Whether it’s the Oscars, the legal system, or hiring practices, diversity is a trending topic of conversation. While I’m excited we’re talking about diversity, the conversation often ends up being both boring and frustrating because it is most often raised in a moral context: “Hire more diverse candidates because you should, because it’s right, because it’s fair.”
In reality, however, I have found that context almost always trumps morals. You might think you know what is the “right” thing to do, but where you live, where you’re from, what your incentives are, who you’re answering to, when you have to answer to them, the opportunity costs — all of these factors convert our sense of “right” and “wrong” into a million shades of grey. So, instead of insisting on a black and white world, let’s acknowledge the spectrum and reframe the conversation.
When it comes to diversity, don’t do what’s right. Do what’s smart. Instead of guilt tripping homogenous organisations and giving out gold stars to anyone who has a “Diversity Initiative”, let’s talk about why anyone who doesn’t is just plain dumb. Diversity is not a moral imperative. It is a business imperative.
The Reality of Bias
As humans, we are hard wired to trust people that are like us. It’s normal. It’s an instinct. It’s a tribal thing. And it makes sense. After all, we are biologically designed to perpetuate our genes. This is why most humans are naturally attracted to people that look like us. Really, look closely at your married friends. It’s kind of creepy.
When it comes to business and we are faced with dealing with another person or entity, smart people want to reduce risk. If you can predict someone’s behaviour, you will have less risk than if you cannot predict their behaviour. If you know what they will do, how they will act, you can prepare accordingly and thus ensure a positive outcome.
Unfortunately, people often prove to be unpredictable. But, we do have the perception that we can control our own behaviour. So, naturally, it follows that if we believe someone is like us, we believe we can more accurately predict their behaviour.
Working with people like you = more predictable = less risk = more control. Boom. I do it, too. I meet someone with an equally terrible Chicago accent, another young American in business in Asia, another Harvard graduate, someone else who wears tortoise shell glasses…. yes, I am instinctually predisposed to like them a little bit more. I’m not going to deny it. Instead, I prefer to acknowledge it, embrace it, and figure out how to turn it into an opportunity.
As a venture capital fund, there are three key aspects that contribute to our success: sourcing the best deals, adding value to our existing investments, and fundraising. Diversity provides a competitive edge in every part of our business.
1. Source Better Deals
One of the first lessons I learned as a VC is that the worst investment you will ever make is the one you don’t. Our biggest risk is passing on the next Facebook. As such, it is to our benefit to leave no stone unturned, to reduce bias when evaluating investments, to look at every startup as if it could be the next world-changing, billion dollar business.
While I can train myself to reduce my own bias, we’ve already established it is unavoidably embedded in my instincts thanks to millions of years of natural selection, so it might take a while. In the meantime, what I can do is build a team that, collectively, is equally open to all entrepreneurs and technologies.
In addition to our 3 Managing Partners, we also rely on our 3 Venture Partners and our network of 23 Impact Partners to channel quality deal flow. Collectively, our team spans the US, Europe, Asia, Africa, and the Middle East, they have experience in technology, sales, marketing, enterprise, consumer, education and healthcare. They are college dropouts and Ivy League grads. They are Millennials and Baby Boomers. If there is an interesting entrepreneur doing something remarkable somewhere in the world, it is very likely they will look at our team and either know someone, or see themselves in someone.
2. Work More Effectively with Your Teams
The second key element of being a successful VC is working with your portfolio companies to ensure their success. This requires close relationships with founders. Open and authentic communication allows us to stay ahead of potential roadblocks, to properly leverage our network and our resources, and to make high quality connections that help our teams grow their businesses.
We invest in all types of founders — approximately 50% of our portfolio companies are co-founded or run by women. We have teams based in Canada, the US, Europe, and Asia. We work with experienced entrepreneurs, as well as first-time founders. Each founder has a unique chip on their shoulder, has their own communication style, and thus naturally connects with different types of people. Because we have a diverse team, founders tend to gravitate toward one of us, and thus are more likely to be open with us, to ask for help, to raise potential issues as they arise. This gives us a significant edge in terms of our ability to add value to our investments.
3. Raise More Money
As an emerging VC fund, we are constantly fundraising. Similar to what we experience as investors ourselves, our Limited Partners (LPs) want to mitigate risk by building trust with our team. Our LPs include family offices, corporates, and individuals from all around the globe. Canadians, Americans, Indians, Brits, Japanese, Chinese, ex-financiers, young entrepreneurs, family offices and 100+ year old corporations. While we have delivered, and will continue to deliver exciting returns, the reality is that investors write you a check because they trust you. And we trust people who are like us.
Sometimes, when we meet with potential investors, I don’t say a word. They take one look at me, make their assumptions, and only want to hear from my male partners. Other times, I get all the eye contact, and end up speaking the entire time. It just depends on what they’re looking for, what they care about, and who they are more inclined to trust. I can’t change what an investor wants or trusts (though believe me, sometimes, I would like to). However, if we have a diverse team, we are more likely to be able to connect with any given investor. Which means we have more opportunities to raise capital, which makes us more successful in the long run.
Don’t Be Dumb
At the end of the day, I do believe diversity and equal opportunity are the right thing to do. However, as a realist, I acknowledge that doing what is “right” is often not enough. We have a diverse team because it gives us a significant edge in every part of our business.
Even if you’re not an investor, chances are you’re still looking for innovative new ideas and fresh insight into how you need to evolve to grow revenue and avoid disruption. In order to that, you need to understand your customers and attract the best talent, and having a diverse team helps you do both of those things.
Build a diverse team not because you want people to think you’re “good”, you’re “right”, or you’re “progressive”. That’s bullshit. Build a diverse team because it gives you an edge. Because it’s the smart thing the do.