For more diversity in entrepreneurship, strong networks aren’t the solution, but the root of the problem.

A few days ago, I attended a female founders event in Berlin, an initiative driven by a growing number of wonderful women in Venture Capital, aiming to better connect female founders with female VCs. The panel discussion by senior VC professionals focussed on the best approach to fundraising. All Partners shared their honest experiences and gave very useful tips to the women in the audience.

However, one thing baffled me: Much of the advice to female founders was focussed on networking, more specifically seeking out shared connections on Linkedin between your favourite VCs and your own network, as well as generally reaching out to friends in the VC sector. I don’t think it’s an exaggeration to suggest that most of the attendees had very few if any of those shared connections.

At one point early in the discussion, an example for an approach to early stage fundraising was given. A young individual closely linked to one of the panelist’s networks had received 1.5M GBP from Angel investors consisting of friends from boarding school and men who have attended Eton College, one of the most elite boarding schools in the UK. This individual could raise entirely from a small group of wealthy individuals, no need to even go to seed funds anymore. I wondered how during an evening that is aimed at strengthening diversity in entrepreneurship, such an example could be anything but a big fat slap in the face of 99% of people who are much less privileged and whose entrepreneurial success will likely never be accelerated by such elite networks. While I don’t believe the example was intended to serve as any kind of recommendation to the audience, I felt it showed how hard it is to step away from the exclusive access woven into the day-to-day life of many investors, even if they are themselves women.

When it comes to networks, the engine of our industry, there seems to be widespread acceptance of their power. Yet at the same time, I observe a lack of more critical analysis of networks, as they are not only the magic potion but also part of the very reason for why we see so little diversity in entrepreneurship, VC, PE and other financial sectors. This goes for both female and male VCs, but given that most VCs are men, it predominantly concerns them.

Due to certain characteristics of networks, which result from the social code under which they operate, women, minorities and people from disadvantaged backgrounds can have a much harder time getting access and using networks to their advantage. There is a ton of research that has evolved since the 1980s investigating why some groups struggle more to form career-critical ties than others. “Social networks evolve over time, driven by the shared activities and affiliations of their members, [and] by similarity of individuals’ attributes” (Kossinets & Watts, 2006). One of the reasons for this is a phenomenon called homophily. It refers to the extent to which people who are similar to one another are more likely to form ties than people who are less similar to one another.

“Similarity breeds connection. This principle — the homophily principle — structures network ties of every type, including marriage, friendship, work, advice, support, information transfer, exchange, comembership, and other types of relationship. The result is that people’s personal networks are homogeneous with regard to many sociodemographic, behavioral, and intrapersonal characteristics. Homophily in race and ethnicity creates the strongest divides in our personal environments, with age, religion, education, occupation, and gender following in roughly that order.”

McPherson, Smith-Lovin, & Cook, 2006.

Homophily can be caused both by self-selection (e.g. immigrants seeking out other immigrants to form part of their network to improve social cohesion within a new environment), but can also result from exclusionary processes within networks. For example, past research has found that women have less access to influential individuals and powerful coalitions in organizations (for an overview, see Forret and Doughterty, 2004). There is also evidence that marginalization of women results more from exclusionary processes than from female self-selection processes, even when their network efforts are the same as those of men (e.g. Mehra, Kilduff & Brass, 1998; McCombs, 2003).

What follows is something that we all already know: that in networks as tightly interconnected as those of VCs and founders, existing homophily (most investors and founders being white men from a certain social background) decreases accessibility for a more diverse set of individuals to enter the network and use it as effectively as non-diverse individuals.

In addition, at a time when the #metoo movement has brought to light structural sexism deeply rooted within a range of industries, including VC, there is an increasing number of reports about the difficulty of networking between men and women. For example, some senior male VCs avoid meeting young female founders for after work drinks or dinner to discuss an investment out of fear they might be crossing a line. This of course is not the case for male founders. Career networks are always formed through interpersonal relationships, but society still suggests that in the workplace these differ between people of homogenous versus heterogenous sexes. The aim of this article is not to discuss whether or not such behaviour is appropriate, or how men and women can network best, but to highlight that while fuelling more transparency, progressive movements can potentially further decrease network access for young female founders, as the network they wish to access closes down even more.

As this exclusion is in part caused by the very nature of strong networks, rather than suggesting women and minorities “network better” we have to acknowledge that the very network is what is keeping women from progressing with their ventures or ideas.

Connecting these research findings to the advice given by VCs, we need to ask: How to seek out friends working in VC if you simply do not have any? How look for shared Linkedin connections with your favourite VC if there are none? How to get funding from wealthy Angels investors if you do not have any ties to them? How to increase diversity if the circumstances for success within an industry are so clearly favouring those who already have meaningful access? In addition, we need to acknowledge that this phenomenon does not only concern women, but minorities in general and most importantly individuals from underprivileged social backgrounds.

I do not think that networks are inherently bad and should be broken up — on the contrary. I actively chose to work at a VC fund founded on the principles of networks, aiming to build bridges between the old and new world and am a big believer in the (good) power of networks overall. In addition, anyone working VC knows that given the deluge of companies to examine for potential funding, network connections are an essential means of filtering out the noise and getting to the most promising companies more quickly. But rather than scratching the surface and giving superficial advice to female and minority founders, I wish there was a more open and critical discussion about network access within our industry.

One could argue that the best way of making sure a more diverse set of founders is included within VC and tech networks is to then start at the very beginning of the chain — education. And while I do believe this is where we will have to get to eventually, I also believe this is often an excuse for not doing anything here and now. “We’ll just have to hope the education system creates better access for women to enter technological and entrepreneurial fields, parents teach their daughters they can build stuff too, etc.” cannot be the only solution.

I think that as VCs and individuals rooted in the startup ecosystem, we have to do a better job in three different areas:

1) acknowledging that networks and networking can be a great solution, but are also part of the problem of little diversity in our industry and actively spread this awareness amongst our peers

2) giving more concrete advice on how to effectively make use of networks with strong homophily to those with less access

3) re-examining our own networking behaviour to be able to create a more level playing field

To make this more concrete, I would suggest four steps — some obvious and some less obvious — I believe all of us can take to help achieve this today:

- Hire female VCs. This is a super basic step, but one a lot of funds still really struggle with.

• Analysts, Associates, Principals, Partners — females at any level in the hierarchy decrease homophily within your team and its network, thereby making it easier for diverse founders to get access to your team. This goes for LPs, too.

- Increase your weak ties and recommend founders to do the same. Forming a meaningful network relationship with a VC can be hard. But that’s not necessarily what you need to succeed. Research pioneered by Mark Granovetter shows that weak ties (acquaintances) can play stronger role in spreading information than strong ties (close friendships, immediate colleagues) as they bridge less closely interconnected parts of networks. Strong ties are more likely to possess the same information as you do because they form part of the same social circles. Consequently, new information can be more easily obtained through your weak ties. And often information — a pitch deck or even a verbal recommendation — is all it takes.

• Get out of your immediate network by forming more connections with individuals in other industries and professions. Recommend founders to do the same — spreading your network more widely can increase your chance of receiving more diverse information that does not mirror what you already know — a founder, a business opportunity, a strategic partnership, or a startup to invest in.

- Help to kick-start catalysing effects. Think about your own life and the moments in which a switch was turned that helped you get to wherever you are now. Then try to help founders by connecting them to such switches — mentors, university programs, accelerators, or other networks. Forming these connections can have a strong catalysing effect and help somebody kick-start network access, which then again leads to more access, etc…

• Being fortunate enough to have access to a range of excellent networks full of individuals much smarter than myself, I try to always take time and reply to/ have a phone call with strangers or people I barely know that ask about the best way to apply to become part of one of these networks. While it often creates quite some overhead, I believe that my honest advice and feedback has helped quite a few people get easier access to their desired network.

- Encourage. Do not tell people they cannot do it, even if you believe it’s honest advice. When a close friend was thinking about going into Private Equity after her master’s, she reported that many people told her this was next to impossible given how tight-knit and exclusive the industry is. This discourages women from accessing seemingly inaccessible networks and increases anxiety of failing, which in turn might affect how women behave in the workplace.

• Rather than telling women about all the reasons of why some network is hard to access, we should aggressively encourage them to give it a shot and actively seek out individuals we can connect them with. The same goes for entrepreneurial endeavours.

If used more conscientiously, I believe networks can become an essential tool for empowerment, thereby helping to create better venture performance. The female founders event was a great step in this direction.