Female-led companies received only 2% of venture capital money last year to fund startup companies, and Black or Hispanic entrepreneurs received less capital.
To determine why the vast majority of venture capital goes to white male entrepreneurs, a team from Washington University's Olin Business School will study how the industry funnels money to startups. Funded by a nearly $300,000 research grant from the Bellwether Foundation Inc., nine policy experts, venture capitalists and entrepreneurs will compile data on venture capital funding over the next few months.
From the research, they will look at biases in funding and how they affect communities, then recommend industry and governmental policy changes. The business school will release its findings and recommendations in April.
There are trends in the venture capitalist industry that are widely known, among them that few women pitch to venture capitalists, said Doug Villhard, academic director for entrepreneurship at the business school.
“A venture capitalist's job is to generally look at 1,000 opportunities and pick one,” Villhard said. “But if they don't see very many opportunities in the space from women or underrepresented minorities, the ratios are that it's harder to pick one.”
The venture capitalists industry began in Silicon Valley, California, funding technology companies. Historically, most technology companies are led by white men and often do not include women and minorities startup founders.
“So much venture capital goes into STEM-related activities, so software and engineering, and that's not historically an area that gets the same number of women and underrepresented minorities earning those degrees as it has white males in the past,” Villhard said.
Venture capitalists seek out early-stage startup companies with products or services that will be hard to replicate and can quickly turn a profit. Many Black and Hispanic startup founders often do not know that venture capitalist funding is even an option to grow their companies.
Villhard said another problem is that venture capitalist funding is a gated industry, and business founders have to know the right people to get the opportunity to pitch to funders.
The project aims to make the industry more inclusive and easily accessible.
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