DIVERSITY IN U.S. STARTUPS A report on the diversity in U.S. venture- backed startups by RateMyInvestor, in partnership with Diversity VC. INTRODUCTION DIVERSITY IN VENTURE CAPITAL As co-founders of RateMyInvestor, our mission is to provide equal opportunity and access of information to founders from all walks of In our startup diversity life, so that they can select the best funding partners to fuel the future of their companies. report, we are thrilled to be In order to help us and others in the industry better comprehend the first to shed light on the how we can achieve this goal, we needed to gain insight into the talented founders who are current diversity landscape. After extensive research, we had found some very enlightening reports (especially by The Information and building this generation’s Diversity VC) on the state of diversity within venture capital firms. However, we were astounded to find that no one had ever done any greatest innovations. deep-digging into the diversity makeup of the founding teams that the venture capital firms had funded. Austin Stofer & Bennett Quintard Co-Founders, RateMyInvestor Diversity in US Startups 2018 RATEMYINVESTOR We have spent months ensuring that our data is as extensive and accurate as possible, collecting hundreds of thousands of data points on nearly 10,000 founders and 135 of the most active venture capital firms in the world. As we recognize that diversity is more than just skin deep, our analyses run across several diversity factors, including gender, size of team, ethnic background, location, and education. We hope that our findings and recommendations will provide actionable insights on how the entire industry may move towards achieving greater diversity. Our goal is for LP’s to obtain a greater understanding of the VC’s they fund and for VC’s to become more aware of how diverse their portfolios actually are. For founding teams, we aim to provide greater insights on the investors they approach. Overall, we hope this report is not just about information but instead focuses on the actionable steps that can be taken by all members of the community. Anthony Zhang CGO, RateMyInvestor Diversity in U.S. Startups 3 DIVERSITYVC We are pleased to be supporting this important piece of research from RateMyInvestor. As we continue to generate better data relating to diversity in the technology sector, we will be better able to adopt the most effective initiatives to address the challenge and to make serious progress. Whilst the conclusions of the study are disappointing, I’m optimistic that having more evidence of the severity and reach of this challenge is a helpful step in identifying the right way to tackle it. I look forward to seeing the industry taking positive action to promote diversity and inclusion in their companies and funds. Thank you very much to Anthony and his team for asking us to collaborate on this study. We look forward to working with RateMyInvestor, and other partner associations, to shine an ever-brighter light on diversity and inclusion in the tech sector. Travis Winstanley Games Investment Director, Catalis Group Research Lead, Diversity VC 4 Diversity in U.S. Startups CRITERIA A SHIFTING LANDSCAPE Venture capital investment in the United Team Demographics startups, our team used a number of States reached $84.24 billion in 2017, The diversity factors for the startups we different sources and data gathering making it the strongest year of VC included in this report were the size of the methods. This information was collected investment since the dot-com bubble, founding team, gender, ethnic background, through a mixture of publicly available data according to KPMG. We analyzed all education, and headquarters location. Due from funding announcements, VC firm publicly available venture-backed deals to the scattered nature of information websites, and the public social media from Seed to Series D + in the past five related to the diversity of venture-backed profiles of the founders. years and selected the top 135 US firms by deal activity (# of deals). The full list of firms is included in the appendix. These 135 firms invested in 4,475 companies over the last five years (January 2013 to December 2017). There are 9,874 135 4,475 9,874 FIRMS STARTUPS FOUNDERS founders who are included in this report. Diversity in U.S. Startups 5 FOUNDING TEAMS 3% 1% 1 FOUNDING TEAM SIZE 9% 3% 9% 21% 2 66% of founding teams have two or 3 three people. A surprising 21% of venture-backed startups have a solo 66% 4 founder while 13% of teams have four or more founding members. 42% 24% 5 6 NUMBER OF FOUNDING TEAM MEMBERS 6 Diversity in U.S. Startups WOMEN ARE UNDERREPRESENTED IN VC-BACKED FOUNDING TEAMS ONLY 9.2% OF STARTUP FOUNDERS ARE FEMALE 100 90.8% MALE There is 1 woman 75 to every 3.76 men 50 at Big 5 tech companies. 25 9.2% FEMALE Diversity in U.S. Startups 7 MINORITY FOUNDERS ETHNICITY OF FOUNDERS MINORITY FOUNDERS ARE 77.1% WHITE UNDERREPRESENTED We used a combination of name 17.7%17.7% ASIAN analysis, photo analysis, and third- party demographic collectors to determine the ethnicities of the 2.4%2.4% MIDDLE EASTERN founders. Over 3/4 of the venture- backed founders we collected data on were white, and the remaining 1.8%1.8% LATINO slice of the pie was largely dominated by Asian founders. 1%1% BLACK 0 0.2 0.4 0.6 0.8 8 Diversity in U.S. Startups STARTUP LOCATION MATTERS WHERE DO U.S. VCs LOOK? Silicon Valley is still the preferred location for VC’s backing startups, with nearly half of all 42.26% investments going to startups based in the SILICON VALLEY Valley. Other tech hotbeds like LA and NYC account for a sizable number of deals, almost more than the rest of the United States combined. 19.28% MASSACHUSETTES 5.24% REST OF USA EUROPE 3.84% 13.55% 6.79% NEW YORK CITY CANADA 1.29% ASIA SOUTH AMERICA 0.53% 6.90% LOS ANGELES AUSTRALIA 0.18% AFRICA 0.14% Diversity in US Startups 9 EDUCATIONAL BACKGROUND 6.8% ALSO MATTERS 15.86% IVY LEAGUE HEAVY Over 1/4 of invested capital is granted to founders who attended college at an Ivy League school. 50.25% IVY LEAGUE 27.04% 27.04% REST OF USA 50.25% INTERNATIONAL 15.86% NO COLLEGE DEGREE 6.8% 10 Diversity in US Startups IVY LEAGUE FOUNDERS DOMINATE VC PORTFOLIOS 0.6 53.67% 53.67% 0.45 A TILTED SCALE 32.35% 0.3 32.35% Over half of the firms in our report had 25% to 50% of their portfolio represented by Ivy League founders. 0.15 12.5% PERCENTAGE OF COMPANIES PERCENTAGE 12.5% 1.48% 1.47% 0 0-25% 25%-50% 50%-75% 75%-100% PERCENTAGE OF IVY LEAGUE FOUNDERS ON A TEAM Diversity in US Startups 11 SIGNIFICANT NUMBER OF ALL MALE TEAMS 6% 12% ALL FEMALE MIXED GENDER 82% ALL MALE IMBALANCE 12 Diversity in US Startups DISCUSSION A STANDARD FORM This information shows a staggering amount The typical founding team across of selection bias for decision-making in U.S. VC’s. These investors are largely from the these 4,475 companies was a two same gender, educational, ethnic, and person, “all male,” “all white,” U.S. location background as the founders they university-educated team residing choose to invest in.* in Silicon Valley. *The Information’s VC Diversity Index. DISCUSSION Diversity in US Startups 13 FOUNDER QUOTES “Building a diverse ecosystem starts with a concerted “Many investors make decisions based on pattern effort to be more inclusive at all levels. Startup team recognition, when nowadays there are more and more members today, become the next wave of founders. examples suggesting that successful startups are led by Successful founders become the next wave of Angels founders who don't fit the traditional mold.” and VC partners. We all know the cycle, we just don’t focus enough on inclusion.” Elissa Shevinsky Damon Caiazza Serial Entrepreneur, Serial Entrepreneur, Co-founder @ SoHo Token Labs Co-founder of Startups.co TRANSPARENCY 14 Diversity in US Startups VC QUOTES “Silicon Valley has done a poor job of fostering “VCs should make more of a deliberate effort to diversity of all forms, especially diversity of thought. spend quality time with communities of color that VCs and founders tend to back/hire people who are are otherwise unfamiliar. Another tactical suggestion in their existing network who most likely share the would be to co-host salon dinners community same views as them, went to the same school as events with the growing group of early-stage them, and shared similar life experiences as them.” venture funds managed by diverse investors, such as Cross Culture Ventures, Backstage Capital, Precursor Ventures, etc.” Kyle Lui Suzy Ryoo DCM Ventures Cross Culture Ventures Diversity in US Startups 15 ACTIONABLE STEPS FROM RATEMYINVESTOR FOR LPs FOR VCs FOR FOUNDERS Look for more than just fund Make a more purposeful effort to set Treat diversity as a core part of your performance in VC pitches. Ask to see aside a percentage of pitches each hiring process, not as an afterthought. the gender and ethnic breakdown of month for diverse and minority lead Recent studies show that higher the companies that they back, and startup teams. Along with the ethical diversity leads to higher company compare them to other GP’s who are importance of this exercise there may profits and long-term value creation*. If pitching you. This top down approach also be financial opportunities that arise you are unable to find diverse full-time has the ability to rapidly impact the from better understanding problems team members at the early stages, put way money is invested across the faced by people of different cultures together an advisory team which brings entire ecosystem.