There is an inextricable link between frontline communities and the effects of climate change. Yet there is a mismatch between those most in need and the people building solutions. Only 2.6 percent of venture capital (VC) funding went to Black and Latinx founders in 2022, and companies with only female founders received just 2.1 percent. While these numbers are relevant to all of VC, we can ascertain the same would apply for climate tech funding.
But diverse perspectives make good business sense. In a 2020 study by Kauffman Fellows and MaC Venture Capital, teams with ethnically diverse founders returned 30 percent more capital to their investors than companies with all-white leaders. Additionally, Pitchbook found that teams with at least one female founder demonstrate faster overall growth.
The data confirms what we know to be intrinsically true — reaching gender-parity and equitable racial representation creates financial, social and environmental benefits.
So instead of focusing on the multiple reasons for the current lack of diversity across the climate tech innovation ecosystem, let’s highlight some organizations currently implementing actionable solutions.
Backing more underrepresented founders
Kauffman Fellows suggests one way to achieve gender parity is by backing more female-founded companies. The same can be said for backing founders of color.
Several firms specifically focus on funding women or founders of color. Energy Impact Partners’ Elevate Future Fund recently closed $111.9 million to support underrepresented founders in the clean energy transition. This is one of the largest funds of its kind, and is backed by large utilities and corporations such as Xcel Energy, Amazon and Microsoft.
Then there are environmental funds with public diversity goals. Bay Bridge Ventures mandates 30 percent of its investment team come from underrepresented communities and 30 percent are made up of women.
One step beyond publishing goals is measuring and sharing the results of diversity efforts. This is something Kapor Capital and Powerhouse Ventures have both done. Kapor Capital released an Impact Report showing the positive financial returns and statistics of women and founders of color in their portfolio. The report proved that their investment thesis of investing in underrepresented founders was not only profitable, but also helped address important gaps in climate and society. Powerhouse Ventures set a goal of 25 percent of its investments for queer, BIPOC or women founders. However, they publicly announced they fell short of this goal by 2 percent. Owning this is an important lesson in identifying gaps in processes and networks that can be improved upon for future investments.
Increasing the number of female and BIPOC investors
Female venture capitalists have shown to invest in double the number of female founding teams than their male counterparts.
All Raise, an organization working to increase the number of women in VC, partners with high growth companies to place qualified underrepresented individuals in board seats. BLCK VC,a non profit that scouts, supports and connects more Black investors, created a scouting program in partnership with top VC firms that equip cohorts of Black investors with the networks, education and tools to make better investments. VC Include invests specifically in diverse led climate funds.
Another way to increase diverse investors is to publicize jobs available at venture firms. Advertising open roles, and specifically seeking diverse candidates can help increase more women and people of color in VC.
Providing better access to education and resources
Democratized access to resources is important to help founders navigate funding sources, partnerships and networks. Investors such as Elevate Future Fund provide programming through mentorships, community and infrastructure to support an ecosystem of underrepresented entrepreneurs.
Elemental Excelerator’s Equity & Access program is designed to advance solutions with, and in, frontline communities by providing specific models to implement equitable climate action. Elemental and Clean Energy Leadership Institute also partner on EDICT, an internship program specifically focused on placing a diverse pipeline of talent in climate organizations. 53 companies have hosted EDICT interns, with the program in its third year of operation.
Many underrepresented founders don’t have investor networks and access to friends and family money when first starting companies. They also don’t have as broad of a network for mentorship.
Thus, creating these communities can help founders who wouldn’t otherwise have access to connections in the investment space. Platforms such as WOC/CS, GreenTech Noir and Browning the Green Space bring together women and communities of color to increase access to mentorship and contacts in climate tech. They do this through online sessions, in-person events, strategic partnerships with climate organizations, talent networks and job boards.
These can lead to more underrepresented hires in the early stages of startups. Often those hired first receive a greater amount of equity in a company than later hires. When a company exits, those early hires get the largest payout, and can then use those resources to invest or start more companies.
There is no silver bullet to fix the diversity problem in climate tech startups and investments. A systemic, economic and industry-wide approach is needed to ensure we are creating the proper solutions to meet community needs. There is no better time than now to capitalize on the efforts already underway to create the equitable future we want to see.