The Startup World Is Outraged! Venture Capital Has Just Demonstrated White Male Privilege Is Real And Thriving–A System In Serious Disrepair

AI The Startup World Is Outraged! Venture Capital Has Just Demonstrated White Male Privilege Is Real And Thriving–A System In Serious Disrepair Hessie Jones Contributor Opinions expressed by Forbes Contributors are their own. Strategist, Venture Partner, Advocating for Human-Centered AI, Privacy New! Follow this author to stay notified about their latest stories. Got it! Aug 26, 2022, 08:33am EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin female empowerment Deposit photos It was a shock felt across the startup and VC community.

At a time when an economic downturn has forced an industry – its investors and founders– to take pause and re-evaluate their portfolios and spending strategies, one big industry player, a16z has come out of left field to fund Adam Neumann and his new company, Flow with the highest checksize in history, $350million at a reported $1billion valuation. Adam Neumann is infamous for his brash spending and colossal mismanagement that eventually ousted him as CEO of WeWork, and led to the company collapse from a $40 billion valuation to $10 billion , significant enough for its lead investor, Softbank to lose $7. 5 billion for its lead fund .

Neumann walked away virtually unscathed, with a $1. 7 billion package, and no mea culpa. Twitter was awash with comments.

This, in particular, was notable: Privilege, Bias Twitter It’s worth noting that 6 months before, in March of 2022, a16z invested $70million in Flowcarbon , a Neumann tokenized carbon credit startup, which has recently signalled trouble amid the crypto crash . That is a total $420million of a16z backed investment into Adam Neumann in a matter of 6 months. While a16z continues their unwavering support for Flowcarbon , this recent Neumann misstep has not deterred the VC giant.

The moves to fund a founder who has failed more than a few times and continues to fail– is unfathomable. This recent articl e chronicled Neumann’s additional failure after WeWork: “In October of 2020, Adam Neumann led a $42 million investment round in Alfred , which CNN describes as “a startup that works with residential buildings to provide a concierge-like services for residents. ” Neumann himself had launched a similar project in 2016 with WeLive, which were co-housing spaces in New York City and Arlington, VA.

Both locations are now closed. ” MORE FOR YOU Black Google Product Manager Stopped By Security Because They Didn’t Believe He Was An Employee Vendor Management Is The New Customer Management, And AI Is Transforming The Sector Already What Are The Ethical Boundaries Of Digital Life Forever? Theodora (Theo) Lau, founder of Unconventional Ventures, the co-author of Beyond Good, and host of One Vision Podcast, summed up Adam Neumann’s journey in this way. “Let’s not kid ourselves with all the talk about refocusing on fundamentals and discipline.

Rules need not apply when it comes to having lofty goals of saving the world, as long as you are a white male who can talk a big game; bonus points for tanking a company under your watch from $47 billion to $8 billion – and extra credits for putting your first comeback story on permanent hold two months after getting a $70 million check. And never mind that privatizing neighborhoods might not even be the right solution to begin with. Can you imagine what some of the underrepresented founders could do, with even a fraction of that $350 million?” This recent $350million move by a16z has sent ripples across a startup community that has long been accustomed to a disproportionate investment funding environment, with less than three percent of female-led founders and less than one percent of female minority founders receiving venture funding.

Dominic Madori-Davis of TechCrunch encapsulated the plight of underrepresented founders – the women and visible minority founders, who have journeyed through a relentless search for equity, and who have personally witnessed this regression from being unable to break this glass ceiling, to now, an impenetrable concrete ceiling : “One cannot out-educate, out-network and out-assimilate the systemic barriers designed to discriminate against them. ” The Old Boys Club is Absolute and It’s Flourishing And while it was previously estimated that some $22 trillion of wealth transfer will benefit wome n by 2020, representation in the investment community matters, and when female influence in VC is a paltry 1% of the community, changing the face of VC and its ecosystem will take much more than just money. It needs a come-to-Jesus moment to eradicate the unconscious biases of VC fund managers and transform archaic mindsets to clearly improve a system where this “Old Boys Club mentally” is undoubtedly failing it.

What happens when you have male dominance in an industry? They are inflicted with a complacency that influences investment within an established comfort zone, within an established bubble that leaves this exclusive group blind to opportunities outside of their preferred network. Morgan Stanley dubbed this lack of diversity as the Trillion Dollar Blindspot . If investors were able to see over this risk wall, which is twice as high for women and minority founders, and they were willing to look outside of their bubble with the intention to gain more familiarity with the innovations percolating in these places, “ it was estimated that women owned and multiculturally-owned businesses would account for $6.

8 trillion in gross receipts, if they matched the labour force and business revenues equal to traditional firms…. an equivalent to 3X the current output with a missed opportunity of $4. 4 trillion.

” Kapor Capital produced a report in 2019 that revealed how “old-school investment firms” have caused real-world problems not by merely excluding “ women and minority founders from their ranks but by proactively creating terrible outcomes for the world. ” They dubbed this broken system, “VC one point zero (VC 1. 0) is VC gone wrong… A system that’s run off the course and not a sustainable model”.

Kapor argued that exclusively focusing on financial returns will be at the expense of other business impacts . In their portfolio of over 100 companies, led by 50%+ women and people of color that addressed issues like climate change, educational inequity, alternative lending, and job creation for the marginalized have “ made more money than peer funds who sought to solely pursue profit ”. This blind spot has perpetuated the preference for the male vs female entrepreneur.

In fact, pitches presented by men outperformed those of their female counterparts. Outcomes were the same regardless of whether the judges were male or female. In addition, bias appeared in how entrepreneurs were questioned : Men were consistently asked questions about upside and market opportunity vs.

women, who were more likely to field questions related to potential losses, risk and market fit. The entrepreneurs who addressed “ opportunity(promotion) questions raised at least 6 times more than those who addressed the risk-related(prevention) questions. ” HBR Harvard Business Review The history, the relationships, the connections – this is summed up in the Homophily Principle that essentially means, “birds of a feather flock together.

Similarity builds connection. ” While this confirms the tendency of large VC organizations, with history, with connections, with successful rounds, more likely to forge connections with each other, it stands to reason how this structural bias has been embedded in process and practice through both personal and professional networks, through the venture capital system, overtime. Laura Huang, management professor at Wharton points out, “ “The homophily principle gets baked into the system” and outsiders, including women and overlooked founders, are locked out.

” She also contends, when there is little “objective data” in the early stage ventures, it “ makes it easier [for VCs] to be influenced implicitly or explicitly and make judgements based on personal attributes like gender. ” This homophily principle is illuminated in a recent study that looked at VC and startup data between 2010 and 2020. The study hypothesizes renderings of the VC Old Boys Club based on the propensity for VC co-investment by size of venture firm.

What was clear: Large investors had average of 1848 co-investment transactions per year vs. 17 for small investors Only ~. 3% of all VCs are considered well connected ie VCs with more than 500 co-investors between 2010 and 2020 Large investors are ~5 times more likely to co-invest with a large VC, therefore confirming what is widely known, “a relatively small number of firms are large, prominent and mutually reinforce each other.

” While much further investigation is needed, this relationship exclusivity is a reinforcing factor that effectively not only shuts out the smaller venture capital firms, it also perpetuates the standards that shape how money is deployed within this sector. I had a recent discussion about the state of VC on LinkedIn with a male individual, while self-described as woke, did not see a reason to change what he perceives is a system not broken: Linkedin hessie jones LinkedIn Linkedin Hessie Jones LinkedIn While I appreciate that he recognizes that this issue exists, his argument was not to “fix” the system, in as much as to “substantiate” the assumption that women and minority-led founders actually outperform the historically dominated white-male led startups. He opted for a segregated system that continues to allow the status quo to persist.

If the system does not need fixing then it stands to reason that the largest VC players must continue to outperform. In fact, the opposite is true. .

. on the other side of the pond, Softbank, which created the $100billion Vision Fund to invest huge swaths of cash in companies like Uber and WeWork, recently reported quarterly loss of $24. 5billion , this, after the Vision Fund recorded an annual loss of $20.

5billion only 3 months before. CEO, Masayoshi Son is now planning to cut headcount. Its second vision fund “which cost $43.

2billion to acquire, was worth $3. 2billion at the end of June 2022. ” The demise of Softbank does not seem to be a lesson for a16z.

Dominic Madori Davis , reporter at TechCrunch, summed up the problem in this way: “Oftentimes, when we have these discussions about existing systemic structures, we underestimate how fast some of them can be changed, as many factors within it are quite new. I think the main thing is to place LPs under more pressure in regards to where and to whom their money goes. VCs already know they need to give more money to overlooked founders and anyone not doing so now, you have to assume either doesn’t care or is afraid of standing their own ground.

There needs to be more time spent on using data to prove what many know to be true, and that’s that overlooked founders are viable investments. So often, this lack of data is used as an excuse to overlook people but that needs to change . Finally, perhaps the hardest part of it all, will be a change in mentality and the hearts of those already in charge, but that’s why it’s imperative to make VC a more accessible industry and utilize the resources we have, like TikTok and even Instagram, to reach new audiences and educate them on the importance of their presence in this space.

” This Structural Bias Bleeds Outside of the Venture Capital Ecosystem A colleague once equated the venture capital Industry to high stakes gambling. This Old Boys Club assumes it is mitigating this gambling risk by placing their bets on the tried and true. In the meantime, there is clear evidence of an industry’s failure to properly diversify outside of established norms– an untapped potential that does this industry a disservice.

What’s now surfacing is the realization of the short-sightedness of their decisions. I don’t doubt that people, with the aid of technology, will help us make better decisions of investment worthiness as more female and underrepresented founders enter the systems and yield successful outcomes. Over time, they will prove out, at scale, what Morgan Stanley has already predicted.

As Dominic Madori Davis underscored, until data certifies this truth, we continue to surrender to the biases and perceptions of an old boys network that has afflicted a system for many years. I was reminded of the fragility of our youth and how their perceptions shape what will become their future. Mia Dand, CEO of Lighthouse3, and Women in AI Ethics, which advocates and empowers diversity in tech, and responsible systems, recently shared this post, How Schools Are Improving STEM Education for Girls, Students of Color , “This is why representation in tech is so critical and why we need more women in tech because when young girls only see men in these roles, they assume they don’t belong and opt out.

” And this underlies why we need to remain relentless in changing the very systems that haven’t included us. This is a movement that goes beyond venture capital and into our school system and every single industry that will employ the decision-makers of tomorrow. The fight for equity that seeks to create jobs, move an industry forward and accelerate the economy is far from a charitable motivation.

It’s an economic one! Follow me on Twitter or LinkedIn . Check out my website or some of my other work here . Hessie Jones Editorial Standards Print Reprints & Permissions.