Not Just Silicon Valley: Why American Business Has a Diversity Issue

hand giving money  isolated on...
hand giving money isolated on...

The successes of Silicon Valley are well-chronicled -- some of our brightest minds take a singular idea and turn it into a billion-dollar company that changes the world. Every venture capitalist across the United States aims to be the one who discovers the next Facebook, Snapchat, or Uber, so naturally, the first step is to try and emulate what has already worked so well in regards to business models and investment structures.

In these circumstances however, it's not just the positive attributes that often come with Silicon Valley's sought-after models for investment success. Some of the negative aspects of the dealings within Silicon Valley inevitably also end up being replicated -- most unintentionally. One such unintended consequence might be the permeation of practices that make it more difficult for women and minorities to compete far beyond the Northern California zip codes that make up the Valley, due to its own well-chronicled struggles with diversity.

While it's disappointing that race and gender continue to preclude talented and innovative individuals from accessing the same opportunities as others, the real concern is that this issue doesn't begin and end in Silicon Valley as many people think. It travels in tandem with Silicon Valley's influence in business across America.

This is particularly true when it comes to startups seeking funds to jumpstart their business. A venture investor's goal is to minimize their risks while maximizing their potential for rewards. Therefore, they like to put their money into what they know, people they are familiar with, and business models they find comfort in. This was well-chronicled in a recent TechCrunch piece that detailed the various ways venture capitalists succumb to bias.

The Silicon Valley approach is most often to quickly sort through those that don't almost perfectly align with your model of success to find those same, comfortable scenarios many are used to -- alumni from their college, former employees of big name companies, or mutual connections. The end result is the perceived risk vs. reward profiles that are biased toward what these investors already know.

Given the volume of proposals venture funds must sort and filter through, one can imagine the number of innovative and potentially profitable business plans that are never invested in because they don't fit into the mold of commonality. An unintentional consequence of this approach is proving to be a bias against individuals who do not fit into a precast mold, which inherently has some VCs seeing greater risk than reward.

I'm not suggesting that the majority of Silicon Valley is intentionally discriminating against certain genders or races, but the numbers are startling -- a report from 2010 stated 87 percent of startup founders that received VC funds were white, while only one percent were African American. There is something to be said about unintentional cognitive biases, as outlined by the TechCrunch piece, and how they are affecting the way VCs see potential risk of change versus investing in the comfort of what they know.

Cognitive bias refers to a systematic pattern of deviation from norm or rationality in judgment, whereby inferences about other people and situations may be drawn in an illogical fashion. Flaws in perception of what is high risk vs. high reward can lead to blind spots in decision making that generate bias toward some business models and away from others, and for some people and away from others. This leads to both racial and gender bias as well. So it's logical that there is too much comfort with the model that is already in place, which generally involves a young, Caucasian or Asian male leading a company that goes on to be entrusted with hundreds of millions of dollars - funds that often originate from public coffers via pension funds.

By far the largest source of capital for most venture funds is state run pension funds. So if anyone could affect change, one would assume that it would be the individual states themselves, by breaking through the perceived risks and providing a platform of equal opportunity to all. While it is fairly common to see states and cities across the country striving to ensure that all of their citizens, including their underserved minority groups, have equal access to the basic life necessities such as housing, education, and now healthcare, it might be time that they also consider affording equal access to venture capital and other investment resources.

When discussing inequalities and the lack of diversity in Silicon Valley, it has become far too common to call for the large companies in the area to instill better hiring practices to onboard more minorities and women. This obviously would be a positive step in the right direction, however there has to be a broader consideration given to the wider issues at hand that have sprawled outside of California and across the nation and likely beyond.