The Last Word: Growing the Pie

How diversifying VC funding can actually create more value

Brittany Davis, General Partner, Backstage Capital

The need to diversify the startup ecosystem and venture capital world has become a growing focus of firms, funds and incubators all over North America in recent years and with good reason: the numbers, while they are increasing slowly, remain bleak. Even as more companies adopt diversity, equity and inclusion initiatives and devote positions to advancing equity in their business practices and investment decisions, there remain significant barriers for founders who are Black, Indigenous, and other people of colour, along with women-led businesses. 

At Backstage Capital, we recognized these barriers and the imbalance that exists in the ecosystem, seeing it as an opportunity to invest in companies and founders that simply aren’t being given an equal chance at success. Too often this reality is reduced to a pipeline issue, but every day we meet founders from diverse backgrounds who don’t receive the same encouragement and access to resources their white counterparts get. But we know the talent is out there; we see it every day. 

The problem exists on both sides of the coin. We need better representation at the investment level, and more diversity in where the funding goes. According to the most recent VC Human capital survey, Black representation among investment professionals is just 4 per cent, and just three per cent of investment partners are Black. And while numbers vary, studies have found that black-led startups receive a tiny proportion of overall VC funding—as little as one per cent. When we look at investment in companies with founders from a variety of diverse backgrounds, the number is only about 10 per cent. Even though venture capital funding in the United States has skyrocketed recently, quadrupling in the past decade, startups founded by women and racial minorities have not experienced a similar increase in the proportion of funding going their way. In other words: the pie is growing, but diverse founders are still being given only a small piece—even though the evidence repeatedly shows that companies with diverse founders on average outperform their all-white counterparts. 

The thing is, though, investing in companies with diverse founders doesn’t mean shrinking the amount of pie other companies have access to—it means giving everyone a bigger, more equal piece. We have an opportunity to create more value by giving more companies with diverse perspectives and value propositions the chance to enter the market, grow, scale and thrive. Companies that have traditionally struggled to access crucial capital will have the opportunity to innovate and create interesting solutions to challenges and provide products and services that are relevant for a greater portion of the population. If we diversify VC funding we can actually grow the pie—instead of leaving scraps for some.

Brittany Davis’ career spans more than 12 years across finance and tech, with over six years in venture capital. As a black woman and former founder, she has experienced first-hand the challenges and barriers faced by entrepreneurs from underrepresented backgrounds. She joined Backstage Capital in 2018 and was promoted to General Partner in 2020.