Sara Choi, a biotech investor and partner at Wing Venture Capital, has invested in nine companies led by women or people of color. But she isn’t motivated by altruism. Choi is looking to make money.
“I gave these founders a chance, and they’re making me and my firm quite successful,” says Choi. “It’s not just charity, they’re actually in their own right some of the best performing companies I think are out there.”
Industry data shows a persistent lag in VC funding toward companies led by women or founders of color. A report published last year by the Alan Turing Institute found that female-founded artificial intelligence companies accounted for just under 3% of VC deals in the United Kingdom over a 10-year period through 2022.
Black founders often receive a similarly slim percentage of funding from VCs. And a more cautious tone about investing in diverse founders has emerged in the wake of a court case involving Atlanta-based Fearless Fund, which invests in businesses led by women of color but is facing a lawsuit alleging discrimination because of this mission.
Choi says that founding a company and raising money requires distinct expertise and that mentorship can help new founders. “But the problem is, who would have insider knowledge?” Asks Choi. “It’s people who come from these backgrounds and privilege, dare I say, who could then instruct the next generation in terms of how to successfully do things that are discrete skills, like raising funds.”
“Venture is a business of pattern recognition,” says Joy Marcus, cofounder of The 98, an early stage venture capital firm that has raised close to $10 million to invest solely in women and technology. “And we don’t have the patterns of women starting companies and getting funded by venture firms. We do have patterns that venture firms are ignoring—of women being very, very successful leaders.”
Two of the women-led AI companies in The 98’s portfolio are Private AI and Stratyfy. Marcus says that because women-led companies don’t get as much funding as those founded by men, they tend to be undervalued. She points to statistics that consistently show that having women on leadership teams results in stronger business performance.
“We have this, you know, sort of boy club of venture capitalists who are funding people like themselves, and it’s a very high-risk business, so it’s really hard to get out of that pattern,” says Marcus. “But on the other hand, they are ignoring data.”
Lately, VC funds are flowing in a more inclusive direction. Female-founded companies generated a record proportion of total VC deal value last year, PitchBook data shows, at 22.8%, when excluding OpenAI’s massive $10 billion raise from Microsoft. There was also a record number of private equity firms owned by women and minorities raising capital in 2023.
“First and foremost, the job of a venture firm is to make money,” says Chris Cunningham, founder and managing partner at C2 Ventures. “By limiting a pool of who you will talk to, you’re potentially limiting [the] greatest opportunities to maximize returns.”
C2 Ventures invests in early stage companies that operate in the most “dirty, dull, and dangerous” verticals, says Cunningham. The VC’s investments include makers of robotic bathroom-cleaning devices and software for dental supply. And while half of the founders of C2’s 45 portfolio companies are either women or people of color, that level of diversity was never a purposeful intent.
“Whether it’s robotics, manufacturing, legal, tech, or waste, those female founders have already addressed those primary points, and they use AI, which we love, as a way to create greater efficiency, speed, make money, and save money,” says Cunningham.
Kanjun Qiu has a unique vantage point as a founder and investor. She’s the CEO of Imbue, a San Francisco–based AI lab that’s raised more than $230 million from investors like Nvidia, Amazon Alexa Fund, former Google CEO Eric Schmidt, and a partner at Outset Capital, which invests in very early stage startups.
“Technology that we build reflects the values of its creators,” says Qiu. “There’s a much more human way to think about building out this technology, in a way that’s empowering to people.”
Qiu founded her first company in 2015 and has seen a positive shift in the tone of her conversations with investors, citing greater cultural awareness of diversity, which has resulted in discussions that flow more naturally today. Underrepresented founders may face some challenges in how they pitch, Qiu explains, at times not asserting the largeness of their goals forcefully enough. That may be culture, as Qiu points to her own experience as a young woman who felt she had to prove herself more before asking for millions of dollars.
“And investors will ding people for that,” says Qiu. “They’ll say, ‘Okay, this isn’t big enough.’”
Female founders also questioned who would reap the benefits of AI if all the money flows in one mostly male, mostly white direction. Take the example of Tali AI, a medication dictation virtual assistant that offers transcribing in English, Spanish, and French. Large language models are more advanced for European languages, and Tali AI is in the process of expanding to make the tool available in Arabic and Hindi, for greater inclusivity.
Clinicians lose upwards of 15 hours per week on documentation, says Tali AI founder and CEO Mahshid Yassaei, resulting in doctor burnout. That can be eased by lessening the amount of time spent on administration and allowing for more direct care with patients.
“When you have a more holistic view, and you see nuances and corner cases of the technology or the service that you’re offering, you’re basically empowered to support a much larger group of users,” says Yassaei.
Ellie Cunningham, chief operating officer at interior-design-tool company Canoa, sees things similarly. She believes that in the best use cases, AI enables workers to speed up tedious tasks and allow for more time to work on aspects of their jobs they enjoy. “If we don’t bring in investment into all kinds of corners of industry, then certain groups just end up getting locked out of those efficiencies,” she notes.
Interior design is predominantly a women-led industry that sits alongside construction and architecture, which are far more male and also tend to get more support from VCs. And while she acknowledges construction is a larger market globally, there’s value in greater investments in the design field.
“I don’t think there’s any active discrimination in terms of investment dollars and capital flowing in,” says Cunningham. “It is a symptom of chronically undervaluing opportunities in markets that may swing more towards a marginalized majority in terms of the workers.”
Lorenzo Thione, a managing director at Gaingels, says the New York–based VC has a strong affinity for investing in diverse companies, including LGBT+ led startups, but it is not a requirement. Thione also helps the startups in Gaingels’ portfolio build a more inclusive organization across three key areas: leadership, governance, and capital.
“Because of our reputation and goodwill that we’ve built, a lot of diverse founders naturally find us and know that there is a path for them to be heard and listened to more than there would be if they were to cold-outreach to some other venture capital firm,” says Thione. But, he adds, “that does not create a difference in the way we evaluate the businesses and the likelihood that we invest.”
