Diversity in Innovation

by Paul A. Gompers and Sophie Q. Wang

Overview — This study discusses a systematic and persistent lack of female, Hispanic, and African American labor market participation in the innovation sector, through both entrepreneurs and the venture capitalists that fund them.

Author Abstract

In this paper we document the patterns of labor market participation by women and ethnic minorities in venture capital firms and as founders of venture capital–backed startups. We show that from 1990 to 2016 women have been less than 10% of the entrepreneurial and venture capital labor pool, Hispanics have been around 2%, and African Americans have been less than 1%. This is despite the fact that all three groups have much higher representation in education programs that lead to careers in these sectors as well as having higher representation in other highly compensated professions. Asians, on the other hand, have much higher representation in the venture capital and entrepreneurial sector than their overall percentages in the labor force. We explore potential supply side explanations including both education attainment as well as relevant prior job experience. We also explore the correlation between diversity and state-level variations. Finally, we discuss how these patterns are consistent with homophily based hiring and homophily induced information flows about career choices. We end the paper by discussing areas for future research.