Summary
Either underrepresented founders are building companies that should be receiving venture capital, or they are building ineligible businesses.
The Business Case
If diverse founders are building VC-backable businesses, then they should be getting money from investors. Whether or not they get funded is a signal of market efficiency. If the market is inefficient, capital allocators have an opportunity to benefit from this inefficiency.
What Happens If We Learn Markets Are Efficient?
If dollars invested are normally distributed across different demographic groups, underrepresented founders should direct their energy toward addressing other areas where capital allocation is inefficient. Perhaps they can leverage the methodologies or insights uncovered by our research to help unlock access and bridge the gap toward a more equitable future.
The Relevance of Representation
Paul Graham says that the best startup ideas are organic, meaning they come from a founder’s first-hand experience. If this is true, then the problem a founder solves is intimately connected to who they are.
As a result, founders must find a capital allocator who understands both them and the problem. Often, this means founders seek someone who looks like them or is from a similar cultural background.
That’s the real reason representation is important. It decreases the time it takes to build trust.
Stay tuned for the next installment of this series, scheduled to be published on Tuesday, April 23rd, at noon EST.