Network effect maintains racial inequality. What do investors need to do about it?

You know the tiny kindnesses, courtesies and extensions you offer the ones you know? These are the blessings of community. They are the transactional side of having a strong network of relationships.

Technical.ly DC Market Editor Michelai Graham told me she likes to think of a network like your own spider web of connections. This is a powerful and effective means for growing a career and living a life.

Without a system of access, though, communities become closed systems — say, if even a well-intentioned network of private market business investors exclusively did deals with entrepreneurs introduced to them by their accountants, lawyers and investors in that group. Say this community was entirely made of white men, who were more likely to know and recognize other white men.

Even if this closed community was only doing this for ease — responding more quickly to the emails, handshakes and invitations from those in their network — over time this might systematically leave others with fewer opportunities.

In a landmark 2012 analysis of the relationship between network effect and social inequality, two influential academics concluded: “Inequality is exacerbated when effects of individual differences are multiplied by social networks.”

This kind of network effect, in which the tendency to further invest in a community gets stronger over time, can become insidious. It’s not that building a network is harmful, it’s that building a network without on-ramps for others is. That can result in maintenance of racial inequality, in which Black Americans continue to have less access to private markets. This messy issue is the topic of the first episode of the second season of Off the Sidelines, Technical.ly’s investor education podcast sponsored by Project Entrepreneur, a program by UBS.

To get at the issue, Michelai and I, with the help of Technical.ly Assistant Editor Stephen Babcock, pulled together our reporting and spoke to two investors who have thought a lot about network building.

The first was Kelly Hoey, an author and network expert. She’s done angel investing and more recently published a book on how to build a network. As a frequent speaker about female entrepreneurship, she has an eye toward how network building can aid underrepresented founders.

We also spoke with Nasir Qadree, a Black venture capitalist who has built a deep, diverse network of founders and funders. After a career in small business and corporate investing, the one-time member of Village Capital this year founded Zeal Capital Partners.

Check out the episode to hear their thoughts on how to be strategic and proactive about growing your network, how to recognize your own blind spots, the various pros and cons of “warm intros” and more.

Show notes:

• The good and the bad of “warm intros” and how investors have to keep in mind for that introduction from someone in their network
• Investors can’t consider the disparity in outcomes as purely a consequence of a system beyond their reach.
• Network building is crucial for any professional. Remember how welcoming you are to connect to other “spider webs.”

 

We have nine more episodes coming up this season with conversations from notable figures throughout the investing world, so be sure to subscribe and keep up to date with all our episodes.

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