The Problem with Pattern Matching

Jason Yeh
June 11, 2021
Fundraising

The problem with pattern matching? It’s self-enforcing. More on that later...

Docsend released its research report on industry bias in fundraising called The Funding Divide last month. In it they covered data they say show a change in the industry that looks like “one step forward and two steps back.” 

While teams with a BIPOC team member raised 42% more than teams without one, all-female teams raised 70% less than all-male teams.

The actual numbers DocSend references are that all-female teams raised on average just $195,000 while all-male teams raised an average of $659,529. The difference is staggering when presented like that and while the data say teams with a minority raised 42% more, I worry about what the numbers would say for all-BIPOC teams.  

Why did this regression happen? Is it because the VC industry isn’t trying to change? I have some guesses, but honestly it’s really surprising to me. From what I can tell, the industry IS trying hard to change. Almost every fund I know has a real initiative to change, from internal hiring goals and funding targets, to mentorship programs and special purpose funds.

I don’t know the cause of the decline, but I do understand why positive change has been difficult to achieve in a short period of time.

The fact is so much of investing is reliant on the oft-used but under-explained phrase “pattern matching.” This is a catch-all phrase for the gut feeling VCs rely on to make investments, especially at the earliest stages when there are little to no measurable elements of a company. The entrepreneur may evoke a positive memory investors have of a successful founder they backed before or, in the opposite direction, remind them of a founder that drove a startup into the ground. And so, as much as investors want to make a difference, they still rely on the same limited tools and frames of references over and over again. Their muscle memory depends on matching against past success and in turn reinforces biases.

Many of the founders I work with don’t fit the Mark Zuckerberg, Brian Cheske, Evan Spiegel, Drew Houston, or Brian Armstrong pattern...

See a pattern?


 ...so I am often asked what this means for these BIPOC founders as they prepare to fundraise.  “How am I going to get funded??” they ask.

The start of my answer always begins matter-of-factly: “Right now, it’s going to be harder.” I don’t say “impossible” or “forever,” I say “harder” and “right now.” My encouragement is that while you may not look like founders that the media has historically promoted, you can match against other patterns. You can exhibit the behavioral patterns of successful entrepreneurs. You can communicate a clear vision, you can demonstrate industry expertise, you can have a bias for action, you can test and validate hypotheses, you can move fast, you can inspire people to follow you. You can play the pattern game as well as possible within the current set of rules.

Beyond that, I struggle to come up with recommendations. Especially in funding rounds before there is traction, what else can these founders do to help combat the bias? 

I’m open to suggestions (seriously, send them my way so I can share more widely), but instead of pondering this, it may be more important that we search for ways the rest of us can help founders who are up against this challenge. This requires intention, thoughtfulness, and execution - not just a passing glance.

In the short term, we should continue supporting BIPOC founders, amplifying the issue, and maintaining awareness. We should remember the power of networks in fundraising and be aware of our own unconscious biases as we build more inclusive networks. And if we control investment capital, we should concentrate on behavioral patterns when evaluating founders to avoid unconscious bias traps as much as possible.

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