May 7th, 2019

Driving Gender Diversity in our Ecosystem: the Limited Partner Perspective

This year’s edition of the Women in Venture Report has found there is still room for improvement across our ecosystem: 13.5% of partners at venture capital firms in Canada and the USA are women, and only 10% of LP dollars in 2019 went to funds with women managing partners.  This impacts stakeholders across our ecosystem: from founders, to venture capital firms, to individual LPs and institutional funds.

We asked investors at two Canadian institutional funds, Northleaf Capital Partners and Teralys Capital, what they thought of this year’s findings, and how individuals and organizations can play a role in driving change for our ecosystem.

Diversity as both a Moral and Business Imperative

“We see multiple ways in which diversity can contribute to the success of a venture fund,” shared Teralys Capital. “Diversity of background, life experience, thoughts and opinions spurs more profound discussions and consequently identification of opportunities that others might overlook as a result of group-think. In the ever-changing and increasingly competitive venture landscape, a wider range of perspective will only contribute to and not hinder success.”

“For us, the pursuit of diversity and inclusion as well as gender balance and equality is both a moral and an economic imperative for success,” says Lauren Harris of Northleaf Capital Partners. “Gender diversity within management teams correlates with better organizational effectiveness, as well as better financial results. Like many successful companies, we see inclusion, diversity and gender balance as a competitive advantage and a key factor in ensuring sustainable growth.”

A Multi-Faceted Approach to Driving Change

“Achieving real, long-term change with respect to gender balance will require fundamental cultural change,” shares Lauren Harris.  “While changing the culture of a company or even an industry isn’t easy and requires time and true leadership and commitment, it is possible to “kick start” such a transformation through some immediate, concrete initiatives. This includes developing skills and talent and role modelling best practices in key areas such as hiring practices and recruiting, while at the same time laying the foundation for true cultural transformation over the longer term.''

“We believe that developing skills and talent is a key initiative that will help increase the representation of women in venture capital. This involves opportunities to broaden and strengthen the skills of women in the venture capital ecosystem. It also must be accompanied by ongoing efforts to educate other participants (including investors, policymakers, entrepreneurs and management teams) about the importance and real value of gender balance.”

Creating Career Opportunities in Private Capital

Promoting opportunities for early-career professionals is critical, says the team at Teralys Capital: “Putting in place the right recruitment measures to ensure a wider hiring pool is essential to increasing representation, whether it be through involvement in the ecosystem and universities, or modifying job description language to ensure inclusivity. We have to ensure that we are building the next generation of talent.”

And it’s never too early to start: “At Teralys, we believe that fostering the entrepreneurial and investing mindset and exposure to the world of innovation should start early and as such, we support programs in the community spearheading this mandate within secondary schools.”

Taking Concrete Steps as Institutional Investors

Both Northleaf Capital Partners and Teralys Capital have been selected to receive investments under the Canadian Federal Government's Venture Capital Catalyst Initiative. Each recipient demonstrated how it would enhance diversity and increase the participation of women across the venture capital ecosystem, and recipients will report on the outcome of their strategies.

Among other initiatives, Teralys Capital has implemented a process to assess the diversity and inclusion of GPs through a scorecard they have designed with input from diversity and inclusion experts:

“It not only takes into account the diversity numbers at the time of our due diligence, but also whether or not a firm has the right conditions to attract and retain diverse talents and to allow every team member to thrive. Teralys’ scorecard is much more than a scoring tool: it identifies gaps and provides direction to firms which strive to create a more diverse and inclusive business environment.”

As a part of Northleaf Capital Partners’s Canadian venture capital mandate (Northleaf Venture Catalyst Fund II), the firm’s focus on gender balance and diversity is part of their ongoing commitment to the development of the Canadian venture capital ecosystem more broadly:

“We believe that LPs need to lead by example. If we are requiring or requesting that diversity and inclusion be a priority for our GPs, then we have to prioritize it as well.”

For a full look at the current state of gender diversity in venture capital, read the 2019 Women in Venture Report