Venture Capital lacking diversity?

According to a 2023 CNBC story (US stats) Venture capital for Black entrepreneurs plummeted 45% in 2022. Black entrepreneurs have historically faced disparities in securing VC funding and typically receive less than 2% of overall dollars each year.

In the aftermath of the George Floyd racial justice reckoning, firms pledged to make diversity a top priority, and Black founders saw historic year-over-year gains in securing VC funding, however by the end of 2022, adverse market conditions led to a 36% drop in overall VC dollars, and Black entrepreneurs saw a 45% decrease in financing.

The Canadian Venture Capital and Private Equity Association (CVCA) and BDC Capital completed a Canadian Private Equity and Venture Capital — State of Diversity & Inclusion 2019 report found that in 2017, only 5% of Canadian tech companies had a female founder and women made up only 13% of the executives' teams. Only 30% of Canadian VC firms had a female partner at that time. Again, there were very few (between 6 and 24% visible minority partners) in the areas of private equity and venture capital.

BDC’s 2022 diversity, equity and inclusion metrics report found that while greater gender and racial diversity was found in junior opperational levels of staffing; Canadian General Partners and leadership teams remain primarly white and male dominated: 43% of GPs were owned entirely by men; 4% percent of GPs are ownned entireley by women, and 6% of GPs owned entirely by visible minorities. Where diversity was overwhelmingly lacking was at the Board of Director level.

Problem… solution

If there’s one thing any entrepreurial investor loves to tackle, it’s a problem that needs changemaking and innovation.

There are Venture Capital firms, General Partners, Family Firms and Limited Partners who recogize that they must lead through governance and action.

According to Taking stock of the VC industry's progress on Diversity, Equity and Inclusion (TechCrunch 2012):

"More firms are explicitly assigning responsibility for promoting diversity and inclusion internally — 50% of firms have a staff person or team tasked with this responsibility (compared with 34% in 2018 and 16% in 2016). Simultaneously, diversity and inclusion strategies have become more widespread; 43% of firms have implemented a diversity strategy (against 32% in 2018 and 24% in 2016), while 41% have an inclusion strategy (versus 31% in 2018 and 17% in 2016) … more than 145 firms signed the #VCHumanCapital pledge to commit to submitting their DEI data publicly."

Mapping it out together

In January of 2023, BDC unveiled the ESG and DEI reporting templates for Canadian GPs.

Two templates designed to help Canadian investors and entrepreneurs track key environmental, social and governance (ESG) and diversity, equity and inclusion (DEI) metrics at a firm, fund and portfolio company level.

The DEI reporting template will allow you to:

• consistently report diversity and inclusion metrics related to gender, race, ethnicity, and identification.

• track and analyze ethnic, gender and identity diversity within your investment portfolio, including LGBTQ2+, veterans, and employees with disabilities.

• measure quantitative and qualitative data by documenting self-disclosed gender and race, team reports, and DEI policies and practices.

• demonstrate fund diligence toward greater uniformity and transparency in the Canadian venture capital and private equity industry.

DEI metrics can be used to:

• develop and adapt greater diversity and inclusion policies and practices for private investors

• analyze and adapt DEI data toward a more inclusive, innovative and competitive economy

• follow a global framework that aligns with the Canadian market

Moving from organic to gold-standard framework

When Rebecca Giffen joined her first venture group at the Bank of Canada in 1998, she notes that there were only a couple women and all the senior leadership was male. She watched this evolve through the 12 years she was at that organization as many more women and visible minorities began joining the organization as well as signing on at the LP level.

Giffen has seen much change since graduating and entering the field in 1998 as a research assistant. The now Vice President of Investments at the Albertra Enterprise Corporation (AEC) is a driving force behind the organizatin’s commitment to make DEI practice part of the organization’s strategy and culture.

Rebecca completed her B.Comm, MBA, and ICD, all while rising through the ranks based on hard work and achievement. She notes that when she began her career, DEI was not spoken about, but that her mentors were highly supportive of a young female building a career in venture capital.

It isn’t always about “policy and procedure”

Who drives change?

Rebecca says her career journey started because of people who nurtured her growth, and she is prepped to take that mentorship forward and move the pendulum ever further.

"The differentiator for me that made all the difference to my journey was that I worked for and with some great leaders. I was in Crown Corporations. Today, you investigate the sector, and the VC industry has lots of women in leadership and partner-level positions in Western Canada," Rebecca says. "When the AEC was formed in 2008, our CEO was a man named Rod Charko. Rod was determined to always hire the best people for the job, not who you know or the like. Rod ended up with a team of women," Rebecca says. "I strongly believe that's down to his integrity in hiring for the skills needed." 

That experience left a profound impact on her as well as her understanding of how she can make a difference for women and all underrepresented voices at the table. DEI started from a place of natural authenticity within the leadership team before there was a "name" to it. Over the last decade, standardized approaches and frameworks have begun to be introduced.

Except when it’s time for some policy and procedure:

The Limited Partners Association (ILPA) Diversity in Action Framework

In 2021, the AEC signed on to the Institutional Limited Partners Association (IPLA) Diversity in Action framework .

ILPA is a global organization dedicated to advancing LPs and their stakeholders through education, research, advocacy, and events. What started out as a U.S. based informal networking group has grown to a membership base of over 5000 across 50 countries. Members represent all investor categories of small and large, pensions, endowments, foundations and via directing private equity investments on behalf of beneficiaries.

ILPA drives DEI initiatives from the Limited Partner level through the Diversity in Action Initiative, a means for demonstrating the industry's collective commitment to advancing DEI. The Initiative launched in December 2020 with 46 founding signatories, and as of April 2021, 133 organizations have joined the effort. (Notable LPs in the Canadian Landscape include Harbourvest, BDC Capital and CPP Investments.) The AEC is now a committed signatory.

As the leading organization for LPs, ILPA is considered the gold standard for much of the DEI work happening today. For Rebecca and the team at the AEC it means meeting tangible benchmarks of DEI implementation.

ILPA now provides a Due Diligence Questionnaire and Diversity Metrics Template: HERE

The templates are intended to standardize the key areas of inquiry posed by investors during their diligence of managers and to provide a framework for ongoing monitoring of progress related to DEI.

The AEC happens to be predominately led by women; the president and CEO is Kristina Williams. Along with Rebecca and Kristina, there are many other women in top positions.  However, Rebecca notes that this was not by design or hiring quota.

“We are an organization that truly hired the best people for the job,” she says. "The AEC has a history of fostering a culture that values diversity in gender, ethnicity, age and experiences. This is something we look to pass along to our GP's and, subsequently, to the underlying portfolio companies. DEI is also an area that we look at when we conduct due diligence on potential fund investments. While we have been doing this for some time, it is an area that has quickly evolved in the last couple of years.”

Where they make most action as well is in the funds, companies and organizations they support. The AEC is a funder of the Chic Geek Motherboard, a hub of information on what the sector’s tech companies are doing in DEI practice that will serve as a resource for our sector and technology companies globally to increase DEI efforts across industry.

change still must comes from the top

According to Rebecca, leaders cannot sit back, put their hands up and say, "I don't represent the lived experience of these minority groups, so I shouldn't be leading this." 

"True change comes when change is mandated from the top. That’s when you see movement grow and there begins to be a grassroots energy to support it,” she says.

The ILPA Diversity in Action Initiative calls for a senior organizational leader to be responsible for implementing the action initiatives and overseeing DEI initiatives.

“Investors are driving behaviour and are leading the changing attitudes around DEI, as private markets stakeholders are increasingly prioritizing DEI, both within their own organizations and within their portfolios,” Rebecca says, add that the true benefit of DEI from a VCs perspective is to have outsized returns, and diverse teams are proven to outperform. 

For the AEC, a top-down leadership style in DEI has helped influence the action and behaviour of not on their own teams but the Venture Capitalists (VCs) they work with. LPs have an essential role in advancing DEI and setting expectations for General Partners (GPs) and the firms they invest in.

"As it relates to DEI, the GP's of VC firms have the same type of influence at a portfolio company level that LP's have at a GP level. Investors are driving behaviour and changing attitudes around DEI," Rebecca says. "There are numerous ways that a VC can influence company performance, from performing due diligence on diversity and inclusion to providing guidance and recommendations, including at the board level.”

 VC firms have much influence at a portfolio company level. Because VC's know that there is a direct link between diverse teams and better returns. They are beginning to implement not just because it's "quote-on-quote" the right thing to do, but because it matters when building out a successful investment portfolio.  

According to Rebecca, leading Canadian VC's, such as Inovia, Yaletown and McRock have been pioneers in DEI initiatives, as has the National Association, the Canadian Venture Capital and Private Equity Association. DEI at the fund level is becoming of increasing importance as it allows the investors to better connect with the diverse nature of the start-up community that is seeking financing.

Start micro to maximize return

DEI and social impact can be a lot like growing a fund. You’ve got to start somewhere and watch the capital grow.

Metiquity Ventures (2021) is one of Alberta’s newest emerging micro venture funds. The founders are focused on nourishing DEI and ESG to grow with authenticity not forced metrics (even if the steps seem small at first). The pre-seed fund is focused on early-stage founders and companies; those startups who are often underserved in the traditional VC landscape.

“Regionally there is a lack of adequate supply of true ealy-stage risk capital for founders in general,” says Jacques LaPointe, co-foundering General Partner. “Our purpose is to fuel the next-generation of founders across the Prairies, while building a sustainable foundation for future investment and generating returns for the investors who are pioneering this asset class. It means thinking outside of the historic VC mindset and looking towards funding founders who may be overlooked because they haven’t had opportunity to scale or they don’t fit the traditional VC thesis.”

LaPointe and co-founder Bryan Slauko are building a micro-fund and firm (Fund I $10 million) that is focused on people not just metrics; that means being due-dilligent around ESG, diversity and social impact, not just investment thesis and fund management.

The firms first steps were to adhere to the CFA Institutes Code of Ethics and Standard of Professional Conduct which emphasizes elements such as integrity of the profession and the interests of clients above a firms, acting with integrity, competence, and respect and maintaining and developing professional competence.

Metiquity also recognizes the Kauffman Fellows Stewardship Pledge for the Innovation Investor. Developed in Silicon Valley the plege holds investors to put positive societal transformation first, not just monetary returns and asks them to plege the below three and several other benchmarks.

Kauffman Fellows Stewardship Pledge highlights:

1. Our industry of innovation capital has the power to drive both private value creation and sustainable, positive societal transformation.

2. My purpose is to direct capital and expertise to create shared value by accelerating the pace of innovation through company formation and growth.

3. My investment decisions affect the well-being of individuals inside and outside my own organization, the companies in which we invest, my capital partners, the industries in which we work, and beyond, both today and in the future.

Metiquity benchmark Environmental, Social, and Governance (ESG) and Diversity by following the UN’s sustainable development goals and the CFA’s EGS guidelines. The UN’s Sustainable Development Goals address the global challenges including poverty, inequality, climate change, environmental degradation, peace and justice. Learn more and take action.

Gender Parity in founders

Of Metiquity’s first investments/companies, half are either founded or co-founded by women (2023).

“Metiquity was formed to unlock growth potential for innovative founders on the cusp of commercialization and pioneering investors who invest capital alongside them. This means actively seeking out the most diverse teams, founders and ideas possible – this is part of good governance, and successful portfolio building,” Slauko says. “By no means do we want to overstate or say that we are leading a DEI, social impact or gender parity movement in early stage investment or as part of our fund. However, by beginning our journey by following and benchmarking some of these standards, ethics and guidelines from the Kauffman Fellows, to the UN’s Sustainabily Dev Goals and CFA’s ESG Guildelines, we hope to begin to create a culture and firm that puts social impact on par with successful returns.”

Make DEI a term and prerequisite to and for investment

Inovia Capital is a venture capital firm that partners up with audacious founders ready to build enduring global technology companies. They are known to roll up their sleeves and serve founders with dedicated long-term mentorship, a talent network, and strategic support for scale. 

Co-founder Shawn Abbott will be the first to tell you change happens when all stakeholders are committed to it. It's not up to a single entity — all need to be on “Board.” However, he is acutely aware as a leader of not only Inovia, but in the VC and global tech and startup sector, what's being talked about at the so-called top — CEOs, founders, and Board — needs to be actioned.

"I have shifted much of my work to focus on coaching both my founders and team members as a primary means of supporting their success. That's only part of a number of leadership efforts though, that need to be supported and acted on,” he says.

“When we begin taking action at the leadership levels, it should be to inspire and give-way for teams and founders. Because when DEI or social impact objectives come solely from investors, that I can kind of galvanize people against it. Then on the flip side, if it's just grassroots based, people don't feel empowered and supported.

It's that middle management layer where you want to start to bring it all together. That's where we can begin to ask everyone across the organization: What are our values? What do we want to commit to? We're implementing this together. Any change needs to be something we believe in and can live by. That's where and when change happens."

Empower the people to “start it up”

How does Inovia implement that leadership from the Boards and Investors to teams, founders and companies: Metrics, policy, culture and leadership, as well as a lot of frank conversations about the difference between good intentions, and virtue signaling versus tangible action. 

The VC firm follow Anti-Harassment Policy; provide term sheets that incorporate the Inovia Diversity, Inclusion and Great Governance clause, which asks new founders to set their own DEI initiatives and benchmarks. 

For Inovia, DEI is an expectation for new potential investments, not a nice to have. 

Write it up - it’s in the term sheet…

"(Inovia) are now putting DEI into our term sheets; this decision was a key moment for us. We now have an expectation that our startups are putting their work to practice. It shows they have a balanced view of what they're trying to create and that they are focused on a future vision and a holistic, larger strategy." says Shawn, adding that DEI should never be about checking boxes or creating a public relations campaign.

"Terms such as Affirmative Action are just offensive; particularly to the person that's being hired — it's saying, I'm hiring you because I want someone of your gender, and or your background, right? DEI is about getting to a place where we are hiring the best people for the job and investing in the best founders and companies. For Inovia, putting diversity first is about creating the best teams and companies possible."

Should startups include DEI in their pitch deck?

Shawn’s tip: If not in the pitch deck, then do so in the business strategy.

At the very least, potential firms and investors want to see that holistic thinking, planning, and long-tail vision built into your business strategy. DEI commitment shows that new founders are ready to roll up their sleeves and build and nurture the most impactful teams possible. 

"It's not about hiring based on checking a box; this is about looking at your audience and creating a team that reflects that. My role as leadership and mentor is to encourage founders to look at their audience and decide what that DEI matrix looks like for their team and future board. I am there to ask the questions: What do you want your org to be? How are you going to be intentional about building it? How are you going to set yourself and your team up for success? When you start there, then you're off to races," Shawn says.

A different bottom line … a few of Chic Geek’s favourite Canadian VCs and funds:

Pheonix Fire and Firehood:
Founded by Danielle Graham a General Partner of Phoenix Fire and Co-Founder of The Firehood, an angel stage fund and network focused on women in technology. Investing in early stage tech startups and advising for scaling tech at TechAlliance, ventureLAB, Creative Destruction Lab, Brampton Venture Zone and the Coalition of Innovation Leaders Against Racism (CILAR). This firm unlocks capital for underrepresented founders and Graham is a champion for women’s initiatives such as the Dovetail Summit, the Canadian Women’s Network and GTAN WIT, the first angel group training program for female investors. An important part of the angel community network, as a board member, investment officer and advisor to tech incubators.
Raven Indigenious Capital Partners:
The Raven Indigenous Impact Fund(s) invest in early and growth stage Indigenous companies that are helping to build a renewed and sustainable Indigenous economy in Canada and the United States. At the heart of their investing practice is bringing Indigenous integrity into all aspects of their work. Raven’s unique approach works by incorporating Indigenous ways of knowing into the process.
ScaleGood Fund:
ScaleGood fund is Social Impact VC fund that invests in companies who have the promise of a strong financial return coupled with measurable social impact goals. Impact Investing and Financial Returns is what we’re looking for.
The TELUS Pollinator Fund:
The TELUS Pollinator Fund for Good enables TELUS to expand its commitment to social capitalism by supporting transformative solutions at an early stage with capital and added value. The fund draws on TELUS’ long-standing commitment to the community, ranging from the TELUS Community Boards and TELUS Friendly Future Foundation, and efforts to improve health and agricultural outcomes through TELUS Health and TELUS Agriculture.
BDC Capital - Women in Tech:
One of the world’s largest venture capital funds dedicated to investing in women-led technology companies and helping build a robust ecosystem to support women in tech today and in the future. They are unique in that we have a dual mandate: to deliver a return on investment and make a lasting impact on the Canadian tech ecosystem.
Rally Global Equities Impact Fund
This fund offers high impact that goes beyond a traditional ESG approach, by intentionally targeting investments that contribute measurable and material positive outcomes for society as well as the environment.Thrive Impact Fund
Thrive Impact Fund is an impact investment fund which invests in and supports impact organizations and social enterprises across British Columbia—primarily in the Vancouver Island or BC Interior regions—that are generating positive social, environmental, or cultural benefits.
The51 and Movement51
The51’s sister organization, Movement51 (M51), has opened applications for Founder’s Lab, its new program focused on preparing women and gender-diverse entrepreneurs to raise capital.

This resource is proudly brought to you through funding from Alberta Enterprise Corporation (AEC), which promotes the development of Alberta's venture capital industry by investing in venture capital funds that financial technology companies. Learn more at alberta-enterprise.ca