Uplifting fund managers who are women of color

By Joanna Kuang, Illumen Capital

In venture capital, only 4.9% of fund managers are women, and of those, women of color make up less than 1%. Despite this, research finds that women fund managers not only excel, but in fact outperform men who are their counterparts. When US firms increased their number of women partners, they saw 9.7% more profitable exits and a 1.5% increase in annual fund returns. Teams that include fund managers who are women of color can uncover unique opportunities in funds that men may not typically consider, due to the diverse, intersectional lived experiences women bring to their work. Ultimately, women who are fund managers deliver more than two times the revenue per dollar invested than those founded by men.

Venture capital is not only a powerful vehicle to reorient institutional capital flows, but also offers a set of paradigms for what exemplary fiduciary duty looks like. During times of market volatility, women are more likely to play it safe over men. Compared to men, women trade less when market sentiment changes, take on less aggressive long positions, and take less risky bets when sentiment is bad. This can reduce overall risk as women make decisions that focus on long-term gains, rather than taking short-term risks.

By acknowledging these opportunities, venture capital professionals can center the vast benefits of uplifting women of color within their firms, and those firms can flourish and move from solely increased diversity of representation to meaningful shifts in how financial and social capital yield returns.

Below are some process improvements that can uplift women-of-color fund managers.

Create processes that ensure equity

In promotion processes, women of color experience the greatest disparity in sponsorship, which is a key factor of whether they make it to, and stay in, positions of influence. To ensure equity in career growth opportunities, leaders can create programs that standardize and formalize mentorship and sponsorship opportunities to close these gaps. Demonstrated mentorship can also be embedded into performance reviews to create accountability and reward mentorship.

Another process is to ensure that women of color, even when represented and sitting in investment decision-making seats, are clearly heard and listened to during investment committees. One education technology venture capital firm holds 15 minutes at the end of meetings to debrief and find out if everyone’s perspective was heard; this could easily be implemented, even just quarterly. This taps into the power of diverse teams and helps the entire firm by enabling investors with diverse lived experiences to inform and potentially diversify the funds and companies invested in. Allowing women-of-color fund managers the autonomy and voice to drive investments in funds they are passionate about can tap into otherwise unseen or undervalued opportunities.

Reconsider norms to build a more inclusive culture

To move beyond solely diverse representation to genuine and sustained inclusion, companies can identify and reshape existing cultural norms.

A significant first step is to identify these cultural norms that are frequently behavioral defaults. Individuals can practice reflecting and slowing down, which is a method to combat the sense of urgency that triggers a reliance on bias shortcuts.

Once identified, individuals in leadership positions can then create concrete processes to change norms – firms can create more inclusive mechanisms for women of color to provide input, such as creating a way for written ideas to be captured if these women are not given a chance to verbally speak up.

Create space for ongoing learning

While we know that one-off diversity trainings are not effective, long-term structures and spaces to elevate the voices of women of color can be effective for ongoing learning.

Holding regular monthly or quarterly team meetings with DEI at the core of the agenda can provide space for women of color to share insights and experiences that can provide valuable learnings to team members. Setting an explicit agenda centering on DEI makes it easier for women of color to speak up in a less socially risky way and helps others to embed DEI into their daily actions and work. Firms can also use regular meetings to share data and ideas on the importance of racial and gender diversity in the VC ecosystem.

Embedding inclusion into performance reviews can create accountability and elevate the long-term importance of DEI. This year, an anonymous venture capital firm asked every individual at the firm to create a goal for how that individual would contribute to DEI; demonstrated progress on that DEI goal is now a core part of performance review criteria and promotion decisions. This demonstrates the firm prioritizes not only diversity in representation, but also true inclusion efforts.

Ultimately, investing in the growth of women of color in 2023 is inherently tied to investing in the success of an organization. Not having racial and gender diversity in fund managers is a true business risk, particularly as diverse teams perform better and are more resilient in down markets, with well-rounded perspectives and multiple points of view. All individuals who work in venture capital can and should prioritize reducing bias and implementing these recommended actions to empower women of color.

Joanna Kuang is vice president of product development and impact at Illumen Capital.