“Diverse Teams Outperform!” That’s our investment thesis at MassVentures. We run an evergreen fund, so we rely on returns from our investments to fund our operations and future investments. We can’t afford to be wrong.
Many impact funds look at investing in diverse founders, but we believe investing in diverse founders is about both performance and impact. It just makes sense when you think about it. Perhaps it’s an overlooked venture capital investment thesis because it’s so simple and straightforward. And there are clear competitive advantages.
Competitive advantage #1: Huge and growing pipeline of deal opportunities. Many VCs don’t believe me when I tell them that it’s easy to build a pipeline of investment opportunities led by diverse founders. In Massachusetts, approximately 50 percent of masters and doctoral degrees in STEM are conferred to women, Black and LatinX founders, and many of them are starting deep tech companies that are going to change the world. And they’re not just coming out of MIT and Harvard. We recently funded several companies coming out of UMass, WPI, Northeastern, and Worcester State.
Competitive advantage #2: Outsized performance. In 2018, Paul Gompers and Silpa Kovvali published an article in the Harvard Business Review titled “The Other Diversity Dividend.” Gompers and Kovvali found that diverse investment teams perform 10-30 percent better than homogenous teams. At MassVentures, I’ve found this to be true. Diversity of thought, diversity of opinion, and diversity of working style, among other things, lead to better overall leadership and decision making. We have a diverse team at MassVentures and every week I find myself saying, “that’s a great idea…I never would have thought of that. Lets do that!”
Competitive advantage #3: Limited competition for deals. Yes, its true! Historically, 1-2 percent of venture funding has gone to Black founders. Same 1-2 percent for Latino and Latina founders. Overall, women founders typically receive less than 10 percent of funding. Adding that up, 10-15 percent of funding goes to women, Black and Latino/Latina founders. There is a huge and growing pipeline of opportunities with historical outperformance, yet there is limited competition…this investment thesis just got really interesting!
Competitive advantage #4: Let’s call it leverage…without any debt. It’s not hard to convince diverse founders that they can weaponize diversity when building their teams. Diverse founding teams build diverse workforces that in turn create outsized performance across the entire organization. That’s investment leverage without any cost or added risk!
Competitive advantage #5: Diverse culture attracts and retains employees. There is a high correlation between founders that can attract and retain high performing employees and overall success of a venture investment. The main reason might not be as obvious to most, though…it’s the fun factor. Diverse teams are fun. I haven’t been able to quantify this one yet, but the pattern matching is off the charts.
Don’t just take my word for it though, listen to my conversation with the co-founders of Ginkgo Bioworks, one of the most successful startups in the Massachusetts ecosystem over the last 10 years.
At the seed stage of venture investing, you often hear VCs talk about investing in the founding team. Founding teams that weaponize DEI have distinct competitive advantages. Our mantra and investment thesis that we are shouting from the rooftops is “Diverse Teams Outperform.” Frankly, we hope that others catch on and we eventually lose our competitive advantages. That’s the impact side of our investment thesis.
Let us know if you would like to co-invest. All are welcome!