Minority Report

VC firms are becoming more diverse--but does that mean more funding for minority-owned businesses?
Magazine Contributor
4 min read

This story appears in the October 2004 issue of Entrepreneur. Subscribe »

Businesses led by women and minorities have long lagged in the race for -and this past year was no different. In 2003, women led companies accounted for a scant 4.2 percent of all VC dollars, according to a 2004 report from Growthink Research in Los Angeles and Re:invention Inc. in Chicago. Similar numbers are not even available for minority-owned businesses, though experts estimate that they grabbed an equally small slice of the venture pie.

But in the microcosmic world of VC education, an interesting shift is taking place that may change those stats in coming years. The latest class of the Kauffman Fellows Program, an educational program based in Shawnee Mission, Kansas, that's designed to educate and train future VCs and leaders of high-growth companies, is the most diverse to date. Of the 14 fellows, eight are minorities: two are black, five are Asian, and one has a Middle-Eastern background. Three of the fellows are women.

True, it's a small sample size. But Trish Costello, CEO of the Center for Venture Education, which runs the Kauffman Fellows Program, points out that when the program began 10 years ago, "there were so few African Americans in venture capital, it was within the percentage of error-so from a research standpoint, you couldn't really count it." Today, the Kauffman Program alone can claim six black VC general partners as former program fellows. Costello adds that the number of "general minorities"-or nonwhites-in the VC arena has risen dramatically over the past few years because of a more global focus. "You're seeing a much higher number now because of the rapidly increasing [number of] Asian and Indian VCs who are doing a bang-up job," she says.

Amal Johnson, venture partner with ComVentures in Palo Alto, California, reports seeing more women among her peers and chalks that up to more women in senior positions in corporate America, as well as in engineering and schools. "That's the pipeline that feeds [the VC industry]," she says. "So it's natural to have this spillover to the venture business, which always looks for talent to help grow and invest in young companies."

The question is, As more women and minorities enter the VC arena, will that mean more capital for women- and minority-owned businesses? Costello says it's too soon to tell, and Johnson is quick to point out that VCs should be blind to gender, race and ethnicity-neither excluding entrepreneurs, nor favoring them because of those factors. But in the cutthroat, competitive world of VC, networking is everything-and both women and minorities have had trouble cracking the classically Caucasian old boys' networks that tend to foster deal making.

"I always used to say the bottom line has no gender, but if you can't get in the door, you're not going to get to the bottom line," says Kay Koplovitz, co-founder of two New York City-based companies, including Springboard Enterprises, a nonprofit organization dedicated to helping women-led businesses gain visibility and access to capital markets. "So it's really about human capital."

Koplovitz, also founder of USA Networks, notes that both men and women can open doors for female CEOs, but, generally, women VCs have played that role for Springboard companies. ComVentures' Johnson admits she feels some obligation to play a mentoring role. "So many people have extended a hand for me to get to where I am, I ought to do the same," she says. "For young women, I'd probably go the extra mile."

Ultimately, of course, only dollars and cents will motivate VCs to change the complexion of their portfolio companies. And Costello says that as successful minority- and women-led businesses gain more visibility, VCs will start to see diversity as a key part of their strategies. "When VCs start realizing they're missing tremendous opportunities to make money, and that they're not in the right networks," she says, "they will actively change that."

is executive editor of CEO Magazine.


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