Member Exclusive   //   June 12, 2020

As calls for improving diversity increase, many VCs are silent

This is the latest installment of the DTC Briefing, a weekly Modern Retail+ column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. More from the series →

Over the past two weeks, there’s been a flood of direct-to-consumer startups issuing statements about steps they will take to better support the black community, and build more diverse companies. But venture capitalists have remained largely quiet.

“People are scared — even though they want to do the right thing, they’re worried that people are going to inevitably drag them down with, ‘well look at your website,'” said one consumer investor, referring to the fact that many venture capital firms employ white men by and large. “That has created this weird dynamic where even though people are very well meaning, they don’t want to put themselves in the spotlight.”

Venture capital is known for being insular. Firms sometimes don’t publish job openings at their firms, instead relying on recommendations from within their own network when looking for someone new to hire. For more junior-level roles, like analysts or associates, some venture capital firms only recruit from a select number of Ivy League schools for these roles.

What this means, is that venture capital firms end up being largely male and white. The Information’s annual diversity report found that in 2018, 84.6% of senior investment leadership at Silicon Valley venture capital firms were male. Only 1% of decision makers at these same venture capital firms are black. Consumer venture capital firms do fare better at employing more women. One of the foremost venture capital firm in the DTC space is Forerunner Ventures, founded by Kirsten Green.

But the entire venture capital industry as a whole has long struggled to employ more black investors, and fund more black companies, and there’s no indication that venture capital firms that largely focus on consumer companies fare much better. Just 1% of venture capital dollars went to black startup founders in 2018, according to a study from Silicon Valley Bank. And the founders who do get funding, often receive less of it. Harlem Capital conducted a study in 2018, which identified just 105 startups led by black and latino founders that have raised more than $1 million in funding.

As a result, the companies they end up backing create products to serve the needs of white and affluent consumers. Consumer venture capitalists acknowledge this, but they are still struggling to figure out what decisions to take to course-correct their systemic diversity issues.

“If I had to guess, we are going to see a lot more funds partner up with some of these VC funds that focus on black founders,” said the consumer investor who spoke on background, citing funds like Backstage Capital, Harlem Capital, and Precursor Ventures.”  The investor has also pushing their firm to starting recruiting from historically black colleges and universities like Morehouse, Spelman and Howard University for its analyst program.

“The one thing I worry about is…that it’s going to be a poaching game, and not an expanding the talent pool game,” said the consumer investor, and implored other funds to not just consider hiring black investors or associates with experience at other venture capital firms.

Two of the consumer venture funds that have issued statements over the past two weeks about how they seek to do a better job of promoting diversity are Forerunner and Maveron. Forerunner tweeted on June 2 that, “Diversity is foundational to our narrative, & while we are proud of the way we’ve constructed our team to reflect this value, we acknowledge that we must do much more to promote it in the venture ecosystem and beyond, namely with regards to systemic Black inequality.”

“We are actively listening to our team members and outside voices to educate ourselves to best implement change. We are putting real consideration into this effort as the change needed is herculean, and these discussions range from financing Black-owned businesses to healthcare to education, and we want to be sure to act with intention in the areas where we can have the most impact,” Green said in a follow-up email to Modern Retail.

“To be successful consumer investor, you need to have people around the table who understand where the consumer is, and where the consumer is going” said Jason Stoffer, partner at Maveron, which has invested in Allbirds, Imperfect Foods and Everlane among other DTC startups. Stoffer thinks that Maveron has done better on some measures of diversity than other venture capital firms — of the five people at Maveron who are writing checks, two are women, and three are people of color. However, Stoffer acknowledged that Maveron has only backed 11 companies with a black founder or CEO in its more than twenty year history.

One of the immediate steps that Maveron is taking to improve diversity within its ranks is putting out an open hiring call for an investment associate. Historically, Stoffer said that Maveron has hired by word-of-mouth. The firm was also already in the process of converting to a certified B corporation, and as part of that process will be donating 1% of its carry profits to nonprofits, starting with those addressing racial injustice. Stoffer said it’s a starting point, while acknowledging that Maveron is still trying to figure out how to do a better job of finding and funding more diverse founders “who want to build iconic brands.” He added, “I don’t have any answers right now.”

Jaime Schmidt, the co-founder of early and seed stage firm Color encouraged other, larger venture capital funds to “look outside your usual networks and industry sources to discover new brands and founders,” and echoed the need for funds to up with syndicate funds that focus on backing underrepresented founders. Schmidt is also the founder of natural deodorant brand Schmidt’s Naturals, which was acquired by Unilever in 2017. Schmidt said that 83% of the founders backed by Color have a founder that’s a woman or person of Color. 

One of the best pieces of advice Schmidt shared was also the simplest: “we share publicly about our mission for supporting underrepresented founders, which results in a lot of incoming deal flow.” So while venture capitalists’ first instinct may be to stay quiet right now, lest they be criticized for a picture featuring all white guys on their website, the best thing they can do is to speak up.