Historically, the startup ecosystem — especially in the B2B space — has not been inclusive. Less than 20 percent of developers are women and only 13 percent of venture capital (VC) dollars go to startups with at least one female founder.
SAP believes it can change status quo by focusing on three impact areas:
- Improving access to VC funding for women and underrepresented minorities in technology
- Creating an inclusive community of mentors
- Injecting diversity into the leadership of accelerators and VC organizations.
Corporations can a lead here in making a difference. For instance, SAP recently launched SAP.iO No Boundaries, an initiative where it will commit funds and incubate over 200 startups in the next five years. SAP plans to achieve this goal by committing up to 40 percent of its investible capital in SAP.iO Fund toward women and minority entrepreneurs and scaling the SAP.iO Foundries program with focus on inclusive entrepreneurship.
We need more of these initiatives, where corporations, VC firms, and the public sector can come together to improve the diversity of the startup ecosystem.
Why Diversity Matters for Innovation
Innovation has always been about generating good ideas by challenging the status quo with new viewpoints. That is why diversity is fundamental to the sustained success of any innovation ecosystem. Promoting diversity in entrepreneurship and technological innovation can deliver greater economic and societal value. As society experiments with new technologies such as artificial intelligence (AI), we must be careful to ensure that our own individual biases do not taint the data we use to train AI algorithms. Training data must accurately represent human viewpoints from the global population, so that AI can augment humans ethically, safely, and fairly.
Today, examples abound demonstrating the need for diversity in the training of AI. For example, 45 percent of ImageNet data, which is commonly used to train computer vision algorithms, comes from the U.S., while only three percent comes from China and India combined. This is a problem when you consider that China and India together represent 36 percent of the global population and the U.S. only represents four percent.
But diversity doesn’t just lead to better technology, it leads to better business and financial results. On average, companies with more diverse leadership teams report almost 20 percent higher revenues from innovation. More specifically, within the startup ecosystem, numerous studies have found that diversity in the leadership ranks yields a better return on investment (ROI) for investors and better exits for entrepreneurs. One such study showed that, over a five-year period, for every dollar of VC invested, female-led or female-co-founded startups generated 78 cents of revenue, while male-led startups only generated 31 cents.
Level the Playing Field for Women and Minority Entrepreneurs
The startup ecosystem has not been inclusive in U.S. and Europe. Consider these 2018 facts:
- Only 13 percent of U.S. VC funding went to founding teams that have at least one woman.
- Less than five percent of all funds raised by European VC-backed companies went to founding teams with at least one female founder.
- Across both the U.S. and Europe, less than two percent of VC funding went to all-female founding teams.
- Black women have raised just 0.0006 percent of all tech venture funding since 2006.
Many of these issues arise from the fact that less than 20 percent of software developers are female. There needs to be a structural change in the STEM education model to attract more female developers, which would result in more aspiring female entrepreneurs. In the near term, there is an opportunity to improve the state of women and minority entrepreneurs.
Change Must Happen in Three Key Areas
The startup ecosystem needs to better nurture inclusive entrepreneurship by driving change in three interrelated areas:
- Improving access to VC funding for women and underrepresented minorities in technology: Although there has been increased focus on VC investments to women- and minority-led startups with the advent of dedicated funds for these underrepresented entrepreneurs, inclusive investment is still not standard practice for the industry. Across the board, VCs should proactively increase funding to diverse founders, as there is clear evidence that diverse teams outperform non-diverse teams. More than anything, investing in women and minorities is a better business bet.
- Creating an inclusive community of mentors: Mentors provide entrepreneurs with role models and resources for addressing their most critical strategic and operational challenges. Mentors also provide valuable advice to founders on how to articulate the value of their ideas for the VC audience and how to raise money effectively. However today, nearly 50 percent of female founders cite a lack of available mentors or advisors as holding them back. Startup accelerators are a proven way to mentor and help startups scale, especially at an early stage. By having dedicated cohorts focused on women and minority entrepreneurs, we can dramatically increase the mentor network for these entrepreneurs.
- Injecting diversity into the leadership of accelerators and VC organizations: For VCs, having a diverse leadership team that is managing both investment and growth enables a culture of diversity and inclusion that permeates everything they do. With a more balanced VC management team, much of the unconscious bias that has impacted the industry will disappear on its own. In the U.S., only eight percent of VC investors are women, and racial minorities are also underrepresented in the funder community — only about two percent of VC investors are hispanic, and fewer than one percent are black. VC firms need to be proactive in embedding a culture of diversity and inclusion in their management teams.
By addressing these three areas, governments, businesses, and societies can better connect underrepresented entrepreneurs to the resources they need to be successful in starting and growing business ventures.
SAP Paves the Way for Inclusive Entrepreneurship
Corporations can lead the way in addressing the current diversity and inclusion opportunity in the startup ecosystem. The recently announced SAP.iO No Boundaries is an example for how private sector organizations can scale inclusive entrepreneurship by driving a focused initiative around the three impact areas.
- Improving access to VC funding: SAP.iO Fund has committed to invest up to 40 percent of its investible capital in women and minority entrepreneurs. This ensures that there is a consistent focus on identifying and investing in these entrepreneurs aligned with the goals of the fund.
- Scaling mentor networks for underrepresented entrepreneurs: SAP.iO will scale its focus on inclusive entrepreneurship in SAP.iO Foundries operating globally. The SAP.iO Foundries location in New York City was established last year to exclusively focus on women and minority founders and has just kicked off its second cohort. The SAP.iO Foundries location in Berlin will dedicate its spring cohort in 2019 to focus on inclusive entrepreneurship.
- Injecting diversity into the leadership of SAP.iO Fund and SAP.iO Foundries: Diversity has been a core value at SAP.iO from the outset. Three out of four accelerators in SAP.iO Foundries are led by a diverse group of women. Over 50 percent of the broader team SAP.iO team are either women or minorities. With this diversity, it is no coincidence that 30 percent of the startups invested and accelerated by SAP.iO have also been led by women or underrepresented minorities.
With these initiatives, SAP is creating a one-of-its-kind forum for inclusive innovation globally.
Deepak Krishnamurthy is chief strategy officer at SAP.