3 Steps to Fix Fintech’s Diversity Problem
By Nicole Casperson
“The tech industry loves to talk about how it is changing the world. Yet retrograde, gendered patterns and habits have long fueled tech’s extraordinary money-making machine.
Breaking out of them might ultimately be the most innovative move of all.”
~ Historian Margaret O’Mara
Diversity in the fintech workforce is still not good enough.
Striving for gender equity within the walls of VC funds and in the founder community is still an uphill battle.
But, when we look over to our tech friends in Silicon Valley, a new generation of employee activism has risen.
And we can look to these changemakers knowing that to see real innovation in industries, we have to apply pressure and speak up for changes to corporate practices.
Most examples I’ll share are female, non-white, gender-diverse, or queer. That’s because these groups are outsiders to the tight-knit circles that have ruled venture capital and inherently technology.
You can see an industry’s problems more clearly when you’re on the outside.
For example, women were 6 of the 7 organizers of the 20,000-person Google walkout in 2018, which protested the $90 million severance package awarded to top executive Andy Rubin after credible claims of sexual harassment.
Computer scientist Timnit Gebru became a powerful voice and critic of Silicon Valley research practices after she was recruited to Google because of her groundbreaking work on algorithmic bias. She was fired, reportedly because of the company’s discomfort with her findings.
Women and diverse employees are on the front lines of these movements.
In fintech, we rely heavily on venture funds to keep up with new opportunities and recognize emerging financial success stories despite biases – whether unconscious or not.
Unfortunately, they’re not doing a great job.
Venture capital investment remains the tech ecosystem’s least diverse domain.
- White and Asian men make up 78% of those responsible for investment decisions and manage 93% of venture dollars overall.
- While there are now more female-led investment funds than there were a few years ago, most venture capital firms still have zero women as general partners or fund managers.
- Of the few women in these roles, nearly all are white.
- The US venture capital industry invested a record-breaking $329 billion across more than 17,000 deals in 2021.
- Only 2% of this went to startups founded solely by women—the lowest level since 2016.
- Less than 0.004% of the venture capital invested in the first half of 2021 went to startups with Black female founders.
Here are 3 things VCs can do today to make their investment portfolio more diverse and inherently innovative:
1. Break the Mold
We need to rid ourselves of a mind where the stereotypical “male CEO” template = success.
As VCs, when meeting an entrepreneur who fails to exhibit traits like being aggressive and confident, they rule them out as not having ‘what it takes’.
But CEOs don’t fit a mold anymore and assessing success requires a broader definition.
For example, Nubank’s co-founder Cristina Junqueira was pregnant while the company was listed on the New York Stock Exchange in December 2021.
One place to start is with the pitch meetings, and ensuring the assessment does not unconsciously tailor questions differently toward men and women founders.
For example, research from Harvard Business Review showed that investors (including women) tended to ask men questions about the potential for gains at their startups, while they asked women about the potential for losses.
This is one of the reasons attributed to the much smaller sums of money female founders are able to raise (In the US, for every $1 men raise in early stage venture capital, women raise an average of $0.38, and Black women raise just $0.02).
Awareness is the first step to change – a systematic approach at pitch meetings will prevent bias in questions to founders.
2. Overcome overconfidence bias
How often have you heard someone say they “don’t see gender or color” and are somehow above biases? 🚩🚩🚩
While treating everyone the same seems like an egalitarian approach, it assumes a level playing field and ignores the specific challenges women and minorities face.
The most innovative solutions come from those following non-conventional entrepreneurship tracks, bringing new challenges and ideas to the table.
To make sure VCs are tapping into these emerging success stories, it’s important to be proactive in seeking out and welcoming diverse founders through:
- Special office hours
- A dedicated call for proposals
- Initiating community-specific outreach.
3. Model Good Behavior
I started my content brand because I felt there was an audience for more diverse stories in fintech than those produced and told.
Reese Witherspoon started her own production company for the same reason. (Hi Reese👋🏽).
In fintech and venture capital, it’s the same, too. We as an industry have to give women and other underrepresented groups opportunities to feel inspired by diverse leaders in the space.
And a diverse group of people could see the potential in and fund a much wider range of solutions that focus on underserved communities and needs.
To do so, we have to be mindful of who is sitting around the decision-making table.
Without this type of intentionality, the VC sector will continue to lose out on a lot of great ideas, strong entrepreneurs and talented potential partnersthat’s costing billions of lost investment returns.
The venture world has been instrumental in creating new economic models that allow good ideas to be taken to scale.
Our industry’s success and its failure to bring equity to founder communities are not mutually exclusive. They are both true.
But the success that brought us here, won’t get us to the next wave of innovation.
It would be wise to ensure the current dynamic and diverse cohort of founders who are knocking on VC’s doors are met with a responsive investment approach and a diverse group of decision makers that can realize and fully leverage what they have to offer.
(Source: MIT Technology Review report by Historian Margaret O’Mara, the author of The Code: Silicon Valley and the Remaking of America).
(Source: Is Pattern Recognition Killing Innovation? – Forbes)