Money... show me! If you want to change Venture Capital, focus on LPs. #openlp

There have been a lot of calls for VC firms to make more hires from the Black and Brown community, as well as to hire more women. Not all hires, however, are made equally.

In venture, it’s all about getting an opportunity to make partner and being included in the carry—the economic upside of a fund. Not only is carry a means of economic mobility, but it’s also a reflection of where decision-making authority is within a fund.

Hiring analysts and associates from underrepresented backgrounds are great, but if there’s no path to ever moving up in the fund, then they’re just doing the heavy lifting for white men to make multiples more money.

As a former institutional investor, one of the stats we focused on was carry distribution. We wanted to know who controls the lion’s share of the cashflows when success happened, because it was often a predictor of firm stability. If up and comers who were doing the hustling had the right incentives, firms could successfully last for multiple generations. If firms held back the economics, keeping things only for partners who were growing long in the tooth, some of the best new investors they had would bolt for other firms or start their own.

What if institutional LPs—often representing the public pension money of diverse communities, or philanthropic foundations focused on improving the world, set targets for these economics. It would be much more than just a hiring quota, which is meaningless if these new employees just churn out after they hit a ceiling. It would be a directive to literally invest in the talent base—to create a path for influence and economic mobility within a firm.

It also broadens the pool of who can attempt to raise a fund. Right now, there are some underrepresented managers out there, but if you can only raise a fund after being funded, or if you start out with wealth, structural inequality is going to hold that pool back. Mentorship and the building of track records within other people’s firms is an important pathway to partner, even in your own fund.

Moreover, what if firms were required to publicly disclose those numbers—not to a person, but to a category? This way, you could see if a three-partner firm had hired a new female partner, but women only controlled 10% of the carry—or whether that new Black principal is getting any carry at all.

If investors from underrepresented groups are ever to go out and create their own funds one day, they need real paths to influence and wealth creation within the firms that hire them. That one only Black female associate hired by a fund otherwise full of white investors throughout its history isn’t going to be able to raise her own fund if she just spins out after a year or two with no deals and carry to call her own.

There are so many different ways to interpret the data on who gets venture and why. Lots of the data is skewed toward later stage rounds and I’ve never ever seen stats on who is pitching. There are lots of problems with access to venture connections that account for some of this, but how you invest and pay your own team is the one indisputable thing that is in a VC firm’s control.

Morever, LPs should be influencing these policies. Very few institutional Limited Partners have reached out to their investors to even ask about VC policy, let along try to influence it. Most of the visible institutional investors have been remarkably absent from these conversations on Twitter, or simply offering the bare minimum.

Why?

Because they’re afraid to lose their access.

They’re afraid to tell the Sequoias and Benchmarks of the world that they want to see commitments to change, for fear of getting kicked out of their next fund.

Well, the tide has changed. If any of these LPs spoke up and then lost their allocations, their stories would become incredibly damaging to those funds.

I’d like to see more efforts here. As someone who spent a long time in the industry before I ever became a partner, I can tell you that the industry’s lack of mentoring and paths to partnership isn’t just laziness or inertia—it’s a serious systematic problem that keeps unequal power structures in place. It’s time for the money to show the industry that it is serious about equality.