Venture-capital funding overlooks companies headed by women and minorities.
That’s the conclusion of a new study by RateMyInvestor and Diversity VC, which analyzed all publicly available venture-backed deals from seed funding to Series D investments over the past five years. The majority of funds went to college-educated white male founders, the study found.
The researchers zeroed in on the biggest 135 U.S. firms by the number of companies they invested in. Out of the 9,987 founders included, only 9% of startup founders were female, 17% identified as Asian-American, 2.4% as Middle Eastern, 1.9% as Latin American and just 1% identified as black.
“VCs should make more of a deliberate effort to spend quality time with communities of color,” Suzy Ryoo, a venture partner and vice president of technology at Cross Culture Ventures, said in the study. She suggested they co-host salon dinners and community events with diverse investors.
The study did not address why so few women and minorities receive VC funding, but other studies have said white men make up more than 90% of venture capitalists and, as such, they’re prone to fund other male-led companies. (Just 1% of VCs are Latin American and 3% are black.)
In 2016, the Center for Global Policy Solutions, a Washington, D.C.-based nonprofit, said discrimination and bias in favor of companies run by white men caused the U.S. to lose out on over 1.1 million minority-owned businesses and forfeit more than 9 million potential job opportunities.
But it’s still unclear if sexism is to blame. A recent study by the University of British Columbia and Stanford University sent out 80,000 investment pitches to VCs, half from fictional female entrepreneurs with names like “Melanie” and “Mary” and people named “Matthew” and “Michael.”
In that experiment, female-fronted pitches received 8% more replies from the venture capitalists than the male-led ones. Still, interest alone does not often equal funding, considering that VCs invest 35 times as much in startups run by men as they do in those run by females.
The RateMyInvestor and Diversity VC study also found that Ivy League-educated founders earned 27% of VC funds, while graduates from other colleges in the U.S. made up 50% of VC dollars. Those without a university degree made up for around 6% of total capital invested.
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