Why We Need More Diversity in the Innovation Ecosystem
There has been a lot of talk over the last decade about supporting more immigrant, visible minority, and female leadership in the business world. The numbers don’t lie - there are significant benefits to having diverse management teams compared to homogeneous ones. And yet, in 2019, the needle has still not meaningfully moved towards championing this diversity, especially in the venture capital and start-up world. Unfortunately, this lack of action and mobilization is leaving incredible amounts of value on the table, and we are not giving our industries and founding teams their greatest chances of success. How can we address this and mobilize our resources in the most effective fashion?
Firstly, we need to recognize the benefits and values that diverse teams bring. Diversity across backgrounds, genders, ethnicities and cultures are directly correlated to increased productivity, innovation, and bottom-line profits. A global analysis by Credit Suisse found that companies with at least one female board member had a higher return on equity and had higher income growth compared to those with none. The analysis also found that companies with ethnically diverse management teams are 35% more likely to outperform their industry average in terms of performance. It also found that diversity across gender and ethnicity had a direct correlation to the creation of innovative new product lines. A Forbes analysis on the subject also found that inclusive teams make better business decisions 87% of the time, and also make decisions two times faster with half the meetings required. A McKinsey study found that, in the United States, a 10% increase in racial/ethnic diversity within senior leadership leads to a 1% increase in EBIT. The analyses go on and on and paint a pretty clear picture. If you want better results, more productivity, more innovation and more market longevity – diversity provides the clear solution.
In the venture capital world, the issue is likely exacerbated by the fact that the majority of venture capital management and partners are also homogeneous across gender and race. A PitchBook article earlier this month noted that in the United Kingdom, 65% of VC firms had no females in senior management, and 40% had no females in their workforce at all. It also found that only 26% of the VC workforce belong to an ethnic minority group. This management makeup is likely a leading factor in how venture capital in the UK is dispersed, and in 2019 less than 12% of UK venture capital went to founding teams with at least one female. Without a balanced perspective coming from senior leadership in global venture capital, it will be immensely difficult to expect significant changes in how the capital is being outlaid.
The fact of the matter is that 92% of the world’s population is predisposed to biases that will restrict their growth and productivity due to demographics they were born into. This means that budding entrepreneurs belonging to this group do not have the best chances for success. Do we really think the world’s best ideas are coming from just 8% of the population?
One of our key mandates with Rogue Insight Capital is to create a support system for diverse founders and provide these teams with equal opportunity and a blueprint for success. We understand that by providing these diverse teams with the resources that they are not able to mobilize on their own, we can help their company, their industry, and their economy prosper. If we continue to educate the market on the benefits of supporting diversity, as well as the disparities diverse teams continue to face, we can help slowly drive change in this industry.
After two years in business, we also think that this has been working. The market seems to be becoming increasingly aware of the issues that affect large demographics of people, and there seems to be a significant desire to change this.
"Two years ago, I think there really wasn't a very good understanding of why [diversity] mattered and why it was important," said Francesca Warner, co-founder of Diversity VC. "But I think there's been so much evidence from so many places and VCs very much operate with metrics and data. They now get that this is really good for business as well as just being the right thing to do."
Rogue’s President and CEO, Suraj Gupta, recently attended a forum during the United Nations general assembly in New York City with a focus on empowering youth change-makers from all backgrounds, ethnicities, and genders. Suraj spoke with Kevin O’Leary, the co-founder of SoftKey and one of the investors on Shark Tank, and Mr. O’Leary recognized a similar sentiment.
“In my experience with start-up investing in North America, I have seen 90% of my returns coming from start-ups led by women,” said Mr. O’Leary. “From a returns standpoint, it has made me much more gender specific with my investing.”
These changes are also beginning to take place in other industries that have historically been dominated by homogeneous groups. Suraj recently attended the Elevate TechFest in Toronto, and had a conversation with Masai Ujiri, President of the Toronto Raptors, about how Mr. Ujiri has been championing diversity within his organization. Mr. Ujiri discussed the biases that prevent more diversity in the workplace, and how he promotes a culture of meritocracy within his organization. The Raptors now have 11 women in front-office roles, the highest number in the entire NBA, and the team won the 2019 NBA Championship thanks in no small part to the fantastic management of the organization itself. Many have become familiar with the She The North slogan that has been used since Bianca Andreescu became the first Canadian to win a grand slam singles tennis title, but few realize that this slogan was created by the Raptors in 2017 as a speaker series to encourage more women to consider careers in sports.
Although we have a long way to go, it is heartening to see various industries mobilizing and embracing these changes. There is a lot more work to be done, and we believe that the more this message is spread, and the more awareness we can bring on issues of diversity, the closer we can get to dispelling these large disparities from the market. This has been a long time coming, and a future where support for diverse founding teams will be a norm and not a novelty can be closer than we think.