The Venture Truth About Diversity & DEI


A Pendulum Shift

Recent news coverage of Diversity, Equity, and Inclusion (DEI) initiatives suggests that we are in the early stages of a pendulum swing away from such programs.  In 2023, both investors and tech companies significantly reduced ESG funding and programs, and by association, DEI initiatives. Recent public rhetoric is awash with calls that would result in the complete elimination of DEI.  At SineWave Ventures, it has become increasingly clear to us that many of our venture capital colleagues, their institutional Limited Partners, and their portfolio of startups, have similarly become disenchanted with surface-level diversity initiatives.  So why the pendulum swing?

Ultimately, diversity initiatives must drive measurable, substantive results, and at SineWave Ventures, we believe they probably can.  However, current approaches are unlikely to drive such success because both their formulation and implementation are misinformed.  Current DEI initiatives are often optics-driven. Shifting the focus to drive value and outcomes would better serve everybody around the table.  This “shift,” or more accurately, this “correction,” is long overdue, and more importantly, critical to the success of our industry.

Why is diversity such a critical component for success in the tech and VC world?  And how must we correct focus to extract its value?


Thinking Outside the Box

The VC ecosystem, and particularly the institutional capital that funds VC firms, has been re-evaluating the substantive value of deploying diversity and inclusion practices- i.e. the substantive and sustainable value beyond promoting diversity as a shiny little object to tick a marketing or branding box.  At SineWave Ventures, we believe the answer lies in the ability of diverse experiences to expand both thinking and vision.

The ability to “think outside the box” is what causes innovators to create never-before-imagined technologies, entrepreneurs to build revolutionary companies, and venture capitalists to invest in those companies and drive extraordinary returns.  At SineWave Ventures, we have built a Top 5 percentile performing fund with one of the most diverse teams in venture.  And we believe it is because thinking outside the box comes naturally to those who have spent their entire lives outside traditional boxes.  We have been honing that skillset for as long as we can remember — literally since birth.  Our diversity of backgrounds and experiences leads to a diversity of thought, resulting in better decision-making.  Ultimately, this establishes a competitive advantage in identifying the best investment opportunities, frequently missed by inside-the-box thinkers.

But so far, at an industry level, diversity practices designed to break down structural barriers to inclusion have instead created new structural barriers that fail to identify the highest-performing teams and instead promote exclusion.  As an example, I just mentioned that SineWave has one of the most diverse teams in the venture industry. 100% of SineWave’s leadership team is “diverse,” meaning we tick all the traditional “diversity” boxes: people of color, women, LGBTQ, and more.  But despite the substantive evidence that our outside-the-box expertise, relationships, and perspectives have driven outsized returns, SineWave does not qualify for 99% of institutional diversity mandates.  And we are not alone.  The reason: most existing diversity mandates are structurally deficient.  A correction is required to foster the alignment of interests.

Newsflash: Creating more categories is not an effective solution to eliminating categories.  If the benefit of diversity is thinking outside the box, then the approach least likely to achieve diversity goals would be one that tries to put people into boxes.  However, as we all know, this is exactly how diversity policies have been structured.  Boxes serve to unintentionally, at best, and purposefully, at worst, reduce an assessment of the person to the very artificial classifications that these programs are purportedly trying to overcome.  They dehumanize and devalue rather than bring recognition and focus to the substantive value a person might bring to an organization.  Elizabeth Warren is a woman, and so is Ann Coulter, but that is where the similarities end.  Their experiences have led them to very different understandings of how the world works and how it should work.

Boxes and categories are easy, but people are complex.  Seemingly easy solutions can often exacerbate the very problem they intend to solve.  They are also the very mechanism by which we exclude some of the most talented and diverse thinkers among us.  Boxes have defined, structured edges.  They require black and white lines (no pun intended), but diversity is about the colors and shading between and outside those lines.


“Adversity”, not “Diversity”

Perhaps what we should be focused on is adversity, often a product of diversity, but not always.  At SineWave, our job as investors is to work with outstanding entrepreneurs to make the impossible possible.  The journey from idea to successful reality is not easy, even for the fastest growing and seemingly untouchable startups.  It requires lots of trudging through the mud and weathering of the storm.  Entrepreneurs seeking to disrupt and revolutionize always start in the position of David, and usually need to overcome not one, but an army of Goliaths.  This requires persistence and grit.  Overcoming adversity is a sure way to build the kind of drive needed to win in the venture and startup worlds.

While gender, skin color, sexuality and ethnicity may inform out-of-the-box thinking and drive, they are not determinative.  Not every person in a particular group manifests the life lessons of diversity in the same way.  Not all diverse individuals have been through the ringer and faced the same challenges.  Not all of them have lived outside the box, or necessarily developed the skill to think outside the box.  These kinds of distinctions matter, and they matter for every one of the diversity boxes.

As VCs, it is SineWave’s job to find entrepreneurs with a special spark.  Adversity, sometimes driven by diversity, is often what creates the spark.  Out-of-the-box thinking allows one to see the spark and realize its potential.  This spark exists deep inside- not just on the surface.  And that’s where we should focus.


Abundance vs. Scarcity

Venture and entrepreneurship are also fundamentally driven by a belief in possibility.  There has been plenty written on the difference between those who view the world around them as one of abundance or as one of scarcity.  An abundant mindset focuses on limitless potential and resources- a mindset that is both inherent and essential to VC and entrepreneurship.  A scarcity mindset does the opposite, and as a result, leads to short-term coping without long-term problem-solving.  Thus far, the diversity movement seems to have chosen a scarcity approach.  It must refocus with a more productive lens.

You see this scarcity mindset in debates among DEI and ESG folks.  Many only want diversity to mean skin color- but not Indian, Middle Eastern, Hispanic, or Asian.  Many only want to focus on sex and gender, but solely straight males and females, arguing (quite offensively) that LGBTQ people are unidentifiable, blend in, and don’t experience adversity.  Everybody seems to “need” a box, but apparently only their own box, because those with a scarcity mindset perceive limited resources and opportunities.  Worse yet, they justify this perspective by arguing that the adversity and hurt experienced by their category has been worse than that of all others.  And so we move backwards: Those tired of being consider “others” create others amongst the others, forgetting that trudging through mud ruins everybody’s shoes- regardless of the box.

In contrast, out of the box, your scope of vision is limitless.  Out of the box, there are a plethora of ideas, understanding, experiences, and resources that collectively grow the pie for everybody.  Out of the box, you are free to paint outside the lines.  Out of the box, there is only abundance.


Correcting Course

As VCs, we bet on people.  I want to invest in drive, grit, and vision that sees things that aren’t on the surface.   I want to bet on the person who went through fire and came out even stronger.  I do not want to invest in you by making artificial assumptions; I want to invest in you!  That’s how SineWave finds those diamond-in-the-rough entrepreneurs who build amazing companies, change the world, and drive venture capital returns.  And that’s why and how diversity matters to venture capital.  We must define diversity in a qualitative way, to produce the quantitative results that drive returns.  Superficiality just doesn’t cut it.  And isn’t that the fundamental premise in the first place?