In the aftermath of George Floyd’s murder in May 2020, two of the world’s largest venture capital firms (VCs) were working out what meaningful change meant when it came to racial inequalities in their industry. Within 10 days, both Softbank and A16Z had announced venture capital funds to back entrepreneurs of colour and underrepresented founders, Softbank’s Opportunity Fund to the tune of $100 million, and A16Z’s to the tune of $2.25 million in initial contributions.

The scene was set. It seemed that VC firms, at least in the US, were beginning to respond to Tiffani Ashley Bell’s exhortation to “make the hire, send the wire”, replacing hand-wringing with hard capital in an industry where in 2020 only three percent of VC investors were black and 1.7 percent of VC-backed startups have a black founder.

But do these changes represent the shape of things to come – a notoriously undiverse industry finally tackling the barriers to investment for entrepreneurs from minoritised backgrounds? Or is it mere “diversity theatre”?

The jury was out, at least to begin with. The response to Softbank and A16Z’s efforts was “better than nothing, but not good enough”. It is striking that Softbank’s $100 million Opportunity Fund pales by comparison to its $100 billion Vision Fund used to invest in technology firms, only a handful of which are black-led. Arlen Hamilton wryly commented on the fact that black entrepreneurs are “over-mentored and under-invested”, tweeting “I’m starting a $13 fund for straight white men. I will be giving 26 straight white men 50 cents, along with exposure, experience, and mentorship of my choosing.”

Nevertheless, 18 months on and roughly half of Softbank's fund has already been invested into 60 companies led by diverse founders, a second fund is being raised, and the company’s diversity accelerator has just launched in Europe. Signs, perhaps, of change?

There are reasons to be cautiously optimistic. Notably, VC players seem to have finally woken up to the idea that diversity may be in their own financial interests. Diverse and inclusive teams perform better, creating more innovation and better financial outcomes, including 30 percent higher multiples on invested capital.

But it is the changing landscape of black-led and black-owned VCs investing in diverse founding teams that indicates change may be here to stay. There are increasing numbers of players in the VC ecosystem, such as Impact X Capital Partners, that are founded by BIPOC (Black, Indigenous and People of Colour) and have the unicorns to show for it. Funding to black founders has quadrupled since 2020, and Black VC investors in the US now make up 4 percent of the total, according to BLCK VC.

Some of these VCs are doing things differently, too. In the US, black-led Base10 Partners has raised a $250 million fund to invest in high-growth-stage companies, with half its profits going to historically black colleges and universities (HBCUs) which don’t tend to have large endowments; it even has four HBCUs as partners in the fund. In the UK, Ada Ventures is a VC with an “impact twist” backing diverse entrepreneurs, and Black Seed – backed by Founders Factory – is funding black-led startups at the seed stage.

These all represent seismic shifts in relative terms, although fall far short in absolute terms. VC remains an industry where like funds like – and “like” has meant men who have graduated from elite universities. In the UK, 43 percent of UK VC funding in the past decade has gone to founding teams from Oxbridge, Stanford and Harvard and 68 percent has gone to all-men founding teams. Black tech entrepreneurs in the UK are still having to look to American and Japanese investors to get their businesses off the ground.

There are reasons for optimism, then, but there is work to be done to ensure the tide has turned for good and that those waves reach UK shores. For those working in VC (including Nesta), it means hiring and funding diverse talent, stating goals about the change we want to see, measuring progress and publishing the results.

For Nesta’s own Mission Studio, it means “diversity by design” from concept through to testing, talent and investment. We’ll invest 50 percent of our capital into diverse founding teams and are working on meeting and beating our targets of 50 percent women founders and 35 percent founders from minoritised backgrounds. And for our wider investment work in Impact Ventures and Arts and Culture, our goal is for 25 percent of our investees to be led by people from minoritised groups by 2025.

Success will be diversifying flows of capital to the point that targeted funds or initiatives are no longer necessary. There’s still a long way to go before we get there.