An Audacious Proposal: Parity VC

A modest proposal is one that is so absurd that no one should want to implement it. An audacious proposal is one that is so reasonable that everyone should want to implement it, but still no one is doing so. I have an audacious proposal.

Starting Point 1: Silicon Valley’s diversity problem. This problem has been well documented. In fact, it is so bad that CNN Money had a hard time getting any straight data from some of the biggest tech companies like Apple and Google. Despite some valiant efforts, the problem remains as glaring as ever.

Starting Point 2: Morgan Stanley’s new investment initiative. As the New York Times reports,

Morgan Stanley’s wealth management division is starting a new portfolio which seeks to invest in companies that have demonstrated a commitment to including women on their corporate boards. The strategy, known as the parity portfolio, is scheduled to get going on April 1.

In a report last summer, Credit Suisse’s research institute found that over a six-year period, companies with “at least some” women on their boards did better, in terms of share price, than those with none.

[…] The strategy seeks to encourage companies to think deeply about the gender makeup of their boards. Only companies with at least three women board members will be included in the portfolio.

Why couldn’t there be something similar in tech?

My Audacious Proposal: An analogous parity venture capital fund that only funds startups with a diverse makeup. Of course, there can be reasonable disagreements about how to best operationalize the requirement. Perhaps it means that at least 50% of the founders need to be women. Perhaps it means that at least 40% of the engineers need to be women or other underrepresented minorities. Let us not quibble about detail for now.

A parity venture capital fund is potentially good business too. Morgan Stanley is no charity; there is a clear economic motivation behind its new initiative. There is some, though by no means conclusive, evidence that boards with some women simply perform better. Similarly, given what we know about gender and race’s power to bias people’s evaluations (previously discussed on this blog), it would be unsurprising if it turned out that startups with a diverse makeup are currently systematically overlooked. A parity venture capital fund would then be in a perfect position to exploit this market inefficiency.

So what say you, angels of the world?

(Or maybe the white dudes can all pitch before lunch?)

Feel free to talk to me on Twitter: @RagingTBolt.

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2 thoughts on “An Audacious Proposal: Parity VC

  1. “Let us not quibble about detail for now.”

    The Devil is in the details; they *alway* matter as anyone who has looked at the Law of Unintended Consequences knows.

    • I don’t disagree. But since this is a free market solution, I’ll let the angels who end up running something like this figuring out the details. That sentence is more noting that reasonable people can disagree here. Indeed, I think it’d be awesome if there are multiple parity VC funds that have different implementations of this proposal.

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