How to Invest in More Underrepresented Founders

By Hannah Davis

How to Invest in More Underrepresented Founders

By Hannah Davis

In 2018, I helped launch Techstars’ first sustainability accelerator. Naturally, our focus and investing thesis were all about climate and conservation. But as a woman who previously ran an accelerator that supported female founding teams, I cared a lot about diversity. 

As I’ve learned and relearned throughout my career, creating a diverse investment portfolio is difficult. Even with my experience, our first portfolio was about as homogeneous as they get: Eight of our 10 CEOs were white men. 

As I talked to my peers in the industry, I quickly discovered that as investors we weren’t alone. And while all of us agreed that we needed to make big changes, there weren’t many resources out there on how to do it. 

Last year along with Maki, Nataha, Erin, and Sophie — four women I met in the MCJ community — I started ClimateRaise to address this problem. Our idea was pretty straightforward: We built a free newsletter to introduce women-led climate tech startups to investors every two weeks. By highlighting the amazing companies led by women in this space, and by making introductions, we believed we could reduce the friction involved in connecting with diverse teams.

One year later, we’ve featured 59 startups and made over 230 introductions to them. I’m also proud to say that our 2021 Techstars Sustainability class was more diverse than almost any accelerator portfolio I’ve seen in my career. 

Here are the six lessons that I’ve learned about diversity that I hope might be helpful to you. 

Understand your why

I believe that investing in diverse teams is not only the right thing to do but also just good investing. First Round Capital found that their investments with at least one female founder were outperforming investments in all-male teams by 63%. Female founders also tend to have a higher tangible positive impact on revenue generated by startups versus their male counterparts.

But everyone’s “why” is different. Perhaps you get motivated knowing that female founders hire 2.5 times more women than male counterparts, multiplying your impact on the workforce. Or perhaps you want to invest in human-centered business models, or you want to become a better investor that makes decisions with an awareness of your own biases vs. following the status quo (more on that next). 

It’s hard to be motivated if you do something just because someone said you should. It’s hard to stay motivated if you’re doing something for the wrong reasons. Figure out your why and revisit it often. 

See your own biases and the power you hold

One problematic excuse I hear a lot goes something like this: “Our focus is on climate change, not diversity and we can’t get distracted.” 

But this is akin to any other investor or business leader saying, “We can’t worry about racial and gender equity. We have to focus on producing and selling our product.” If an investor or CEO focused on e-commerce, B2B software, or gaming said this, they’d get huge backlash. And for good reason. Yet, for some reason, investors and CEOs in the climate tech community think working in this space gives them a free pass on diversity, equity, and inclusion. 

But just as no company should get a free pass to emit carbon and harm our planet, no investors or CEOs should get a free pass to do things that hurt people. 

We all need to play a part in making our world more fair and equitable, whether we’re building and investing in companies that cut carbon or companies that sell widgets.

Make it a priority 

It’s been shown over the last few decades of venture investing that if you just follow the path of least resistance, you will end up with a portfolio (or employees) that are mostly white men. In 2019, 2.8% of funding went to women-led startups; in 2020, that fell to 2.3%. 

So how can we change this? Investors need to do two things: Make diversity a higher priority and then measure their results. 

At Techstars Sustainability, each year we had a set of KPIs we measured ourselves on. This included diversity of our CEOs, founders, and mentors. When recruiting, we didn’t just look at our final class, but we tracked our metrics starting at the top of the pipeline and at every stage down the funnel. We acknowledged that if the top ~900 companies we reached out to didn’t have great diversity metrics, then our class wasn’t going to either. 

Ultimately this takes time. At Techstars I blocked time off on my calendar every week to focus on diversifying our portfolio. I spent time building authentic relationships and trust with partner organizations and founders. It was hard. Every week I was tempted to schedule a meeting over the time I had blocked off for outreach. But because our team made it a priority and added diversity to our KPIs, I was able to make progress each week even when it felt like there were more urgent fires to put out. 

Diversify your team

When it comes to venture decisions, white men control 93% of venture dollars, which directly impacts the number of dollars invested in underrepresented founders. Only 11% of venture capitalists are white women, 2% are Black men, 1% are Black women, 1% are Latinx men, and nearly 0% are Latinx women. If you want a diverse portfolio, start with a diverse team. A study by the Kauffman Foundation has shown that women VCs are twice as likely to invest in female founding teams.

One of the most important things that any venture capital firm can do is hire underrepresented partners and investors. Numerous studies show that the more diverse an investment firm’s leadership team, the more diverse its portfolio will be. 

Measure and publish your data

Women and other underrepresented founders notice how diverse a VC firm’s leadership team or portfolio is. This is a big factor in whether they choose to work with a firm or take an investor’s money. 

Speaking personally, this is one of the first things that I look at when I evaluate a venture firm and decide whether or not to send them deal flow. After running a Women in Climate Meetup for over a year I know I am not alone in this. Many people will choose to work at or with people that prioritize diverse and inclusive environments.  

But don’t let perfect be the enemy of the good you can start doing today. Even if your venture team isn’t diverse, start publishing your metrics as soon as possible and write about what you are doing to make your team more diverse. You are more likely to attract diverse talent and founders if you are vulnerable and honest about your intention and commitment to diversity. This shows with action, not just words, that you are making it a priority. It’s also likely to inspire other firms to do the same. 

What's Next?

Today, a CEO is more likely to be named John or David than be a female CEO. For all the progress that has been made over the last few decades to advance gender and racial justice, there’s still so much work to do — work that all of us have a responsibility and moral obligation to do.

There’s an amazing amount of talent pouring into the climate tech space right now. But if we don’t actively work to make this industry inclusive and prioritize diversity, we risk alienating, marginalizing, and pushing away countless people who want to work at climate tech companies.

Or we can choose to build a more just and equitable future. We can learn from the mistakes made in the broader tech and venture industry and do better. We don’t have any time to lose either. We must welcome everyone who is ready to participate in the regeneration of our planet. 

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🎙Startup Series

This week’s guests are Raphaël Haupt, Co-Founder & CEO, and James Farrell, Co-Founder & CTO, of Toucan Protocol. Toucan aims to build a regenerative financial system — one that nurtures the beauty of the Earth rather than exploiting it. Raphaël and James are excellent guests with a wealth of knowledge about Web3 and ReFi.

✨Highlights

Community News

• 💸This week, MCJ announced our new Opportunity Fund. Learn more about what we’re up to at MCJ Collective and our new fund. Check out our announcement here: Introducing MCJ Collective Opportunity Fund

• 🎙Check out MCJ Pod Alum & Elemental Excelerator Founder, Dawn Lippert’s recently released TED Talk! Learn how companies can build equitable partnerships with communities and how these partnerships can serve as a competitive advantage to scale technologies faster by watching her talk here!

• 📚Are you looking for meaningful and sustainable holiday gifts for the kids in your life? Healthy Earth is an educational coloring book that explains sustainability to children without causing eco-anxiety. Packed with practical daily tips that empower kids with environmental knowledge, this is a great holiday gift. Grab a copy here: www.hellohealthyearth.com 

Climate Jobs

For more open positions, check out the #climatejobs channel in MCJ Slack.

• Lumen Energy, a company automating clean energy deployment across our cities, is hiring for a Sales Strategy & Operations role (SF/Remote US)

• Important, Not Important is hiring an editorial assistant

• Rebellyous Foods is scaling their plant-based chicken nuggets is hiring many positions including Product Manager and Engineering

• Regrow, a fast-growing agrifood tech company is looking for a Product Manager

• EnergyHub is hiring across HR, Ops, Marketing and Engineering hires

• Heirloom is hiring a Commercialized Ops Manager and Policy & Government Relations position

• Joro is hiring a Data Scientist and its first Social Media Manager (Oakland/Remote)

• Clean Energy Trust--a 501vc climate tech seed fund--is looking to hire a Corporate Partnerships Lead, based in Chicago

• Windscape.ai is looking for startup team members with experience in wind operations or AI/ML or arduino and wifi mesh network hardware or fullstack engineering

• BlocPower is expanding and hiring for a Data Engineer

• Helio Home is looking for a Head of Engineering and a Head of Design to build out their online customer experience

• Enersponse is looking to add a Product Manager

• Enduring Planet looking for an awesome writer to launch a series of thought pieces that tackle the intersection of climate, finance, and entrepreneurship

• Evergrow is hiring a Chief of Staff

• The Ad Hoc Group is hiring for a VP of Utilities and Energy

• Yard Stick is looking for a Lead Mechanical Engineer and an Embedded Software Engineer

• Third Derivative is hiring an Ecosystem Success Manager and a Startup Portfolio Manager

Climate Events

For more community events, check out the #events channel in Slack or the MCJ Calendar on Luma.

Women in Climate Take Action (Monday, 12/13 at 3 pm ET)
Climate Changemakers and Women in Climate Meetup are teaming up to host their own Hour of Action with a (zoom) room full of all women working in, or passionate about, solving climate change. (You do not need to be an MCJ member to attend) RSVP here!

🏫 MCJ Member Town Hall (Thursday 12/16 at 2 pm ET)
MCJ Members, please join us for our year-end MCJ Town Hall. We’d love to hear from you on the state of MCJ and we’ll share a bit about what we have planned for the coming year. In addition, for the last few months, a team of community volunteers has been working to understand the MCJ community better via interviews and surveys. The MCJ Community Understanding group will walk us all through their findings and look for volunteers to help drive projects around some of the recommendations. RSVP here!

📚MCJ Book Club Discussion: The Dispossessed (Thursday 12/16 at 6 pm PT/9 pm ET)
Based on the poll results our next book will be The Dispossessed by Ursula K. Le Guin! As with the last two books, we’ll break them into sections and meet every 2 weeks to discuss. RSVP here!

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