Diversity and inclusion has become a hot-button topic in venture capital circles over the past few years, with more and more funds advocating for doing better at both, internally and at their portfolio companies.
In practice this means ensuring that hiring practices place diversity as a priority, giving all applicants an equal opportunity regardless of ethnicity, gender, upbringing, age, religion, disability or sexual orientations. Inclusion is the next step, where workplaces value all employees and their contributions equally.
However, it is not just awareness of the issue which has started to improve in the UK’s startup ecosystem. The rise of talent partners has coincided with the establishment of tangible policies and frameworks by investors, helping their portfolio companies to create and follow a better, more diverse and inclusive culture early on.
As a result inclusion and diversity is no longer just seen as the right thing to do, but as something that is fundamentally good for the health of an investment. Here’s how four UK firms go about it.
Blossom Capital was founded last year by Ophelia Brown, Imran Ghory, Mike Hudack and Louise Samet. It has already raised its second fund of $185 million, bringing the total funds raised to $270 million in less than 12 months.
Blossom is carving out a niche for itself in the European investor ecosystem by making a small number of bigger bets on companies at the Series A stage. In a recent interview with Sifted, Brown said investors and founders at the fund have a close relationship and regularly communicate through WhatsApp, where most of the conversations end up being about hiring.
Blossom is in the process of hiring a talent partner to join the firm, but Samet, who is a partner at the firm, says that all investors view advising on hiring, particularly in a diverse and inclusive way, as a core part of their job.
Typically, this means supporting founders with the creation of impartial job descriptions and thinking strategically about the ideal makeup of the company as it scales.
“In many cases we see the first few hires are typically made through network,” Samet told Techworld. “As we move to the next level it is important to have more thought through interview and recruitment processes, and having a diverse perspective is critical in that.”
All hiring decisions and processes are decided by the founders, but Blossom investors like to “support them with structures we have seen be successful elsewhere,” Samet said.
One practical way Blossom likes to think about diversity and inclusion is by ensuring all equity options are created fairly from day one. “That is something as an investor where we can be very helpful in defining different levels for different roles to offer a fair compensation package,” Samet said.
Balderton Capital is a London-based firm that has an in-house talent resource in Kiana Sharifi, head of portfolio talent services. She takes a more focused and structured approach to the issue than the more distributed strategy at Blossom, advocating for best practices around fair and effective hiring processes across its portfolio companies.
“The way we structure the talent practice is more advisory, instead of an extension to their team, so we don’t get involved in building the team for them or recruiting for them, we work with companies on problem solving on one hand and education on the other,” she explained to Techworld.
Like Blossom, Balderton typically invests at the Series A stage, where companies are growing at their fastest.
“We work with them to try and anticipate scaling challenges that come their way and for me that involves commercial priorities and fitting organisation plans into that. Diversity and inclusion is a part of that and I don’t see it as a separate part to the work we do, which is help companies build thriving teams that are inclusive,” she said.
This means that Sharifi is often pulled into broader conversations about culture, rather than simply best practice for hiring.
“Diversity and inclusion is not just hiring but building a culture of hiring and wellbeing where people can bring their whole selves to work, where team members want to get to know each other and their unique perspectives. We often see teams that are diverse on the surface but the structure gets them to conform and that defeats the purpose,” she said.
One portfolio company that Sharifi is particularly proud of is the fintech GoCardless, which openly shares its internal diversity metrics.
In a written Q&A with Balderton last year, GoCardless CEO Hiroki Takeuchi talked about shifting from ‘culture-fit’ to ‘values-fit’ when hiring.
“If you just hire people that you like, you end up with this monoculture which I don’t think is very healthy. You tend to end up with much less diverse teams, you’re basically just hiring carbon copies of yourself and that can create some fairly bad dynamics,” he said.
However, startups want to move fast, and bringing a more measured approach to hiring can sometimes be a tough sell. Sharifi wants to overcome this by building accountability measures into a company’s culture from the outset, forcing them to report metrics publicly or to the board.
“Something that I tell all the companies we invest in is to think about investing in building a team and scaling that like you would your product. Rushing makes it so much harder to be strategic,” she added.
London-based VC firm LocalGlobe prefers to take a holistic approach to diversity and inclusion, rather than having a dedicated talent resource.
“We think this is something important enough to not just come from a talent or platform person in the fund but from the lead investors or board members to signal the importance and urgency, as we think it should be,” Mish Mashkautsan, a partner at LocalGlobe told Techworld.
“It is one thing to discuss these topics with founders, it is another when you deliberately take the time in a board meeting and early on to discuss that and put it on the agenda as a key priority.”
Mashkautsan recognises that many founders are “120 percent focused on building a viable business” but, if diversity and inclusion isn’t a serious consideration early on, then that organisation will quickly accumulate a level of diversity debt which will be hard to unpick later.
“It can feel counterintuitive to spend time and energy on something that may seem tangential – to invest in the culture of the company and the diversity of the team where the natural recourse would be to hire the best people as quickly as possible,” he said. “This is why we make a point of discussing this early, as we fundamentally don’t believe that is a viable approach.”
He also highlighted the importance of basic hiring hygiene. This includes the careful wording of job descriptions to avoid inherent bias, directly addressing family-related issues like maternity and paternity leave, establishing equal pay and offering flexible working practices.
Ultimately, Mashkautsan says he doesn’t believe in shortcuts: “It is about resigning yourself to commit the time and energy and money to make this happen.”
EQT Ventures takes a hands-on approach with its portfolio companies, and that naturally extends to all things talent.
As operating partner for talent at the pan-European fund, Zoe Jervier focuses on helping its startups build diverse teams, having gained first-hand experience during her time at the talent-focused incubator Entrepreneur First.
“I usually get introduced to founders early and get a read on the team composition. As part of that due diligence I am getting to know the team and detect opportunities for improvement on diversity,” she told Techworld.
Jervier has also seen plenty of founders lean on the “engrained startup theory and wisdom” that recruiting quickly from your own network is the best route to success. Educating founding teams on the value of diversity and inclusion has become a big part of her job, and referencing the fund’s experience with other portfolio companies which have gone through similar growing pains puts it in a strong position to offer advice.
“Early stage companies all suffer homogeneity issues as they recruit through network,” she said, “so we take an advisory role and work on hiring process – as usually there isn’t one – and you can start to talk about how bias creeps in and not recruiting from networks to challenge that way of thinking.”
EQT Ventures takes a fairly scientific approach to diversity and inclusion, running what Jervier calls “leadership diagnostics” with portfolio companies to spot gender or ethnicity imbalances within teams, as well as assess personality types and cognitive diversity at the organisation through a set of structured interviews with senior executives.
The fund also has its own proprietary AI platform called Motherbrain, which helps investors find previously hard to reach founders or companies who may not have the network or funding to put them on the fund’s map.
Finally, there is Check Warner, founding partner at Ada Ventures and one of the cofounders of Diversity VC. Warner is forcing all portfolio companies at Ada to establish a diversity and inclusion policy, which has to be reviewed within six months of signing the term sheet.
In terms of process, Warner and her colleagues at Ada are “slightly obsessed with decision making”, which extends to hiring and, in particular, making those choices as objective as possible.
“Using things like scores so you can compare across using characteristics around what founders’ qualities are versus where they went to school,” she explained to Techworld. “So we started on all of that, but I think that there’s like a lot more to come.”
In her other role at Diversity VC, Warner has been a big exponent of transparency and establishing best practice around diversity and inclusion through data, advocacy and a set of useful resources.
However, she isn’t done yet.
“We’ve actually got some really exciting work in the pipeline that will be announced later on this year that’s around trying to make that best-practice policy really tangible and really easy for those funds to put in place. Because I think that there’s definitely buy-in, but there’s less good understanding of what that actually means,” she teased.