SAN FRANCISCO — For decades the venture capital industry — made up almost entirely of white men — has had the distinction of being the most exclusive club in Silicon Valley.
Now the financiers who have funded some of the world’s most powerful companies and minted hundreds of billionaires are trying to face up to their diversity problem.
The trade group for the venture capital industry said Monday it is forming a task force to brainstorm ways to bring aboard more women and minorities.
It’s pledging to hold a series of public events in 2015 to solicit ideas on how to increase diversity in venture capital.
Kate Mitchell of Scale Venture Partners, who is serving as co-chair of the task force, said in an interview that the National Venture Capital Association is committed to “moving the needle on this.”
“Silicon Valley is about solving hard problems, and this is a hard problem,” she said. “We have to acknowledge that this is only a first step. We have to make a long-term commitment.”
Yet even the task force the National Venture Capital Association has appointed to promote diversity is not diverse.
Seven of 11 members are white men. Three are women. There are no African Americans or Hispanics on the task force.
Mitchell says the make-up of the task force reflects the leadership of the trade group.
“I love the idea that the white guys were clamoring to be on it. This is not a check-the-box commission,” she said. “We wanted the leaders of the industry to put their stamp on it.”
Mitch Kapor, the Lotus Development Corp. founder and Silicon Valley veteran who runs the Kapor Center for Social Impact in Oakland, says the task force should represent where venture capital “wants to get to, not where they are.”
“There is something very important about the industry coming to resemble the community it is trying to serve,” Kapor said. “If you want to know at a deep level why there aren’t more African Americans and Latinos in venture capital ranks then bring them to the table. That’s extremely important.”
The task force is being created as the technology industry is taking increasing fire for its entrenched lack of diversity.
Women, blacks and Hispanics have been largely left out of one of the world’s greatest wealth creation machines.
Nowhere is that lack of diversity more evident than in venture capital firms, which control the spigot of wealth in high-tech.
“Venture capital is the last bastion of the boys club in the tech industry,” said Stanford University fellow Vivek Wadhwa, author of Innovating Women: The Changing Face of Technology.
Studies consistently show that venture capitalists are predominantly white men who in turn mostly fund companies started and run by other men.
The venture capital industry has resisted calls to increase the number of women and minorities in its ranks and to fund more companies started by women and minorities.
Observers say hidden or unconscious bias from people in position of power who hire from their immediate circles rather than casting a wider net is largely responsible for the gender and racial gap in venture capital.
Patterns have emerged over time. White and Asian men have become the stereotypical image of a Silicon Valley engineer or entrepreneur and therefore are more likely to get funded. Venture capital firms hire successful entrepreneurs and executives as partners.
Venture capital, like the broader technology industry, is slowly responding to growing social and economic pressure to change — and with good reason, Wadhwa said.
As high-tech companies serve an increasingly diverse and global marketplace, historically underrepresented groups are becoming key to future growth in the sector, he said.
Venture capitalists have begun to realize they risk becoming dangerously out of touch with the majority of consumers, he said.
“The venture capital system is producing lower returns than the stock markets because you’ve got people investing in people just like themselves,” he said. “If these firms don’t have any women, African Americans or Latinos, how can they understand what companies to build and invest in?”
Just a tiny percentage of venture capitalists are black or Hispanic. And women are not even holding their ground in venture capital firms; they are losing it.
A recent study from Babson College shows that the proportion of women partners in U.S. venture capital firms declined to 6% in 2014 from 10% in 1999.
“I am always the only black person at any pitch, any event or any meeting period,” said Richard Kerby, a senior associate with Venrock.
That lack of diversity puts women and minorities in Silicon Valley at a distinct disadvantage, perpetuating the problem, Kerby said.
Silicon Valley is awash in war stories from women and minorities who have tried and failed to get funding from venture capital firms.
A report in 2010 by CB Insights found that fewer than 1% of venture capital-backed Internet companies were founded by African Americans.
Babson College survey found that 2.7% of the 6,517 companies that received venture funding from 2011 to 2013 had a female CEO.
“The whole venture game is relationship based,” Kerby said. “Black people are not friends with and do not have 50-year-old white men in their networks, so they are not going to have access to firms to hear a pitch, let alone write a check.”
Kapor says venture capitalists tell him all the time that they are “color blind” when funding companies. He’s not sure they are ready to let go of a deeply rooted sense that Silicon Valley is a meritocracy.
“At this point, doing something is almost obligatory given the numbers in venture capital are even worse than in the tech industry. Not doing anything would be seen as a public relations disaster,” Kapor said. “The real question is: Are they going to do something substantive and is there a real willingness to re-examine their fundamental assumptions? The burden is really on the venture capital community to show and demonstrate in a substantive way they are serious about this.”