VC firms have begun to unofficially implement the NFL’s Rooney Rule to help access diverse pools of talent.
“One of the challenges with hiring is just making sure that you have a diverse candidate pool,” said Cassie Young, operating partner at seed-stage New York manager Primary Venture Partners. “One of the things that we adopted last year was we actually borrowed the NFL’s Rooney Rule. And we’ve actually put the Rooney Rule in place for every role at Primary.”
Established in 2003, the National Football League’s Rooney Rule, named after the late Dan Rooney, owner of the Pittsburgh Steelers and chairman of the league’s diversity committee, is a policy requiring every league team with a head coach vacancy to interview at least one, ideally more, diverse candidates. The policy has been viewed as a success. In 2009, the NFL expanded it to include general manager and equivalent front-office positions.
The NFL-to-VC pipeline has thrived for decades as a number of retired and current players, including Joe Montana, Aaron Rogers, Malcom Jenkins and Devin McCourty, among many others, have launched venture funds or have invested as LPs. In addition to the league itself, 32 Equity serves as the NFL’s own official venture arm.
And now some of the former players are taking the NFL policies with them.
Will Allen, former Pittsburgh Steelers safety and co-founder of Magarac Venture Partners, has implemented the rule as the base of the firm’s overall strategy. The firm, which launched in Pittsburgh this week, plans to target one-third of its investment commitments to underrepresented founders.
Venture capital adopting the Rooney Rule is not a particularly new strategy, as the Columbus, Ohio-based NCT Ventures said in 2014 it was implementing it. Scott Stringer, New York City’s pension system comptroller and fiduciary for the five pension fund system, announced his commitment to the rule in late 2019. He also sent letters to 56 large corporations, including Berkshire Hathaway, AT&T and Delta Air Lines, with the retirement system promising to “file shareholder proposals at companies with lack of apparent racial diversity at the highest levels,” a news release from the comptroller said.
But for VC, which has often been viewed as an elite club for small groups of fund managers hoping to make industry-disruptive investments, making significant change at the firm level and with portfolio companies has become a priority. And at least for Primary Venture Partners, which began following the Rooney Rule a year ago, the results seem to be working to meet the firm’s immediate goals.
For Primary Venture Partners, the immediate goal is to ensure 100 percent of its companies track diversity information, and quarter-over-quarter, exhibit improvements with the number of underrepresented minorities and women in the total employee population, as well as in the C-suite.
“I’m a big believer in this trickle-down effect,” Primary’s Young said. “If we elevate more minorities, whether it’s underrepresented founders, BIPOC or women, into executive positions, that will have a trickle-down effect on minorities as founders.”
The New York firm in late February raised $200 million for a pair of funds.
Impact of Rooney Rule
But looking at the Rooney Rule’s effect on hitting diversity targets could cause some worry. While the overall effect of the rule on hiring practices in the NFL has been examined at various stages of its nearly 18 years in place, some claim it might not be achieving what it set out to.
A study by Indiana University economist Todd Walker determined the rule has had little impact on the hiring of minority coaches, and it found little evidence of racial discrimination in the hiring of coaches in the NFL, either before or after the rule was adopted.
“Our conclusion isn’t that racial discrimination doesn’t exist or that it’s not important,” Walker said. “But if the goal is to increase the number of minority coaches, the question is, how do you go about doing that? We find that maybe the Rooney Rule isn’t the best way.”
The author suggests that if the goal is to increase the number of minorities, it should focus on getting more African-American and Hispanics in the pipeline through low-level positions. This could have implications for other industries, including venture capital, which set out to implement a similar policy.
For venture-backed companies with established teams, this trickle-down approach may work to create more diverse teams over time, or place diverse candidates in high-level positions quicker than normal. But for start-ups in the early stages of raising funds, setting diversity goals from the get-go may prove more fruitful in the short term.
“It is so critical to start to develop that balance in the earliest days of the company so that it is just a force for driving future recruiting,” Young said. “It’s not uncommon now when I work with really early-stage founders, they are being very deliberate about even the first five hires, so that it sets up a pace and tempo for what diversity should look like moving forward.”