Diversity is an essential part of Ulu’s investment thesis. This is both a socially beneficial conviction and smart business. This guiding principle has consistently provided Ulu Ventures a meaningful advantage in sourcing and ultimately funding high-performing founders and firms that other venture firms systematically overlook.
Our convictions around diversity are grounded in both the lived experience of our founders as well as abundant empirical evidence.
Consider the following:
McKinsey & Company reported in 2015 on 366 public companies. Their finding? Top quartile companies for ethnic and racial diversity in management were 35% more likely to have financial returns above their industry mean. Companies in the top quartile for gender diversity were 15% more likely to have returns above the industry mean.
In 2012, Credit Suisse found that “ . . . Large-cap companies with at least one woman on the board have outperformed their peer group with no women on the-board by 26% over the last six years.”
A study conducted by professors Cristian Deszö of the University of Maryland and David Ross of Columbia University of the top 1500 firms in the S&P composite list examined the gender composition of top management teams from 1992 through 2006. They concluded that the presence of women in top leadership roles increased enterprise value as well as investments in innovation.
More recently, research by Paul Gompers supports the same conclusions in venture capital-backed companies. After first noting the overwhelming gender and racial homogeneity of Venture Capital . . .
- 8% of investors are women
- 2% are Hispanic
- 1% are African American (actually less)
. . . Gompers goes on to articulate the price investors and their limited partners pay for this lack of diversity writ large:
What does all that mean for performance? How do the financial outcomes of homogeneous partnerships compare with those of diverse collaborations? The difference is dramatic. Along all dimensions measured, the more similar the investment partners, the lower their investments’ performance. For example, the success rate of acquisitions and IPOs was 11.5% lower, on average, for investments by partners with shared school backgrounds than for those by partners from different schools. The effect of shared ethnicity was even stronger, reducing an investment’s comparative success rate by 26.4% to 32.2%.
Digging deeper, there are research-based conclusions why diverse teams are more likely to achieve superior results.
For example, researchers at the University of Michigan made a detailed case that diverse groups are more objective problem solvers.
In a similar vein, the authors of a Harvard Business Review article called “Why Diverse Teams are Smarter” observe that diverse teams have a pronounced tendency to:
- More actively seek information and evidence to support their decision making
- Process information more carefully and thoroughly
- Consider and implement more innovative ideas
Unfortunately, most VC “pattern matching” overlooks entrepreneurs who come from diverse communities and backgrounds.
For example, in 2018, all-women teams received 2.2% of VC dollars, 5.4% of VC-backed companies had women CEOs, and LatinX and African American founders combined represented less than 3% of entrepreneurs awarded venture capital.
In contrast, Ulu focuses attention on sourcing great entrepreneurs in Historically Underrepresented Groups (HUGs), as well as other US-born minorities (e.g., those of Asian, Indian, and Middle Eastern ancestry) and entrepreneurs who are immigrants of non-European ancestry.
This commitment to sourcing diverse founders has demonstrable results. For example, we made 68 investments through Ulu Ventures Fund II. 41% of our companies have diverse (women and minority including URM) CEOs and 59% of our companies have diverse founders.
While diversity remains a core and consistent investment thesis for Ulu, the firm invests in entrepreneurs of all kinds. By applying the same criteria to all entrepreneurs, regardless of gender, race or heritage, we find talent and great returns come in many colors.