Redfin is joining forces with venture capital firms in Seattle and Silicon Valley that are committing to diversify high-technology company boards. The venture firms will encourage new portfolio companies to recruit an independent, diverse board member within two years of institutional funding.
We’ve already reported on a tripling in the rate of female board appointments to companies that have recently gone public, and new research we’re publishing today shows that the ratio of new venture capital partners who are women has increased from less than one in three in 2013 to nearly one in two in the last year.
But there has been absolutely no change in the diversity of startup boards over the last year. And the problem, as we now see with large-scale companies attempting to become more inclusive toward women and people of color, is that a company’s culture is often formed by its first 30 people.
Recruiting a more diverse board at an early stage may be the last item on an entrepreneur’s list of priorities, but our experience building Redfin’s board, first with Emily Melton and later with Selina Tobaccowala and Julie Bornstein, is that it puts the company on a different course, able to compete for a much broader range of talent over years and even decades. As Redfin’s CEO, Glenn wishes we had recruited more women to our board sooner and, as we add board members, he is committed to bringing on more people of color; working with some of our investors, Bridget has developed a framework to encourage other startups to do just that.
The problem is that startup boards consist almost entirely of the investors who are backing the company. And these investors are almost entirely male. According to Fortune, 94% of decision-makers at U.S. venture capital firms are men. We don’t have statistics on the racial composition of these decision-makers, but in our personal experience most are white.
The good news is that the top-25 VC firms (based on number of deals) are getting more diverse as they bring on new partners, at least in terms of gender diversity, which is straightforward to track. In a comprehensive survey of 255 venture-capital appointments at these firms over the past four years, Redfin found that the female-to-male ratio of newly appointed partners (or directors, at firms without partners) has risen from 0.31 in 2013 to 0.47 last year.
[redfin_table file=”https://redfin.com/blog/wp-content/uploads/2017/07/Book1.csv” footnote= “”][/redfin_table]
That would be a shame, because the easiest time to change diversity numbers is early on, when the team is small. But the startup stage is also perhaps the least-appealing stage for diverse employees, especially when a startup embraces a raw, Wild-West culture that isn’t far removed from a founder’s apartment. It is exactly these companies, and their founders, who most need other perspectives on their board, as a sounding board on what customers want, and on how to develop the management team as leaders and managers.It’s encouraging to see the numbers moving in this direction, but gender parity still seems a long way off. With these ratios, a venture firm with 12 male partners that recruits a new partner every four years would only recruit a new female partner every eight years; if it never had anyone retire or quit, it wouldn’t be more than one quarter female until the year 2057. Without a change to the traditions of how startup boards are formed, we would expect VC-only boards to remain predominantly male for the foreseeable future. Racial diversity may be even slower in coming.
But diverse board candidates have to meet early-stage companies halfway. In talking to venture investors who have tried to recruit diverse leaders to a startup’s board, we’ve had to account for the fact that joining the board of an early-stage company is plenty of work, and may not be that appealing when the startup’s success is far from assured. In many cases, both the startup and the would-be board members want the other to be “the big name,” but in fact both startups and diverse board candidates need to take a risk on one another.
A Call for Commitment to Open Independent Board Seats
So today, in partnership with DFJ, Greylock Partners, Madrona Venture Group, Pioneer Square Labs and Boardspan, we’re suggesting a new approach: starting with series-A or institutional investments made in September, the startups funded by these firms will be encouraged to make at least one independent board seat available to diverse candidates within two years of that funding. Other venture firms who wish to join our campaign can sign on via Twitter using the hashtag #DiverseFromTheStart.
Now of course, any competitive process for hiring a board member may end with a male or a white board member, but we think the #DiverseFromTheStart effort will still make startup cultures significantly more diverse:
- First, just by opening early-stage boards to an independent member, and not just VCs
- Second, by being aggressive about soliciting a diverse set of candidates to participate, and
- Third, by explicitly recognizing as one criterion for selecting a candidate the value that a diverse board member would bring to the company.
Unlike investors who take board seats, these independent board members will likely require some form of compensation. One way that we suggest thinking about compensation is that startups offer the same number of options they would give to an engineering director, and also agree to cover expenses for traveling to board meetings. Of course, every startup is different and should compensate based on what makes the most sense for their business. This equity expense is meaningless if the company fails, and inconsequential if the company succeeds.
We believe this change will lead to more diverse startup boards. And we believe that a more diverse startup culture will renew the technology industry’s leadership in the business world at large.
Glenn Kelman (@glennkelman) is Redfin’s CEO and Bridget Frey (@SVBridget) is Redfin’s CTO.