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Why Investor Diversity Is Key To Your Startup’s Success

tl;dr: If your investors all look precisely the same, you aren’t doing yourself a favor.

Editor’s note: Eileen Carey is the CEO of Glassbreakers, a software company building inclusion technology.

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It’s common advice that founders must choose their investors carefully. Capital aside, the point of onboarding investors is to leverage their expertise, network, and enthusiasm.

Taking investments from angel investors or venture capital funds creates a mutually beneficial partnership. It’s important to understand that these people are a part of your team. Since your investors will reap some of the financial rewards of your startup’s success, they should also be people you are excited to share your success with.  

As a founder, you are not only responsible for job creation, but wealth creation. That means every founder has the opportunity to create a more equal, diverse representation of people who can deploy capital in the tech industry. To that point, for startups, having a diverse network of investors across geographic location, gender, race, ethnicity, sexuality, professional experience, industry and portfolio focus is an enormous competitive advantage.

We are all building products and services that we want to scale to the greatest capacity possible, which means we need to have the collective knowledge of various audiences backing us to engage the biggest market share. However, we live in a world where 92 percent of VC’s are men while research clearly demonstrates that diverse business teams generate the highest financial returns.

As the founder of an enterprise software company, my work is about impacting the bottom line for our customers all day, every day. If we want to make more money collectively as a startup ecosystem, we as founders need to make it our responsibility to choose a diverse network of investors to share our success with and break the cycle.

Diversity is more than gender, race or sexuality—it’s also about different professional and life experiences that add value. For both business and product development, my team has strategically brought investors on board who serve as expert resources in each function. Our investors also share different investment philosophies. We know we work best, for example, with either impact driven investors or SaaS focused investors.

If 90 percent of your investors all look, act, and share the same personal and professional experiences then you are putting your startup at risk. You need more than homogenous advice from the same group of people to differentiate yourself in larger global markets.

Targeting investors is the easy part of diversifying your sources of capital. If you are heavy on male investors, think about approaching funds with senior women investors in your next round. It’s not ok to say you want a woman on your board for PR or because it looks good. But it is just fine to say you want a woman leading your Series C because you believe her knowledge of the space and her experiences will make her a more strategic advisor to generate more business opportunities.

The Bay Area definitely has room for growth in regards to venture capital racial diversity. That being said, there are great firms in the Bay Area and throughout the United States that are prioritizing diversity on their teams. Reach out to start building relationships with these firms. Aside from usually being better investors because they’ve had to cut through more biases to get to where they are, they also create important hiring opportunities for your team by leveraging their networks of better talent.

Whether times are good to be raising capital or not, having investors outside of the Bay Area gives you access to less ‘wolf pack mentality driven’ sources of funding. You could pitch 100 investors in SOMA about your product in a crowded space that has five other local competitors they’ve seen, or you can find investors in another part of the country who do not see as much deal flow.

In the same way your startup team should reflect the people actually using your product in order to make the most optimal decisions, your investment team should be a reflection of professional experiences across the industries and sectors that you wish to serve. Establish a clear foundation with your investors before accepting their capital about what value their partnership will bring.

With every check you accept, you are not only making a decision about your startup’s future, but deciding who will have the capital to invest in future startups. We can change the cycle of unequal representation by partnering with women and minority investors to accelerate their access to the capital gains off the next good ole fashioned 100x return.

If founders accept and internalize this responsibility we will reap the benefits of investor diversity as a competitive advantage which will make more money for our companies and our ecosystem. At the end of the day, that’s what really matters.

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Featured Image via Flickr user Michael Reuter under CC BY 2.0. Image has been cropped.
© Mattermark 2024. Sources: Mattermark Research, Crunchbase, AngelList.