 4 percent for each group in 2020.

“VC firms tend to be small, and turnover is low in senior investment positions. Both factors challenge firms seeking to diversify their workforce,” the report said. The average VC firm has 20 employees, while the median has only seven, according to Deloitte.

There are some signs of improvement among the newer generation of VC firms. Firms founded in the past decade reported a larger share of their investment partners being Black (8 percent), Hispanic (8 percent), and female (22 percent). At older firms, Black and Hispanic employees made up 1 and 2 percent of partners, respectively, while women made up 17 percent.