In the wake of a global pandemic and the murder of George Floyd, the world saw increased scrutiny on diversity, equity, and inclusion across industries. This was especially true of health care and health tech as well. While equity in capital allocation became a common topic of conversation, HealthTech DEI founders Kathryne Cooper and Juan Espinoza were driven to articulate why this was — and what was being done about it.
Meet the authors of the Landscape Analysis in this Q&A with Kathryne Cooper and Juan Espinoza.
With the support of the California Health Care Foundation, The West Coast Consortium for Technology & Innovation in Pediatrics, and the Children’s Hospital Los Angeles Innovation Studio, these insights and observations manifested in a groundbreaking report: “Identifying Evidence-based Strategies to Increase Diversity Among Funded Health Tech Founders.”
In the first part of this 3-part series, Kathryne and Juan discuss the systemic problem with venture capitalist funding and how it came to exist.
What Exactly Is the Problem With Health Tech Funding?
Every year, solution developers strike out into the innovation sector with new ideas to improve health outcomes. But often bias and common funding practices get in the way of the best solutions receiving the capital they need to succeed — and ultimately reach — the people they are trying to serve.
The lack of diversity when it comes to the founders of health tech solutions is driven by a lack of diversity, equity, and inclusion in investment portfolios in the venture capital industry. Unfair analysis and treatment of people of color and women in the funding process leave solutions un-funded — and money on the table.
Key Terms to Know
Friends and Family Round
Often the initial round of funding for a new solution is where the funds raised come from the founder’s immediate friends and family. For founders of color, this is an initial barrier to access to capital.
Warm Introductions
Unlike cold calls, warm introductions occur between people who know each other — like when one investor introduces a solution developer to another investor they know. In this way, the first person vouches for the developer, giving them a foot in the door.
Pattern-Matching
When venture capitalists are looking for new founders to invest in, they may look at the demographic traits of previously successful founders to try and predict which new companies will perform best. Called “pattern-matching” this phenomenon can lead to a perpetual homogeneity of founders.
How Did This Problem Come to Exist?
These biases and unfair practices did not simply begin overnight, and the 2020 Landscape Analysis emphasizes the role played by structural and systemic racism and misogyny.
Built into the fabric of the U.S., racism and misogyny have driven not only the practices that penalize Black, brown, and female health tech founders, but have led to their lack of personal capital and their ability to access capital.
“Within healthcare specifically, the lack of diversity among funded health tech founders was particularly noticeable,” Juan and Kathryne explain in the author’s note of the report. “We wanted to understand not only the issues at hand but also what strategies had been or were currently being implemented to remedy these issues. Which approaches resulted in VC-funded Black, Latinx, and female health tech founders?”
In looking at these root problems driving a lack of diversity in health tech founders, the 2020 Landscape Analysis establishes a solid foundation to then assess what interventions are happening — and the impact they are having.
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While the Landscape Analysis Report was published in 2020, it remains as — if not more — important than it did when it was written.
In the updated author’s note for 2022, Juan and Kathryne share that the problem in health tech funding remains essentially unchanged — even while venture capital funding in the U.S. continued to skyrocket.
As reported by the National Venture Capital Association (NVCA), the total venture capital invested in the U.S. rose from $164 billion in 2020 to $329.9 billion in 2021.
Despite investments doubling, of these totals:
Black founders raised:
- 2019: 1% of VC of funding
- 2020: 0.06% of VC funding
- 2021: 1.3% of VC funding
Latinx founders raised:
- 2019: 1.4% of VC funding
- 2020: 1.7% of VC funding
- 2021: 2.1% of VC funding
Female founders raised:
- 2019: 2.8% of VC funding
- 2020: 2.3% of VC funding
- 2021: 2% of VC funding (a 5-year low)
The Landscape Analysis Report emphasizes that these incremental changes mean very little in the larger picture. While “funds invested” in diverse founders might be at an “all-time high,” they are still disproportionately low.
What’s Been Done?
The lack of diversity in VC funding isn’t for a lack of diverse health tech founders. Nor is it for lack of success. In fact, Juan and Kathryne’s literature review reveals that:
- Female-founded companies perform 63% better than companies with all-male-founded teams.
- Earnings prior to taxes and interest increase 0.8% for every 10% increase in racial and ethnic diversity on senior-executive teams.
- As a whole, the U.S. is missing out on more than 1 million businesses owned by people of color, which could create an estimated 9 million jobs and $300 billion in national income.
The unequal distribution of capital is vast, and it is not something that can be fixed overnight — or by any one solution developer or investor. But many investors and organizations have been developing programs, strategies, and benchmarks to address this gap at the venture capital level and the entrepreneur level.
Stay tuned for Part 2 and Part 3 of the Landscape Analysis series to learn more about different interventions across industries and around the world.
Want to learn more about how your fund can advance equity in your investments? Wondering how to hold your organization accountable for real change? Curious about how effective your current strategies are?
Sign up for HealthTech DEI’s upcoming workshops for 1:1 support and guidance.
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Stay in the loop about new blog posts from equitable health innovation leaders, helpful resources and tools to help you bring the Principles to life, upcoming events, and more by joining our email list.
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