Last updated on Mar 10, 2024
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1
Assess your own biases
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2
Diversify your sources and networks
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3
Standardize your evaluation process
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4
Involve diverse perspectives and voices
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5
Track and measure your progress and impact
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6
Commit to continuous learning and action
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7
Here’s what else to consider
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Due diligence is a crucial process for venture capitalists (VCs) who want to invest in promising startups and entrepreneurs. However, it can also be a source of bias and exclusion, especially for underrepresented founders and teams. How can VCs ensure that their due diligence process is fair, inclusive, and diverse? Here are some best practices to consider.
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1 Assess your own biases
The first step to ensuring diversity and inclusion in the due diligence process is to acknowledge and address your own biases and assumptions. You may have unconscious preferences or stereotypes that influence your evaluation of potential investments, such as the founder's background, gender, race, education, or pitch style. To overcome these biases, you can use tools such as the Implicit Association Test, seek feedback from diverse peers and mentors, and challenge yourself to question your own judgments and criteria.
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2 Diversify your sources and networks
Another way to ensure diversity and inclusion in the due diligence process is to diversify your sources and networks. You may be missing out on opportunities if you only rely on referrals from your existing contacts, attend events in your familiar circles, or use databases that exclude certain segments of the market. To broaden your scope, you can actively seek out and engage with diverse communities, platforms, and organizations that support underrepresented founders and teams, such as accelerators, incubators, associations, and media outlets.
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3 Standardize your evaluation process
A third way to ensure diversity and inclusion in the due diligence process is to standardize your evaluation process. You may have different expectations or criteria for different types of founders or teams, which can lead to inconsistent or unfair decisions. To avoid this, you can use a structured and transparent framework that defines the key metrics, indicators, and questions that you use to assess potential investments, such as market size, traction, product-market fit, team composition, and social impact.
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4 Involve diverse perspectives and voices
A fourth way to ensure diversity and inclusion in the due diligence process is to involve diverse perspectives and voices. You may have blind spots or gaps in your knowledge or expertise that limit your ability to understand and appreciate the value proposition, customer needs, or competitive advantages of certain startups or entrepreneurs. To overcome this, you can collaborate with and consult diverse experts, advisors, partners, and stakeholders who can provide relevant insights, feedback, and validation for your due diligence process.
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5 Track and measure your progress and impact
A fifth way to ensure diversity and inclusion in the due diligence process is to track and measure your progress and impact. You may not be aware of the extent or effects of your diversity and inclusion efforts, which can hinder your learning and improvement. To address this, you can collect and analyze data on the diversity and performance of your pipeline, portfolio, and outcomes, such as the number, proportion, and returns of investments in underrepresented founders and teams, as well as the social and environmental impact of your investments.
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6 Commit to continuous learning and action
A sixth way to ensure diversity and inclusion in the due diligence process is to commit to continuous learning and action. You may encounter challenges or setbacks in your diversity and inclusion journey, which can discourage or derail your efforts. To overcome this, you can adopt a growth mindset, seek feedback and guidance from diverse mentors and peers, and participate in training and education programs that can enhance your awareness, skills, and practices in diversity and inclusion.
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7 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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