Why Is Venture Capital So White? An Examination of Peer-Selected Investment’s Efficacy as a Tool to Mitigate Racial Bias in Investment Decisions

Abstract

Venture capital is capital that is invested in a private company that is typically young, unproven, and risky. Startups frequently use venture capital with the goal of going public and providing return for investors. An unintended consequence of using venture capital has been the concentration of capital into a few ideas, people, and places. In 2009, Village Capital, a venture capital firm based in Washington, DC, introduced peer-selected investment, a radically different idea aimed at shifting decision-making power away from investors and giving power to entrepreneurs to identify which startups are most promising. A decade, and nearly 110 investments later, this approach has yielded a portfolio that is dramatically different from the rest of the industry. Using Village Capital’s data, this thesis examines the impact of peer-selected investment on reducing racial bias in the investment decision making process.