Silicon Valley’s yawning equity gap


January 20, 2020

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Happy Martin Luther King Jr. Day, everyone. However you’re spending the day, it’s worth pausing to remember Dr. King’s dream of ending racial discrimination.

So we’re talking about the more important kind of equity — involving people, not stock options. Today we ask:

  • What have we accomplished? 
  • What have we failed to accomplish? 
  • What’s next?
The Hustle Daily Email

The state of diversity in tech

It’s been 55 years, 6 months, and 19 days since the President Lyndon Johnson signed the Civil Rights Act of 1964, which banned employers (and everyone else) from discriminating based on race, color, religion, sex, or national origin.

So, are workplaces more equal in 2020 than they were back then?

Well, judging by employment statistics, the gap is closing, but it definitely hasn’t disappeared. Here’s a closer look at the national picture:

Overall, racial equity in employment has improved

The black unemployment rate fell to 5.5% last August, the lowest point ever recorded since the Bureau of Labor Statistics started tracking unemployment rates by race in the 1970s.

And unemployment among workers who identify as Hispanic or Latino also fell to a record low of 4.2%.

But… 

Since the 1970s, unemployment among minority groups has remained consistently higher than the unemployment rate among white workers (with the occasional exception of Asian workers), as the graph below shows.

Unemployment rate in US, by race/ethnicity graph

And minority workers also lag behind their white peers in earnings thanks to discriminatory policies that concentrated them in the-lowest paying industries.

People of color remain

  • Overrepresented in chronically underpaid industries (like agriculture, domestic, and service work), and
  • Underrepresented in most of the highest-paying industries — like tech.

And the gap in Silicon Valley is baaad

Diversity in the VC community, for example, is way worse than average. Data compiled from 1.5k VC investors in 2018, for example, showed that: 

  • 3% of VCs were black
  • 1% of VCs were Hispanic, and
  • 18% of VCs were women

The data also illustrates that most VCs share remarkably similar backgrounds, which means that people who don’t share those backgrounds often find it harder to break into Silicon Valley’s insular world. 

Consider this:

  • 58% of VCs were white men
  • 40% of VCs went to Stanford or Harvard (that’s 10x the percentage of black and Hispanic VCs combined) 

But even in the tech industry, employers are making progress: In the past few years, diversity and inclusion reports have become common, and a number of minority-focused VC funds have formed to support minority entrepreneurs and businesses.

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Diversity report image

About those diversity and inclusion reports: They aren’t pretty

But their existence is still a big deal.

The biggest tech companies started publishing diversity and inclusion reports about 6 years ago, but the last few years have shown some stubborn patterns.

At Google and Microsoft, for example, the percentage of black and Hispanic workers didn’t even increase by a percentage point between 2014 and 2019.

Here’s a look at how diversity at a few big companies lags behind national averages:

Diversity in Big Tech chart

(Data from a The Center for Investigative Reporting report; Statista)

But… 

The public reporting of these figures is an important step toward creating more diverse workplaces.

Employers and investors are also realizing that increasing diversity can be good for business.

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diversity image

A growing number of investment funds are focusing specifically on minority groups

Minority groups are underrepresented at tech companies, and investment funds are trying to change that by supporting business leaders with non-traditional backgrounds (i.e. people who didn’t go to Stanford or Harvard).

Here are a few of the most noteworthy:

  • Harlem Capital Partners is a diversity-focused VC firm that’s “on a mission to change the face of entrepreneurship by investing in 1,000 diverse founders over the next 20 years.”
  • SoGal Ventures is a female-led VC firm that invests in “early stage diverse founding teams in the US and Asia.”
  • Founders First Capital Partners is a diversity-focused funding and development platform that focuses on “supporting businesses led by women, ethnic minorities, and military veterans.”
  • Ada Ventures is a diversity-focused fund that prioritizes “overlooked founders and markets.”

Even large, institutional investors are starting to invest in leaders from minority groups (The Information even publishes a “VC Diversity Index” to track the ones doing the best job).

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Sterlings Mobile hair salon image

Photo by David Curleigh

Different trailer, similar perk: How Sterlings Mobile innovated hair service on the go 

When Kush Kapila thought about starting a mobile hair salon, he knew his business wouldn’t be the first. But he had a plan for differentiation. 

“I looked at the landscape, and everyone did like a white truck or RV,” he says. “And then they would park on the side of the road like a food truck.”

The look may have worked for food, but Kapila figured people wanted something different for a service. That’s why he launched Sterlings Mobile using an Airstream trailer, the sleek aluminum variety loved by celebrities.

Eight years after starting the company, he is doing $600k in annual revenue, with locations in San Diego and Orange County, and plans to expand to the Bay Area. 

His business has boomed through partnerships. Rather than relying on foot traffic coming its way, Sterlings Mobile contracts with companies like Qualcomm and Intuit to offer haircuts at their offices on specific days.

“The innovation for us is we don’t pay rent,” Kapila says, “but we get paid by the companies to be there.”  

  • Founder: Kush Kapila
  • Employees: ~25
  • Years in business: 8
  • Cost to launch: $180k
  • Funding methods: Personal savings
  • 1st-year revenue: $50k
  • Current annual revenue: $600k

Want your story featured? Fill out our Small Business survey. See financials of 600+ companies by subscribing to Trends.

Stephanie Lampkin image

So, how should YOUR business approach diversity and inclusion?

Stephanie Lampkin is the founder and CEO of Blendoor, a company that uses AI and analytics to help companies remove unconscious biases and improve diversity.

In a Q&A with The Hustle, she talked about the reasons for the startup world’s diversity problems and what actions are needed for improvement: 

Q. Why aren’t businesses as diverse as they could be?

It’s much easier to hire people that you know and in your network, and I think particularly given the ways that venture capitalists are incentivized, which is to provide a return on investment for their [limited partners] relatively quickly. That pressure sort of trickles down to startup CEOs. They need to hire quickly. That sort of behavior drives building very homogeneous teams — and once you have built that momentum and that culture, it’s really difficult to switch gears and think really critically about diversity.

Q. What’s the best way for people working in startups and tech to get more serious about diversity?

I think it’s all rooted in incentives. Kapor Capital started with a diversity pledge for all of their new investments… you have to commit to making notable efforts for diversity recruiting and retention. I’m not a big fan of pledges, but it’s a good start. What will really move the needle is when investors make mandates that they will not provide funding for homogenous teams and/or it will impact your valuation. We’re starting to see that a little bit with bigger companies but not so much yet with startups.

Q. How does having a more diverse environment benefit a business? 

There’s actually evidence that homogenous teams early on, when they’re really small and have to move really quickly, tend to perform better. The benefits decline as you grow… fundamental diversity helps avoid groupthink. When you have people with different perspectives and backgrounds, it enables a lot more of a critical eye that is oftentimes absent when you’re dealing with a lack of diversity, particularly diversity of thought. As companies are at the growth and scaling phase, it can be particularly inhibitive of innovation.

Q. What is the most innovative action Blendoor has taken to improve diversity? 

We are actually right as we speak researching ways to build machine learning algorithms that can identify traits, characteristics, and connections among those small groups of individuals that have been able to be successful in joining corporate boards or entering the ranks of executive leadership — women and underrepresented minorities specifically. What we realize is oftentimes the rubrics used to identify talent are either biased toward white, cigender, able-bodied men or they just leave a lot of people out through their filtering mechanisms. We’re trying to leverage data on those who have been successful so that we aren’t inputting our own biases into the algorithms that can surface high-potential candidates.  

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