The venture capital arm of the Business Development Bank of Canada is launching the country’s first attempt to standardize the collection of diversity data in the Canadian venture capital sector, a move that could prompt a new degree of transparency about the demographic makeup of Canada’s innovation economy.

BDC Capital has released a questionnaire for investors to use to record and disclose demographics within their firms, including criteria like gender, race and sexual orientation. BDC will ask every VC firm it backs to complete the questionnaire not only for itself, but also on behalf of the portfolio companies in which the firm invests. Given BDC’s reach in the industry—the Crown corporation is the country’s most active VC and a key player in seeding investment funds across Canada—the effort has the potential to substantially improve transparency around representation in an industry that remains overwhelmingly white and male. “We’ll have a fairly good assessment of the overall picture of diversity in the innovation ecosystem,” said Alison Nankivell, senior vice-president of fund investments and global scaling at BDC Capital.

BDC’s questionnaire—which is also available online for other investors to use—is based on a template released in 2018 by the Institutional Limited Partners Association (ILPA), a Washington, D.C.-based industry association for investors that fund venture capital funds, designed to standardize how VC firms and their portfolio companies report on diversity and inclusion. 

“We were all, in the last few years, struggling one way or another to get these statistics,” Nankivell said. “We all had different approaches, different templates, and it would drive our fund managers crazy.”

Nankivell, who’s also the chair of the ILPA, had a hand in developing the earlier template, which was geared towards U.S. investors. The BDC version asks firms to disclose the number of partners and employees who are woman, men or non-binary, as well as those who identify as Indigenous, or “racialized, Black, or people of colour.” It will collect the data for every type of role at the company to measure differences in diversity between the partner level and the more junior ranks, and ask VCs to report the same data for their portfolio companies. 

The questionnaire also asks investors qualitative questions about policies like parental leave, mental health support, and removing bias in the hiring process. “Those are to figure out if we do see gaps or whether we need to create some templates for startups or [general partners],” said Nankivell.  

The Crown corporation will collect the data every year from all funds that it backs, and will track turnover at firms to understand who is being hired, promoted and who departs over the course of a year. BDC’s own internal fund managers will also fill out the form. 

Disclosure is voluntary, but Nankivell said she isn’t concerned about compliance. “We’ve already done quite a lot of consultation with the market and the market has said, ‘We know we have to get better at this; we just need help,’” she said. 

BDC will likely package the anonymized information for the public at some point, said Nankivell. The data could also inform the organization’s investment choices. “We absolutely want diversity in the managers we invest in,” she said. “Is it the decisive factor? It certainly plays prominently, but that isn’t to say, ‘You have to meet this bar or forget it, you can’t speak to us.’” Instead, Nankivell said BDC would engage with firms with limited diversity to find ways to improve.  

Venture capital in Canada is predominantly white and male. A 2019 study from BDC and the Canadian Venture Capital & Private Equity Association (CVCA) found that just 18 per cent of partners at VC firms and corporate venture arms were visible minorities. At private equity firms, that number fell to just six per cent. Women accounted for 11 per cent of partners at venture capital firms and about 12 per cent at private equity firms. The report also found that $4.6 billion was invested in active Canadian funds with no women partners. 

Studies have connected funding gaps for underrepresented founders to this lack of diversity among investment teams, with companies founded by women and racial minorities receiving far less venture capital than those led by men and white founders. In an analysis of its direct-investment portfolio in June 2021, BDC found that women made up 35 per cent of employees; racial and ethnic minorities accounted for 43 per cent; LGBTQ2+ people represented 13 per cent; those with a disability or mental health challenge represented 18 per cent of staff; and less than one per cent of employees at VC firms were Indigenous. The report also noted diverse representation decreased within the executive ranks.

“I think the system largely invests in what looks like it,” said Shelley Kuipers, co-CEO and general partner at The51, which backs women investors who want to put their money in women-led companies. “Improving [access to capital] starts as a fund, and it starts as a team that’s managing that.” 

Kim Furlong, president and CEO of the CVCA, said grasping the problem, let alone solving it, is complicated by the dearth of diversity tracking and disclosure among VCs. She noted that just under 100 venture investors participated in the CVCA’s 2019 survey, with a response rate that barely cracked the double digits. (The CVCA is releasing an updated report later this week.) 

Just 54 per cent of BDC-backed companies responded to the Crown corporation’s own portfolio analysis, according to BDC’s 2021 diversity report. The organization claimed in the report to be “one of the first venture capital investors in Canada to survey its portfolio on diversity and inclusion.” A 2020 analysis by The Logic found that less than half of Canada’s 17 most active venture capital firms tracked the gender diversity of their portfolios.

Nankivell said disclosure is bound to become more common as limited partners ramp up pressure on funds to track diversity metrics. A July 2021 report from the ILPA and McKinsey found that 22 per cent of limited partners said they consider firms’ progress on diversity and inclusion when making reinvestment decisions. “There’s not an investor who doesn’t ask questions on this, in the same way they asked about [environmental, social and governance] more broadly,” said Nankivell, noting that BDC Capital’s template will standardize those questions and help the industry identify problems and make changes. “We’re raising the bar for the professionalism of the industry by doing this,” she said. “If we aren’t empowering firms to think about how to do those inclusive and proactive ways of recruiting a diverse workforce, they’re not going to be in a position to be as globally competitive.” 

Nankivell said BDC is still contemplating how exactly it will disseminate information it collects from the questionnaire. Kuipers said she would like to see BDC make the anonymized data available to all investors that fill out the form, and hopes it’s not used to give BDC a competitive advantage among VCs. “We see it as an opportunity for the whole industry to move forward,” she said. “More data will drive more change.”