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Who the backers back: Why diversity in Australian VC funding portfolios should be made public
Tue, 30th Jan 2024

In 2024, you’d be hard-pressed to find a large organisation that doesn't have a focus on Diversity, Equity and Inclusion (DEI) efforts.  Not only is it an important issue for many employees, but it’s also been shown to have commercial benefits.  

According to a recent McKinsey report, the business case for both gender diversity and ethnic and cultural diversity is clear. Companies with more diversity are more likely to outperform less diverse organisations on profitability.

Their report shows that companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability than companies in the fourth quartile. In fact, the higher the representation, the more likely the company is to outperform their less diverse counterparts.

When it comes to ethnic and cultural diversity, the statistics are equally convincing, with top-quartile companies outperforming those in the fourth quartile by 36% in profitability.

With DEI being important and beneficial to a company’s bottom line, a workplace’s culture and employee values, is it also important for investors to be transparent about the DEI levels of the founders and companies they back?
The state of California in the US says yes. Given the important role that VCs play in the development of innovation ecosystems and in shaping the jobs of tomorrow, I couldn't agree more.
Home to Silicon Valley, the global hub of technology innovation, California has signed the USA’s first VC diversity bill. What that means is that Venture Capital funds will be required by law to disclose the gender and race of the founders they back. 

The driving force behind this F5 Collective, a women-led Australian-based fund that invests exclusively in early stage female founders. 

With women-led startups only getting around 2% of VC funding in the US, F5 Collective say that it’s never been more important to talk about diversity openly and transparently. The new bill will give public oversight to monitor and benchmark diversity across the Venture Capital industry.  A world first forces investors to be accountable for the diversity scorecard of their portfolios.

The Californian law will apply to venture capital funds that either operate in California or receive funds from a California entity, so we may see some interesting statistics revealed from some US-backed Australian investors. But I think Australian lawmakers should go a step further and introduce a similar law here because the VC landscape is not much better in Australia than it is in the US, with funding for female founders also sitting around that measly 2% mark. 

I launched FreightExchange in 2015.  It’s an online platform specifically designed for small to medium businesses that need to ship unconventional freight. 

In 2016, we raised an angel round, and despite growth figures of 300% YoY, we were only able to raise half of our $800,000 goal. Similarly, for our seed round, we aimed for $1.5 million but closed at $750,000. In both instances, I made the decision to close the round in order to allow our small team to focus on the business rather than constantly pitching investors.

When we began raising our seed round, it seemed that most investors were focused on following the Silicon Valley model and only investing in software or consumer businesses. However, I was disheartened to see my male peers, who were running a similar business to mine, raising millions from the same investors I was pitching to.

Building a great team and product and raising money in this industry is challenging for everyone. However, when only 2-4% of funds are being invested in women in the industry, it is a clear indication that we need more diversity. If VCs are more publicly accountable for who they invest in, it gives founders of all genders and ethnicities a clearer picture of who they’re getting into bed with. If the next Canva values DEI and seeks funding from VCs who predominantly support male founders, they may question if their values align. 

It’d also go a long way to ensuring investors don’t “pinkwash”.  If they say they back female founders, and we know it makes good business sense to do so, then they should be happy to prove it.