Startup Life/Diversity & Inclusion/Opinion/ Stop pretending we need more data on diversity: step up and make some damn change! The benefits of investing in diversity and inclusion have been proven. It’s time for action. A group of people sits talking. Credit: Kate Kalvach on Unsplash A group of people sits talking. Credit: Kate Kalvach on Unsplash \Startup Life Five women and multicultural founders to watch in 2023 By Lily Wakeley 31 January 2023 Startup Life/Diversity & Inclusion/Opinion/ Stop pretending we need more data on diversity: step up and make some damn change! The benefits of investing in diversity and inclusion have been proven. It’s time for action. By Erika Brodnock and Johannes Lenhard Friday 4 June 2021 By Erika Brodnock and Johannes Lenhard Friday 4 June 2021 Time and time again, we hear the same argument from investors, tech founders and LPs about why they haven’t made changes to address tech’s diversity problem. They’ll often say something along the lines of: ‘We really want to make a change and invest more money into overlooked GPs and founders, but first we need to collect diversity data and understand the risks and opportunities better.’ But those are just excuses and stalling tactics. And this is why: 1. An exercise in self-flattery Most of the diversity data collection is an exercise in self-flattery asking for the most superficial of data points. Some capital owners (LPs) and investors (GPs) are proud — and certainly content — that they are now ‘asking the question’. By that, they mean asking their respective portfolios to report on some high-level DEI stats, which usually just includes gender diversity, not data on ethnicity, sexuality, neurodiversity, socioeconomic background and so on. 2. Reinforcing biases Gathering numbers about successful companies and teams in the past only serves to reinforce anti-diversity biases. “We need to go beyond pattern matching as the basis for making investment decisions. Everything is based on past data,” says Marie Ekland who recently started 2050, a new French funding vehicle focused on long term impact. We can’t just copy yesterday’s patterns. This is also something that new AI-driven VC approaches have so far struggled with. 3. More data doesn’t equal better outcomes Just collecting diversity data does not necessarily result in better — more diverse — outcomes. Crunchbase found that investments in all-female teams fell by a whopping 27% in 2020, proving that what can only be described as ‘performative’ exercises to show commitment to diversity are not going to yield sustainable progress by themselves. 4. We already know what we need to Perhaps most importantly, we already have the data! We do not need everyone to collect their own (performance) data. We already know that diverse investment teams perform better, and diverse founders often likewise outperform their peers. And if you’ve been living under a rock for the last century, you can read all about: How diverse VCs make better investments How homogenous teams underperform Which barriers for overlooked investors and founders exist (and how to remove them) Concrete examples of a diversity-focused fund which outperforms its peers with Kapor Capital or Connecticut Ventures How and why more diverse founding teams are more likely to be more successful Additionally, big industry data aggregators like Crunchbase and Dealroom have launched diversity-initiatives over the last 12 months. There is no lack of data at all. What we need is real leadership For all these reasons above, more data is not what we need now to tackle the diversity issue. What’s missing is concrete action building on the insights generated by the data. What is missing is real leadership. “We have the data in place — what we need now is people with power stepping forward and making the change they have been talking about,” says internet pioneer and investor Mitch Kapor. Mitch is a great example of someone who has stepped up by founding Kapor Capital, a VC fund specialising in closing gaps to access and opportunity. The success of his fund shows how lucrative taking a stand can be. The fund’s 29.02% internal rate of return outperformed the 75th percentile benchmarks for Pitchbook (25.96%) and Cambridge (26.5%) between 2011 and 2017. Previously, we thought that the prospect of leaving money on the table in as overtly a capitalist ecosystem as VC would have investors clambering over themselves to find diverse opportunities. The data and evidence that has been gathered make this point patently clear: the fiduciary duty, so often cited by VCs when justifying the investments they make, is precisely what requires them to invest real money in diverse teams (and hire more diverse investors). The role of limited partners This points particularly to LP responsibility. VC investors easily hide behind their explicit raison d’etre to generate returns for LPs. It is them, VCs argue at times, who set the agenda. So why are so few of them stepping forward with explicit programmes to tackle diversity, particularly in its intersectional form? We need market-makers like the European Investment Fund or the British Business Bank to explicitly drive the agenda and not hide behind now ‘asking the question’ or ‘collecting more data’. Write the cheque to more diverse managers — or don’t if existing funds are not improving. Given that much of the EIF’s and BBB’s money is in fact taxpayers’ money, it seems only apt that an important push comes from this direction rather than from purely commercially minded LPs. But apparently, it is not all that easy. If humanity is going to continue to thrive, we need the most significant returns to build our future. It’s time to stop pretending that we need more data to see what is obvious — and begin the work of actually diversifying. Erika Brodnock is an entrepreneur and cofounder of Kami.coach. She tweets at @ErikaBrodnock. Dr. Johannes Lenhard is a research associate and centre coordinator at the Max Planck Cambridge Centre for Ethics, Economy and Social Change. He tweets at @JFLenhard. The two are writing a book on diversity, equality and inclusion in tech to be published by Holloway later this year. 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