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Having a highly homogeneous (background, education, values, preferences, etc) very early team is better than not — cuts down on time-wasting arguments.
So is a lack of diversity on a founding team as Levchin suggests really good? It’s hard to know with any precision given data is difficult to find, but one proxy for this comes from the Venture Capital Human Capital Report which looked at the demographics of VC-backed internet companies. We wanted to see if venture capitalists funded homogeneous teams more frequently or with more money and looked at two primary team characteristics – race and gender.
Racial Composition of Venture Capital Backed Founding Teams
As the graph below shows, 89% of founding teams were racially homogeneous with 83% being all-white, 5% being all Asian-Pacific Islander and 1% being all-black teams. So when it comes to raising venture capital, homogeneous teams are the norm per this study.
When looking at funding levels, we also see that racially homogeneous teams tended to raise larger rounds vs. those which are racially heterogeneous.
Gender Composition of Venture Backed Founding Teams
When looking at the gender composition of venture capital-backed founding teams, we see that 92% of teams are either all male or all female.
When looking at funding received by team composition, we do see that founding teams composed of both genders did raise larger median venture capital rounds than single gender founding teams.
There are several things to note before drawing any conclusions about Levchin’s comments or this venture capital data especially given the emotions these topics sometimes engender. The reality is that VCs may just see more all-white, all-male teams and hence they get funded vs. VC’s having an explicit preference for homogeneous teams. A classic correlation doesn’t equal causation example.
It’s also worth highlighting that homogeneity in the Levchin sense may be more a mix of demographics and psychographics so a black woman, a white guy and an Indian guy who grew up in middle-class households and who all studied computer science at Stanford may be more similar in values, preferences, pedigree, etc than the gender and racial/ethnic look at the team will reveal.
If you are an entrepreneur seeking funding, irrespective of whether you’re a single founder or part of a diverse or homogeneous team, you should try out our free Funding Recommendation Engine. It algorithmically matches your business to investors based on their actual investment history and not what they say they invest in.