Institutional investors must take action on diversity in venture capital

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Good morning, Broadsheet readers! Mutual funds with women behind them post stronger results in 2020, Iowa is a coronavirus hotspot, and institutional investors can wield their power to diversify venture capital funding. Have a productive Monday.

– Institutional power. The Broadsheet pays a lot of attention to how the venture capital industry treats female founders, from the minuscule percentage of venture funding (2.7%) that goes to women-founded businesses to the even tinier pool of money investors have dedicated to backing Black women.

The conversation around diversifying the startup world often focuses on the steps VCs and female founders might take to address the problem. (Think of All Raise, the Silicon Valley organization that has made change among “funders and founders” the crux of its mission.)

But what about other stakeholders? In this Harvard Business Review piece, former CEO of Catalyst Ilene Lang and Carlyle Group chief transformation officer Reggie Van Lee argue that institutional investors have an important role to play in the future of the venture landscape. Foundations, family offices, college endowments, pension funds, and insurance companies should all, they say, wield their power to change the face of corporate America and Silicon Valley. These stakeholders “can make a meaningful difference by holding venture capital funds accountable,” the duo write.

While the authors say they have seen progress in seed-stage investing, they want these big-money investors to take action for later-stage investments—where larger sums are at stake and there’s potential to make real change. They suggest institutional investors create new requirements related to diversity for VC managers at their organizations, hire for better racial and gender representation within those internal jobs, and invest in funds where diversity is a top priority.

Lang and Lee say that many—but not all—venture capitalists have already turned their attention to this issue. Now, as female-founded businesses feel the sting of the pandemic, it’s up to these large institutional backers to get us to the next stage.

Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe

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