In the US, where start-up success stories look like Facebook, Google and Amazon, venture capital investment happens on an entirely different scale. Unfortunately, the lack of interest in ensuring diversity also seems to be proportionately large.
In 2019, investment bank Morgan Stanley surveyed 200 US venture capital firms. The data reveals that, for three in five investors, diversity is not a priority for their firm. The situation is similar in Australia.
The State of Australian Startup Funding report for 2022 shows that, while deal participation of women founders hit record levels in 2022, their share of total dollars dropped.
At the same time, of about 150 venture capital funds operating in Australia, one in three did not invest in a single woman founder at all in 2022. Only six of the 50 most active VC funds put more than half of their investment dollars into start-ups founded by women.
Missed opportunities
The likes of Atlassian and Afterpay have made their investors wealthy and are prime examples of success stories in Australian start-up investing.
Much of the data into the benefits of investing in diversity looks at women founders. Boston Consulting Group analysis from 2018 reveals that, on average, women entrepreneurs raised less than half the sums their male peers did. Yet they delivered higher revenue, earning 78 cents in the dollar compared with 31 cents in the dollar earned by men.
Morgan Stanley refers to this as the “trillion-dollar blind spot”, especially in light of the fact that women control 83 per cent of consumption “through buying power and influence”.
Venture capital is an inherently risky business, with a 75 per cent chance of zero returns and a 30-40 per cent chance of complete failure.
For Filipich, these figures beg the question – what if the bias towards a traditional recipe for investing success contributes to that failure rate?
“It surprises me that people can see the statistics on diverse teams outperforming and still invest in non-diverse teams.”
“What if the reason the eight out of ten start-ups tank is because venture capital investors aren’t good at picking diverse teams?
“What if the bias is the root cause, and you could double your success rate by adding more diverse founders?” Filipich asks.
Rachel Yang, a partner at venture capital firm Giant Leap, agrees. Yang says her firm generally takes the view that women are more efficient with capital.
“I wouldn’t be surprised if that was the case, where there is something around burning through capital at a higher rate that leads to a greater number of failures,” Yang says.
Filipich says the increasingly deep network of women and diverse entrepreneurs in Australia share notes about potential venture capital investors. This could mean that an investor who, for example, tells a woman she cannot run a company or have a baby will slowly and surely get squeezed out of that trillion-dollar opportunity.
