Diversity, Dealflow, and the “Dame” Dilemma

A recent meeting with a specially curated group of approximately 30 angel investors and LPs (of which I was 1 of 3 women in the room) got me thinking about VC dealflow — more specifically the lack of diversity in most dealflow — especially here in North Texas.

VCs often talk about backing more diverse founders in the industry, and I don’t doubt that every investor — male or female — actively supports this, in theory.

What makes this hard in reality is that most investors work off of inbound dealflow… Namely, deals that get proactively sent to us, whether by other investors or founders themselves.

The problem with this kind of dealflow is that it (not surprisingly) tends to be reflective of the past investments and the existing relationships/networks of those VCs.

So, if your past investments and existing networks are made up of predominantly men, then chances are that the startups that get sent to you by predominantly male co-investors will be predominantly led by male founders. On the whole, men recommend men.

Then, add on the fact that most investors keep looking for the same “success patterns” over and over again, which is another risk. To increase VC’s success, we have to implement a combination of not always looking to repeat past successes, AND being willing to and wanting to invest before a trend becomes obvious.

At Cassandra Capital, we’re not interested in being the sixth company to invest in a space, and there can be a lemming effect amongst VC firms.

Here’s three insights on diversity, dealflow, and being the “dame” that I explored this week:

  1. Your Dealflow Is Not Diverse Enough on TechCrunch: “…. The stark contrast between the ease of fundraising for men compared to women is apparent. Data show that men were four times as likely as women to access equity financing from angel investors or VCs (14.4% against 3.6%). The ease with which men tap into multiple sources for capital explains why they start companies with almost twice the capital of women founders on average.
  2. Delivering Through Diversity by McKinsey & Co.: “… For gender, the executive team shows the strongest correlation. We found that having gender diversity on executive teams, specifically, to be consistently positively correlated with higher profitability across geographies in our data set, underpinning the role that executive teams—where the bulk of strategic and operational decisions are made—play in the financial performance of a company.”
  3. When Senior Partners have more daughters, their venture capital firms hire more women, improving deal and fund performance by Harvard Kennedy School: “… Venture capital firms where partners had a higher relative fraction of daughters were more likely to hire female partners, and this gender diversity improved the performance of deals and funds.”

I’d welcome your feedback and thoughts on this issue!

wendi@cassandracapital.co

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