Investors and the ‘Pipeline Problem’

How to Build Inclusive Portfolios for Angel and VC Investments

Banu Ozkazanc-Pan, Ph.D., Director, Venture Capital Inclusion Lab

In 2020, diversity, equity and inclusion became higher priorities for investors, but many still wonder how to achieve these goals. To address this question, The Capital Network partnered with the Venture Capital Inclusion Lab at Brown University’s Nelson Entrepreneurship Center for a series of conversations on investors and the ‘pipeline problem’ — a discussion for and by investors aimed at debunking the myth that diversity, equity and inclusion will be remedied once we see more entrepreneurs who are women, minorities and members of other under-represented groups 

The ‘pipeline’ mindset masks important structural challenges within the investment community as pointed out by our panelists. More importantly, the idea of ‘underserved communities’ ignores that demographic shifts in the U.S. will mean that ‘new majority’ founders will soon be Black and LatinX.

What did we learn from our conversations with investors who are building inclusive portfolios? Lots! Here are six actions that investors can take today thanks to Kamal Hassan, Partner at Loyal VC, Senofer Mendoza, Partner at Mendoza Ventures, and Lisa Frusztajer, Venture Partner at Portfolia.

  1. Set a target and make a plan to meet it. Diversify your decision-makers and establish a deadline for doing so. Build a team that reflects the composition of entrepreneurs you want to fund, focusing on equitable distribution of capital to support the next generation of top leaders and employers. Implement structural changes that de-emphasize ‘fit’ and ‘likeability’ as key investment factors in how you make investment decisions. Replace vague objectives like “improvement” or “commitment” with quantifiable measures of what you will achieve.
  1. Change the yardsticks you use to assess entrepreneurs. Consider alternative financing options and return expectations. That’s not to say you should sacrifice returns. Instead, consider benchmarks like measuring where you’re channeling your capital. Or provide revenue-based-funding, or extended timelines for debt. 

Not every company is destined for a 20x IPO; the vast majority are not. You can still be a successful investor without hitting that mark. As you evaluate companies, prioritize ‘business performance to date’ vs. the entrepreneur’s performance at a pitch event. De-emphasize ‘ambition,’ ‘vision’ and ‘compelling pitch’ as investment factors. Or set aside a fixed percentage of your fund for women, BIPOC founders and other under-represented groups.

  1. Each of us can make a difference by taking action. Recognize that all of us as consumers — of products, services and investments — can exert influence.   Like with all powerful movements, whether social or political, joining together amplifies the change we can make.
  1. Build Trust. Get to know the communities you are reaching out to, build trust with them, and create real relationships. Don’t diversify for the headline. Figure out your why and live it across your organization.
  2. Track your portfolio’s diversity statistics at each stage: applications, meetings, diligence, investments. Then look at and learn from the data.
  3. Write the check. If you want to fund diverse people you have to write the check to a person that seems different to you.  You can do this!

Change can be difficult but it is possible–it will take intention, time and resources. Given the shifting trends in the U.S., diversity is the future and those investors who understand its value and adapt today, will find new entrepreneurs and market opportunities and future-proof their portfolio.


The Capital Network is a non-profit (501c3) that helps to democratize access to funding in the Greater Boston Area and Beyond. TCN provides practical, hands-on education and personalized mentoring from investors & experts to help demystify the funding process to thousands of early stage entrepreneurs.

The Venture Capital Inclusion Lab uses a data-driven approach to educate the VC industry and policy makers on inclusion. At the Lab, we believe that an inclusive economy is the foundation of our democracy.