Why the venture capital world needs more female and minority entrepreneurs

 

It may come as a surprise that just 3 percent of U.S. startups backed by venture capital are led by women. And only 1 percent are headed by African-Americans. In comparison, things aren’t much better at our nation’s largest biggest businesses, where there are only 20 female CEOs in the S&P 500 and five African American CEOs in the Fortune 500.

There’s no way around it. The venture space lacks diversity. Many theories have been put forth to explain this phenomenon. Perhaps it’s a limited access to strong educational opportunities for many African American youth. Maybe it’s the fact that societal dynamics and stereotypes still discourage so many young women from technical disciplines.

Or, is venture capital simply less connected to a diverse audience simply because of the fact that nearly 90 percent of current venture capital investment professionals are Caucasian men.

Numerous factors

The answer is not straightforward, because it’s likely tied to many interwoven factors. But, whatever the reasons, it’s time to change the composition of our industry, because it is holding us back.

A lack of diversity and inclusion is a major limiting factor on entrepreneurial potential. That’s because in its absence, you get sameness. And sameness does not provide a welcome environment for creativity and innovation. That’s probably why racially diverse teams routinely outperform industry norms.

The same goes for teams that are gender diverse. Simply put, diverse teams are more creative and better positioned for the future needs of our rapidly changing business environment.

At JumpStart, we’ve always looked at diversity and inclusion as an essential component of our work in the venture space. In addition to diversity being a core component of our board and staff composition, more than a quarter of our current portfolio companies are led by female or minority entrepreneurs (a percentage more than three times higher than the industry average).

A solution is sought

Recently, we took a major step forward to support our belief in the power of diversity and inclusion by launching the JumpStart Focus Fund, a $10M seed fund designed specifically to support female or minority-owned tech companies that are either located in Ohio or willing to relocate to (and remain in) the state.

The Focus Fund is believed to be one of the largest of its kind in the nation. (At just $10M, that fact alone underscores the issue at hand.) Not only is the Focus Fund designed to support female and minority entrepreneurs, we also hope it will help spark a deeper national conversation about the need for more diversity and inclusion in the entrepreneurial space.

As strongly as we believe in this new fund, we recognize that it will not single-handedly change the entrepreneurial landscape.

Longer-term, our hope is that the success of the Focus Fund will help more investors see the true competitive advantages of a diverse and inclusive portfolio.

Jerry Frantz manages the entrepreneurial services and investing team at JumpStart Inc. and has helped provide advisory support to more than 75 portfolio companies.