WORKWEEK

The patterns we see in the decision-making of venture capital firms have been in the making for more than seven decades. 

A lack of funding for female and minority founders is deeply rooted in venture capital’s foundation as the VC world, from the start, cemented its success by centering around white & male-dominated companies. 

Don’t believe me? Historian Margaret O’Mara has documented the history of tech’s gender problem, and her research of the past shows us what is still true today: 

The root of fintech’s representation problems is money.

Fintech is an industry that promises to be an alternative version of the broken financial system, powered by a new model that gives equal access to everyone. 

To uphold that promise, fintech not only needs to create less expensive and more accessible tools for consumers, but it needs to be an inclusive industry in itself. By that, I mean creating equity in leadership roles.

But the formula for “success” created decades ago by early venture capitalists was inherently against diversity in founders. 

Today, our industry is seeing an overdue public reckoning over the culture of venture capital that has primarily decided what type of person is set up for success in fintech – starting with the founders that receive funding. 

Last week’s outrage over a16z’s $350 million investment in Adam Neuman comes from decades of internalizing the exclusion felt by women and minority founders. 

This Fortune article put it best: It was a slap in the face to women and founders of color. 

Not only does the lack of investor and founder diversity in venture capital and fintech determine who gets rich. It also shapes:

• The kinds of problems fintech companies set out to solve,
• the products they develop,
• and the markets they serve.

Today, we joke about it by calling it a “Boys Club,” but Silicon Valley’s original venture capitalists were quite literally a tight-knit bunch of young men managing wealthier men’s money.

In the early 1970s, the prominent industry-defining VC Kleiner Perkins was founded, leaving a mark on the culture that is incredibly hard to unwind today. 

Venture capitalists are more than just bankers who choose whom to invest. 

They shape businesses by being mentors and even father figures to inexperienced men who have little knowledge of how to grow a business. 

That type of grooming is extended into the VC investments we see today. 

Even Kleiner Perkins partner John Doerr shared that the key to success was hiring and investing in people you had already worked with.

It perpetuates a cycle of white and male founders receiving the most funding. 

For example, Peter Thiel, Elon Musk, and Max Levchin became a core group called “the PayPal Mafia,” using their wealth to found new venture-backed companies and become investors in many others. One of the first firms to invest in PayPal was Sequoia Capital.

Now when it comes to investing in people that venture capitalists didn’t already know, they had to rely on business “intuition” and a “gut feeling” based on past patterns that never included characteristics of female founders and other underrepresented founders. 

Investors guaranteed success by investing in a founder with the same qualities as those who had succeeded before. 

What does that pattern recognition look like? Well, Doerr (who funded and mentored Marc Andreessen) once shared that the most successful founders were: 

• White
• Men 
• Harvard/Stanford dropouts 
• With no social life

And this mentality extends into a culture of “homophily,” in which similarity breeds connection, which means VCs prefer to hire, invest in, or co-invest with those similar to themselves.

With this type of pattern recognition deeply ingrained in VC culture, underrepresented founders face more significant challenges in convincing a homogeneous industry that:

• The issues they are solving are substantial enough
• The services they provide are widely needed
• And that they are the ones capable to take this vision into a multibillion-dollar company. 

I firmly believe that some venture capitalists today are eager to absorb new ideas and hear from diverse founders. 

But a willingness to invest in diversity is not enough when the history of venture capital fuels a false picture of meritocracy that is exclusion perpetuated by the past of Silicon Valley’s tight-knit networks.

That exclusion is pouring into our fintech industry while we’re all searching for the most innovative way to create more equity in the patriarchal financial system. 

Combatting this tech bro culture and becoming an industry with diverse decision-makers will be the greatest fintech innovation of all. 

How can we do it? Let’s talk about it in my next article: 3 steps to fix fintech’s diversity problem.

(Source: MIT Technology Review report by Historian Margaret O’Mara, the author of The Code: Silicon Valley and the Remaking of America).