Diversity pays with tech investment

Backing people from different backgrounds is simply good business for tech startups, investors say

diversity

Martin Hauge's assumptions about women cost him a good investment.

The venture capital and angel investor made the admission on stage at Slush in Helsinki, sheepishly recounting an interview where he asked a startup founder "a question I'd never ask a male".

That question was if she'd be willing to move to Silicon Valley for her business.  She said of course. But as she was a mother, he didn't believe she would willingly uproot her children, so chose not to invest.

He was wrong and she "made a great success," and Hauge said he's regretted it ever since. "I missed an opportunity because I was a typical white middle aged man maybe a bit more than middle aged who asked a typical question."

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He added: "I would never ask that question again."

Hauge revealed the story in a panel about diversity, arguing working with a wider range of people can help tech companies and startups be more successful.

"Diversity is not just the good or right thing to do, it's actually good business," agreed Robyn Ward, a consultant and investor based in California, speaking on the same Slush panel. "This is a business about money and numbers, and studies are proving it out." Research suggests female-led firms have a 38% better return on investment than rivals, she pointed out.

Despite the success of diversity on boards and among startup staff, it's "still early days", she added.

And that's one reason why the tech industry benefits from having diversity in investors, be it age, gender, race, country of origin or whatever else. "Cognitive bias is real," said Tracy Doree, founding partner at seed-stage venture fund Kindred. "A woman is three times more likely to back a female CEO." When people from diverse backgrounds succeed, that means they're more likely to encourage or back others, helping expand the diversity of the entire industry which is good news for tech if diversity really does help spark innovation and improve returns on investment.

Diversity could also be one way to usurp incumbent tech hubs, such as Silicon Valley, which grew up before the value of different ways of thinking was valued by technology firms. Ward pointed to LA, where she's based, saying the tech startup she works with there are founded by a much wider group of people than in Silicon Valley, where many people follow the same career path, going to the same schools and working at the same companies. "I do believe other up and coming cities not built on his old school construct will have a bit of an advantage and get a kickstart on diversity from the beginning," she said.

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While Ward and Doree both admitted the industry had a long road ahead of it to diversity, it's had some successes. Hague, after all, has learned his lessons on treating female investors the same as men enough so that he's not only sitting on diversity panels at conferences but his investing partner is female, something he says gives a "different chemistry" when talking to startups versus an all-male investment team. "I find this much better than just one sex being represented," he said.

Hauge said he's already seeing more women founders, but there's work to be done. "Can we speed it up, we middle-aged males? Yes, we can by encouraging more women to enter into this field," he said.

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