Editor’s note: The following story was reported on and written before the covid-19 pandemic escalated last month. We recognize the impact the situation is having throughout the world and specifically on the venture community. Life won’t be normal for a while, but it likely will revert back to a degree at some point. We welcome your input on how the coronavirus and economic setback will impact diversity and inclusion in VC and tech.
It took a while, but diversity hiring is finally a thing in corporate America.
Research from recruiting firm Russell Reynolds Associates, prior to the covid-19 pandemic, found that 47 percent of companies on the S&P 500 index have a chief diversity officer or equivalent and that the vast majority of those people have been in their roles for just three years or less.
Of course, the concept of diversity hiring is nothing new. It’s just that it has never been taken as seriously.
“Twenty years ago, diversity hiring was simply about checking the box and meeting a certain quota to prove you were a good corporate citizen,” says S. Somasegar, a managing director at Madrona Venture Group. “Now, however, more and more leaders realize that a diverse workforce is fundamental to the success of their business.”
The numbers bear him out. A recent McKinsey study found that gender diverse companies were 15 percent more likely to financially outperform their competitors, and that ethnically diverse companies were 35 percent more likely to financially outperform.
The reasoning is that diverse teams are more apt to question the status quo and think differently. They can also provide unique perspectives that are more representative of the customer base, thus helping their companies capture new market share and deliver greater returns.
Somasegar says that employees today really do care about the culture of the companies where they work, and they are more likely to stick around if that culture is aligned with their own beliefs and values.
“Most employees demand to be in an environment where diversity is welcomed and embraced,” he says. “That means diversity can’t be just a secondary priority, it has to be front and center for every business.”
Which start-ups play a role
To that end, there are a surprisingly large number of venture-backed start-ups focused on helping companies hire and retain a diverse workforce.
Somasegar, for one, led his firm’s $6 million Series A investment in SeekOut, of Bellevue, Washington, which aims to give companies a competitive edge when hiring technical talent.
He says that recruiters who limit themselves to traditional talent pools miss out on millions of untapped, high-caliber candidates. SeekOut goes above and beyond typical job sites and recruiting platforms by evaluating all public information about a candidate.
“It could be your LinkedIn profile, it could be a blog post you’ve written, it could be your activity on the GitHub platform, it could be a patent you filed,” Somasegar says. “Any digital footprint from a professional perspective. It gathers all that data and applies AI and machine learning techniques to filter out and surface the right information for recruiters.”
SeekOut also features a search engine for hiring managers. Users can pick the top key attributes they are looking for in a candidate, whether it is diversity, geographic fit, or a particular skillset.
What’s more, the platform helps to eliminate unconscious racial or ethnic bias. It features a “hire blind” switch that allows recruiters to anonymize the candidates by removing photos and converting names to initials. It can even conceal email addresses to further disguise the candidate’s name.
The pipeline is full
Despite signs of progress, corporate America still needs a lot of help with diversity hiring, says Janet Bannister, a partner at Real Ventures. Take, for example, women in tech. She says there is much higher turnover among women. And, as you go up the ladder into the ranks of management, there are fewer and fewer women as a percentage of the workforce.
“People used to say that women in tech was a pipeline issue,” Bannister says. “But we do have women in the pipeline. It’s just that they have not risen as high as we thought they would. The more diverse we can make the senior management ranks, the more diversity will follow. But it’s hard to get that cycle going. If there are no women in senior management, the less likely it is that women will get promoted.”
That’s one reason her firm last year led a $4.2 investing in Plum.io, a hiring and talent management platform provider from Ontario, Canada, which prepares companies for the future of work by more equitably unlocking human potential.
Plum minimizes inherent bias in hiring and talent practices by reducing reliance on bad data or biased data, and by helping companies hire based on innate human talent rather than on resumes and pedigrees.
“Many AI-based recruiting platforms have built-in biases that skew towards men,” Bannister says. “These systems look at who has been hired in the past, who are the top performers and then they go out and find more people like that. The problem is that those people tend to be white males who have all gone to the same schools.”
By contrast, she says Plum enables companies to break free from that cycle by zeroing in on a candidate’s inherent talents and leadership potential, such as their motivation level or their ability to accept feedback and manage their emotions. “By eliminating bias, companies can better identify diverse individuals with the potential for future success in a leadership position,” Bannister says.
As diversity hiring becomes mainstream, more and more start-ups are emerging to help address the issue. Jumpstart in San Francisco recently landed $8.5 million led by Sequoia Capital for its recruitment platform that aims to increase diversity.
Triplebyte of San Francisco secured $35 billion in a Series B round of funding led by YC Continuity for its hiring platform that eliminates bias by focusing on raw skills.
And Entelo, also based in San Francisco, has raised a total of $40.7 million from US Venture Partners, Battery Ventures, Shasta Ventures and others to accelerate diversity hiring across all teams.
Obviously, talent recruitment is a lucrative, multi-billion-dollar market. But it is also highly competitive, with many companies chasing the same dollars.
Tom Stein is a VCJ correspondent from Palo Alto, California. He can be reached at firstname.lastname@example.org.