Central Venture: Tracy Gray’s The 22 Fund recently opened shop downtown.

Central Venture: Tracy Gray’s The 22 Fund recently opened shop downtown. Photo by Ringo Chiu.

Los Angeles County is one of the top markets for venture capital in the United States with a strong network of local investors supporting unicorn startups such as ServiceTitan Inc., Halo Top Creamery and Bird Rides Inc.

But the region’s nearly 300 venture capital firms have one significant weakness: They lack diversity.

Researchers and some industry executives say the lack of diversity in L.A.’s venture investor community could be holding the sector back. The more diverse the investor community is, the larger its orbit of possible investment. And more diverse firms have a better understanding of untapped consumer markets, researchers and industry leaders said.

Tracy Gray, who recently launched downtown-based VC firm The 22 Fund, said she started her business because she saw potential opportunities being left on the table. Gray, who formerly worked as managing director at investment consultancy Collaborative Equity Partners, felt she was better positioned to find promising startups outside the normal pipeline explored by more established venture firms.

Gray mentioned particular markets, such as health and wellness startups formed by women — potentially lucrative investments that firms run by white men commonly overlook.

“The legacy VCs are lazy,” Gray said, adding that she thinks the sector tends to hue closely to its West Side roots. And because the local startup industry has been so strong, many of her peers have found success without needing to improve their diversity — at least so far.

“They are making money hand over foot, so there is no incentive to change,” Gray said.

Survery says

According to a May 9 report by the Annenberg Foundation and PledgeLA, 60% of VC employees in L.A. County are men — a figure that’s actually higher than the national average for gender diversity. Nearly half of the firms surveyed had no minorities on their payroll, and 29% had no women.

Only 8% of VC employees surveyed by the researchers were Latino while L.A. County’s overall population is 49% Latino, according to the Census Bureau.

Of the survey’s respondents, 55% were white. Proportions of black and Asian employees at VC firms were close to overall county statistics, the survey said. But the PledgeLA study only surveyed VC firms where leaders had signed a pledge to promote diversity and agreed to participate in the survey.

“We applaud them for acknowledging the issue and raising their hands,” said Cinny Kennard, executive director at the Annenberg Foundation.

The majority of firms “were either too busy or too disinterested” to participate, said Len Lanzi, executive director of the Los Angeles Venture Association. Lanzi, who has helmed the Venture Association trade group for 12 years, noted that some of L.A.’s most successful female investors, such as Dana Settle of Greycroft and Beth Seidenberg of Kleiner Perkins, often identify and invest in different startups from their male counterparts at other firms.

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