Y Combinator’s Garry Tan Goes to the MatRead more

Illustration by Getty Images.

The Relationship Model Is Killing Venture Capital

By  |  Jan. 31, 2023 9:00 AM PST
Photo: Illustration by Getty Images.

The social and racial homogeneity of the venture capital industry has long been a source of frustration for entrepreneurs and investors alike. In recent years, this frustration has boiled over into a full-fledged movement, with a growing chorus of voices arguing that venture capitalists are destroying value by overlooking founders from swaths of the population including women, people of color and those from other disfavored regional or class backgrounds.

Despite study after study demonstrating that this pattern of bias has led to profoundly negative economic consequences—and that founders and investors who come from outside the VC bubble reliably and substantially outperform insiders—no amount of activism so far has been able to amend VC’s dismal diversity track record. Meanwhile, VC insiders continue to insist incorrectly that the industry, while far from perfect, does a good job of identifying and funding the most deserving founders. The real problem, they say, is a lack of qualified entrepreneurs from underrepresented groups.

The data are clear—diversification efforts have the potential to increase financial returns and diversify entrepreneurship. But how to go about it? Prevailing approaches such as diversity pledges, investor-matching tools, and investor-training programs tend to be overly deferential to incumbent thinking, reflecting the same entrenched biases and assumptions they seek to change. To make meaningful progress, reformers must challenge industry conventions, which means examining the assumptions that govern both VC investing and their own thinking.

Access on the go
View stories on our mobile app and tune into our weekly podcast.
Join live video Q&A’s
Deep-dive into topics like startups and autonomous vehicles with our top reporters and other executives.
Enjoy a clutter-free experience
Read without any banner ads.
Former Apple design chief Jony Ive and OpenAI CEO Sam Altman. Photos by Getty.
Exclusive
Designer Jony Ive and OpenAI’s Sam Altman Discuss AI Hardware Project
Jony Ive, the renowned designer of the iPhone, and OpenAI CEO Sam Altman have been discussing building a new AI hardware device, according to two people familiar with the conversations.
From left to right: Blair Effron, Robert Pruzan and David Handler. Photos by Getty; Tidal Partners.
Exclusive Finance
Disputes, Employee Misconduct Rattle Centerview’s Silicon Valley Dreams
The San Francisco Bay Area–based bankers at Centerview Partners, the investment bank that advised Silicon Valley Bank’s owner and Credit Suisse through recent turmoil, got two doses of bad news last week.
Art by Clark Miller
Exclusive startups entertainment
MasterClass Takes a Crash Course in Frugality
MasterClass had a problem with the shoot featuring its latest star instructor, Walt Disney Co. CEO Bob Iger.
OpenAI CEO Sam Altman and Microsoft CEO Satya Nadella. Photos via Getty
Exclusive microsoft ai
How Microsoft is Trying to Lessen Its Addiction to OpenAI as AI Costs Soar
Microsoft’s push to put artificial intelligence into its software has hinged almost entirely on OpenAI , the startup Microsoft funded in exchange for the right to use its cutting-edge technology.
From left: Paul Graham, Garry Tan and Michael Seibel. Photos by Getty. Art by Mike Sullivan.
Exclusive startups ai
Y Combinator’s Garry Tan Goes to the Mat
Garry Tan was in his happy place. Surrounded by food trucks and techies basking in San Francisco’s September sun, the CEO of Y Combinator snapped selfies with entrepreneurs as he meandered through a crowd of 2,700 attendees at the startup accelerator’s annual alumni event.
Dave Rogenmoser, cofounder of Jasper. Photo via Getty.
Exclusive startups ai
Jasper, an Early Generative AI Winner, Cuts Internal Valuation as Growth Slows
Jasper AI, an early darling of the generative artificial intelligence boom, has cut the internal value of its common shares 20%, according to former employees who were notified by the company.