'We've got a lot of work to do': Venture capital makes diversity push

Paul Naphtali is worried that he keeps on seeing the same sort of people approaching him for funding.

The 44-year-old co-founder of early stage venture capital fund Rampersand says the majority of founders seeking investment in Australia are white males like him and more diversity is needed.

"There is a funding gap for early stage companies full stop but it's really stark when it comes to under-represented founders," he says.

Left to right: Cleo Westhorpe from Pivot, Rachel Yang from Giant Leap, Paul Naphtali from Rampersand, Jay Sutaria from Hike and Taryn Pieterse from Rampersand following the Open Office Hours event. Credit: Luis Enrique Ascui

Rampersand has analysed the capital raises announced in the last year for companies with headquarters in Australia which had raised a seed, series A or series B round.

Of the 137 companies identified there were only 21 per cent (29 companies) with "non-Anglo" founders and 11 per cent with a woman founder.

In total these 137 companies raised over $800 million in their lifetime but companies with non-Anglo founders accounted for 20 per cent of that total and women founders accounted for 3 per cent.

The analysis was limited to non-Anglo and women founders as information about LGBTQI+ founders, founders with a disability and founders from a migrant background was only available if founders chose to self identify. Naphtali says the results are still shocking.

"There's been so much attention, particularly around women founders for the last few years," he says. "To still see such a lack of representation in the flow of dollars, I was quite taken aback by that."

Off the back of the data Rampersand and startup body Launch Vic ran an 'Open Office Hours' program last week with the aim of enabling a diverse group of founders to meet with venture capital funds and angel investors with the program attracting 40 investors and 197 founders.

Of the founders 74 per cent identified as under-represented in one or more ways with 37 per cent migrant founders, 27 per cent women founders, 21 per cent of founders from a non-anglo background, 3 per cent of LGBTQI+ founders, 2 per cent regional or remote based founders and 1 per cent Aboriginal or Torres Strait Islander founders.

"Just seeing the level of founder response that just poured in was both heartening because it shows that programs like this are resonating, but also disheartening because it shows programs like this are so necessary," Naphtali says. "I think if the ambition here is to level the playing field for access to capital we've got a lot of work to do."

Founders including Cleo Westhorpe from education startup Pivot and Jay Sutaria from sales software startup Hike had two 30 minute discussions with a venture capital fund or angel investor.

"As a female-led and female-founded company sometimes it has been difficult to crack through and even to be part of the network," Westhorpe says.

Sutaria, who comes from a migrant background, says he often feels like an outsider at startup events but the open office hours enabled him to make connections.

"When you see women startup founders, migrant founders and first Australian founders, you see them founding companies but you do not see them in the media securing the funding," he says.

Naphtali co-founded Rampersand in 2013 after working in senior marketing roles in the startups in the United States and identifying a funding gap for early stage founders upon returning to Australia.

In the beginning Naphtali says Rampersand's first $6 million fund was essentially backed by family and friends but he says the gap he identified remains with the venture capital firm launching a $50 million fund in 2016 and a $30 million fund last year.

Rampersand plans to launch another similarly sized fund next year on the back of surging interest in technology companies driven by Covid-19 which Naphtali describes as "the most unprecedented technology adoption forcing factor that I think we'll ever see in our lifetimes".

As work, school and shopping moved online in the wake of the coronavirus pandemic, demand surged for the technology that makes those interactions possible evident in the frenzy of initial public offerings for technology companies from Nuix in Australia to Airbnb in the United States.

Naphtali says the majority of Rampersand's investments have grown through the period with companies like delivery startup Sendle rocketing and talent marketplace Expert360 backing the shift to remote work before it happened.

Naphtali believes strongly the strength of the tech sector will continue post-COVID-19 and says "the genie is out of the bottle" but he wants to see a broader group of founders getting funding.

"A VC's job is in some ways very simple," he says. "We've just got to make sure we're meeting with the most outstanding founders of the country, making good decisions about them, and then helping them on their journey."

For Naphtali its the first element that raises questions.

"How do you make sure that you're seeing the best founders?" he asks. "Things like the Open Office Hours program help all funds do that."