Chief Investment Officer Niall Santamaria shares why diversity is important and how LSV considers these qualities in our investments.
March 21, 2022
During this International Women’s Month, the Laidlaw Scholars Ventures team is considering the importance of diversity and gender equality in the VC pipeline. Our Chief Investment Officer, Niall Santamaria, shares in this article why diversity is important and how LSV considers these qualities in our investments.
There remains a huge disparity in the amount of capital invested in female founders. Forbes suggests that only 17% of venture capital goes to mixed-gender teams, while businesses with only female founders, depending on which country you’re assessing, receive only 2-3%. This gap is unbelievable. Even more shockingly, some estimates suggest that in 2021, this figure managed to fall.
The disparity is particularly astonishing given that 2021 was such a strong year for female-led venture capital (VC) exits. In the US, the exit value of female-founded companies crossed $60bn, almost tripling from the year before, and in Europe, female-founded companies reached a record 23 exits and over €9bn in exit value, both close to double their previous peaks. Research by BCG has shown that women-led businesses deliver more revenue per dollar of investment, so it is ridiculous that the huge funding gap exists when investors chasing returns should surely see the benefit of a more inclusive process.
At Laidlaw Scholars Ventures, every business which has moved through our first round of screening has had a female co-founder. This has happened not by design, but through a clear focus on trying to identify businesses with two key strengths that are paramount in early-stage businesses: 1) Founder market fit and 2) Team balance. When VCs see these as key priorities, it becomes obvious that they must gravitate towards mixed teams to deliver returns.
Early-stage investors selecting the best founders to solve a certain problem should be searching for founders who are managing differently, breaking the norm, and innovating.
If these investors instead hold a narrow view of what a founder should be and do not facilitate equal access to funds, they will inevitably exclude the individuals who possess these very traits. Unearthing a team that has the experience, network and vision to revolutionise a market is extremely hard, and doing it while only offering an opportunity to a certain type is even harder.
In terms of team balance, it is also hugely important that Founders work with and find complementary skillsets in their leadership team. Whether this diversity is in mixed gender, race, socioeconomic, or geographic background, diverse teams are much more likely to strike the right balance of technical and emotional skills that are required to scale a business.
Teams often focus on ensuring that members have complementary technical skills. However, with the numerous challenges founders face in the early stages, a broader, more varied leadership style and emotional intelligence can deliver a more inspired team and company. Having diversity of experience, thought, network and knowledge allows for a better perspective on the market and a better ability to solve problems creatively that we believe will deliver more successful outcomes.
We know that our 100% record of mixed teams in our process may not last. But in our search for the strongest, most innovative founders, we will inevitably select teams with wide-ranging and complementary strengths and backgrounds. We are delighted that our approach is delivering a far more diverse group of Founders than the traditional VC pipeline so far, and we believe that our returns will prove the value of our methods.
Laidlaw Scholars Ventures (LSV) is a for-profit business investing in start-ups founded and run by Laidlaw Scholars. Backed by a $50m fund, LSV accelerates Good Businesses by financing growth, providing support services, delivering extensive training and development, and bringing a network of expert advisors and mentors. All profits from LSV will be returned to the Laidlaw Foundation to invest in its educational programmes designed to break the cycle of poverty, reduce inequality and develop a new generation of ethical leaders.
The Laidlaw Foundation invests in the education of the underprivileged and underrepresented in order to break the cycle of poverty, reduce inequality and develop a new generation of leaders. We believe that education is the single most powerful tool to break the cycle of poverty and reduce inequality in the world. We invest in the education of the underprivileged and the underrepresented in order to create systemic change.
Our goal is to develop a new generation of engaged global citizens and leaders; who embrace research, make data-driven decisions and believe that there is a moral imperative to act with integrity.