The Pipeline Pledge is a conscious commitment by forward-looking firms to address the inequality gap in private markets by pledging to reserve 50% of interview capacity for diverse and underrepresented candidates.
Diversifying the pipeline of recruits is a step in the right direction to change the face of private markets for the better.
Taking the pledge is an acknowledgement of the problem and a commitment to be a partner for the solution.
In ignoring diversity, a second order of inequity is derived, better known as the funding gap.
In the United States, only 2% of investments in start-ups are for women-led ventures, despite the fact that 38% of start-up founders are women. Notably, only about 12% of decision-makers at US venture capital firms are women. The funding gap is therefore attributed to a phenomenon known as homophily, which is the psychological tendency people have to like - and therefore provide funding to - those who look, and act like or remind them of themselves. This results in a wider funding gap for underrepresented minorities.
Research shows that when a woman is on the investment team of a venture capital firm, they are 40% more likely to invest in a company with a woman on the executive team. Therefore, increasing diversity in private markets is critical because it leads to more diversely led companies getting funding. Without diverse investment teams, diverse founders will remain largely without funding, a double negative impact.
Furthermore, we can take from this that people are more likely to invest when they have a connection. Having more underrepresented minorities in the private markets means more connections which will in turn drive greater social equity in investing. Increasing diversity in the private markets is a significant social impact initiative on its own, but more than that it is a way to expand investor’s mindsets and thus induce more social impact investments. In other words, increasing diversity in the private markets is a way to ensure that there will be a continued flow and increase in social impact initiatives since they will have a greater chance at receiving capital. Therefore, investing in diverse teams has compound effects beyond the number of diverse employees you have.