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Economy & Labor , US

Silicon Valley VCs Invest Almost Exclusively in Companies Founded by Men. Could a new California law change that?

by Hanisha Harjani September 29, 2023

Co-published with The Guardian

California would become the first state to require venture capital firms disclose the race and gender of the founders of the companies they fund, under a bill currently awaiting Gov. Gavin Newsom’s signature.

The business community strongly opposes the legislation, characterizing it as an example of bureaucratic overreach.  But civil rights groups and female entrepreneurs say it could go a long way to equalizing opportunity in Silicon Valley, where startup capital overwhelmingly flows to white men.  According to the business data firm Pitchbook, companies founded by all-female teams accounted for just 2% of venture capital funding last year. Those led by Black women and Latinas received even less, 0.85%, according to a report from Project Diane, a research effort focused on female founders. 

“This is a chance for us, for the industry to look itself in the mirror –  to finally, wholeheartedly internalize that we have a bias problem,” said Marquesa Finch, founding partner of the F5 Collective, a fund that exclusively backs female founders.  

A woman weating a beige blazer and black pants sits in a chair with her arms folded and her legs crossed.
Marquesa Finch, founding partner of the F5 Collective. (Photo by Carly Soderstrom)

Finch, who helped draft the bill for Democratic state Senator Nancy Skinner, is a FinTech founder and a venture capitalist with a decade of experience. A woman of African American and Filipino descent, Finch said she has experienced discrimination first hand. She said she’s been mistaken in the past for support staff. When she pitches, partners at venture capital firms, who are almost always white and male, pose questions that cast doubt on her ability to lead and perform – “a stark contrast to my male counterparts who are often asked questions related to growth and potential,” Finch said.   

Newsom has not yet indicated whether he will sign or veto the bill. His office declined to comment. 

California represented over 40% of the over $246 billion in venture capital funding invested in the United States in 2022, according to data provided by Pitchbook. Because the law would apply to venture capital firms based in California along with those that invest in the state or solicit funds from residents, the law’s impact would likely resonate from Silicon Valley to Wall Street and beyond.

Nearly all of the firms making the largest bets on Artificial Intelligence would be covered, including Silicon Valley titans Sequoia Capital, Andreessen Horowitz, Soma Capital and Khosla Ventures, which have funded ChatGPT founder OpenAI,, Cohere and SellScale.

Controversies around racial and gender bias in AI products, which drew $22.7 billion in venture investment in the first quarter of 2023, have been widely documented by the media, academics, and civil rights groups. The Biden administration released its Blueprint for an AI Bill of Rights last year, designed, White House Senior Advisor Susan Rice said, to “ tackle algorithmic discrimination and address the harms of automated systems on underserved communities.”

The Fuller Project reached out to the ten venture capital firms that made the largest investments in Artificial Intelligence, according to Pitchbook, asking each for demographic information of their partners and the founders of the companies they fund. 

None of the companies shared their data and none would agree to be interviewed.

“No response, is in fact a response,” says Finch. “It communicates to the ecosystem that diversity, bias, and equity are not high on the priority list.”

The National Venture Capital Association also declined to be interviewed for this story, but has made its opinions known to the legislature. In August, the association’s president and CEO, Bobby Franklin, wrote to lawmakers to say the bill “lacks justification.” The association argued the bill was “inefficient, unnecessarily punitive, and will violate (the) privacy” of venture partners and startup founders.

If Newsom signs the legislation, venture firms would have until March 1, 2025 to provide demographic data to the California Civil Rights Department. If venture firms don’t, the state is empowered to take them to court to seek a penalty “sufficient to deter the respondent from failing to comply” in the future. 

Kathryn Youker, director of the Economic Justice Project at the Lawyers Committee for Civil Rights Under the Law said if the law is signed by Newsom, the data provided by venture capital firms could eventually be used in lawsuits by female entrepreneurs and business owners of color who believe they have been discriminated against.

“Statistics are important” to proving discrimination, Youker noted, citing the “disparate impact” standard that the Justice Department uses to prove illegal bias in housing, employment and other sectors. The standard, upheld by the Supreme Court in 2015, establishes data analysis as a method to “counteract unconscious prejudices” and uncover “discriminatory intent.”

The threat of future lawsuits was a factor in spurring opposition to the bill from TechNet, a Silicon Valley trade group, and the California Chamber of Commerce. The two organizations, which did not respond to requests for comment, told lawmakers in a letter that they were “especially concerned” that the bill would allow the state to “use any information collected under this bill” to sue.

Female founders say diversity in venture capital is simply good business. In 2018, the investment bank Morgan Stanley published a report that made a “trillion-dollar case for investing in female and multicultural entrepreneurs.” The report found that minority-owned businesses are often more profitable and less risky than their counterparts. The same year, the Boston Consulting Group released a report that showed businesses founded by women delivered more than twice as much per dollar invested than businesses founded by men.

The California legislation comes against a national backdrop of backlash to government efforts to promote diversity. In June, the U.S. Supreme Court ruled 6-3 to ban racial and gender preferences in college admissions and conservative legal advocates have been working to extend the prohibitions to other areas of life. 

In August, the American Alliance for Equal Rights, a conservative legal advocacy group sued The Fearless Fund, an Atlanta-based venture capital firm that invests in companies founded by Black women, arguing the company’s race and gender preference was illegal. On Tuesday, a federal judge ruled the Fearless Fund could continue to operate a program for Black women, because the lawsuit was not likely to succeed.

Affirmative action has been banned in California since 1996. The proposed California law does not include any preferences for women or people of color.

Nevertheless, Youker thinks the sunshine could “make a big impact in terms of public accountability for firms and the potential for firms to adjust their practices based on public pressure.”

Newsom has until October 14 to sign or veto the bill.

The Golden State overtook Germany as the world’s fourth-largest economy this year, but not all of this wealth is being shared equally. In this series, the Guardian and The Fuller Project look at the lives of women, especially women of color, who help drive the economy of the US’s second-most racially diverse state but don’t get their fair share of the pie.

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