Warm intros are bad for diversification, so why do investors persist in them?

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There are oodles. Having a diverse workforce has its benefits, but as Beta founder James Nash points out, you can’t simply take your homogenous workforce, add diversity, inspire and hope for the best.

Often something subtle gets in the way of differentiation at startups: Companies initially rely on employee referrals, but if the startup makeup isn’t diverse, referrals won’t convert.

That’s it for starters. In the world of venture capital, things are more nuanced: a warm introduction is the only way to get in front of investors at many VC funds. That’s great for people already involved in the startup ecosystem, but you don’t have to look long to realize that this isn’t a very diverse group of people.

“We would love to hear from you. The best way to find us is through a mutual acquaintance. VC company website

For many companies, employee referrals are one of the main ways to attract new talent. That’s fine until you think about who your new hire might know best. It doesn’t take many rounds of that particular mill until you end up with a relatively homogeneous group of people with similar education, socioeconomic background, and values.

If that’s what you’re optimizing for, great! good job. If not, maybe it’s time to stop being lazy and ask why warm intros are still common practice.

My question has been around for a long time: What are you facilitating by relying on referrals? If you spend some time thinking about that, I suspect you’ll find some unpleasant unintended consequences.

Let’s talk about what we can do about it.

The situation in VC

If you’ve read any guides about startups or fundraising (including my own, although I try to cover cold emails and cold intros), you’ll know that you need a “warm intro” to get a meeting with a VC. If the above is parallel to employment, this is a problem.

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