Men are from Mars, Women are from Venus was a bestselling book from the ‘90s now well past its best-before date, yet in the world of venture capital one larger truth prevails when it comes to the funding of women-led tech ventures: men and women might as well be on different planets.
A recent study from TechCrunch showed that women make up just 7 percent of the partners at the top venture firms. As BetaKit reported earlier this month, a new industry report shows women are far less likely to get funded because they’re perceived as unwilling to take entrepreneurial risks. In the study, female founders received just three percent of total venture capital funding from 2011 to 2013 (and if you’re a woman and black, hoping to raise capital – well, good luck. I mean that). According to a recent college study, the trend is going the opposite direction one might optimistically suppose: the number of women partners in venture capital firms has actually gone down significantly since 1999, dropping from 10 percent in 1999 to its current level.
The number of women partners in venture capital firms has actually gone down significantly since 1999, dropping from 10 percent in 1999 to 7 percent today.
To those who associate technological innovation with human progress, the numbers are a dismal sight. The leadership of our future-focused technology regime has a gender disparity that is not just embarrassing when compared with other sectors of the economy right now (women hold roughly a third of senior management positions in Canada) but also when compared with numbers in the 1950s. The venture capital firms that fuel this Uber-fast generation of innovation are overwhelmingly, almost unsparingly, male (and white, to boot).
Peruse the ‘About Us’ team page of a VC firm at random. Go ahead and Google. Very few VC investment companies will feature females among their managing partners. Among those firms that are happy to show off photos of their mid-level managers and support staff, it’s not uncommon to see a Borg-like approach to diversity of any kind (gender, race – take your pick). There are exceptions among some firms, of course – some of which we’ve highlighted below. But if the experts in Silicon Valley are to be taken at their word, gender parity among founders and funders will take a generation. What is going on here – and is there any reason to hope that the gender divide at the top echelons of the entrepreneurship and investment world is going to get better anytime soon?
Overcoming an insidious selection bias
Time after time, after interviewing some of the top female and male VCs from Vancouver to Silicon Valley, the message was clear: this trend isn’t caused by blatant, obvious, outright sexism. The small (and apparently shrinking) number of women in the VC world (and being funded by that world) is a result of something a bit more subtle.
Indeed, of the several male VCs interviewed for this story (on and off the record), all of them professed that they only wanted to bring the most talented people into the firm – and gender ought not to be a factor in hiring, or in making investment decisions. And yet, the numbers are what they are.
“Their first question when looking at investing in an entrepreneur is, ‘is this person someone I could have a beer with?’ Even the way that comes across is boy’s club-ish.”
“Some of my former peers (in the VC world) who are male would say that their first question when looking at investing in an entrepreneur is, ‘is this person someone I could have a beer with?’” recalls Relentless Pursuit Partners co-founder and Managing Partner Brenda Irwin, a friendly yet fast-talking expert with deep insight from looking back on 13 years as a VC, and two years as an angel investor. “Even the way that comes across is boy’s club-ish – and if that’s your opening, it already creates this unconscious discomfort.”
As a former life sciences venture capitalist with the Business Development Bank of Canada, Irwin managed a $100 million-plus healthcare portfolio and today remains very active on the VC scene. Despite having been immersed in this world a long time, she still sometimes gets surprised at the lack of diversity she sees. “I have to admit, when one of the recent Canadian funds announced their latest raise and I saw a picture of the partnership members, I choked. I met one of their associates recently and just asked, ‘what’s going on?’ It’s shocking to see in this day and age, that could happen.”
Irwin suggests the selection bias she’s seeing isn’t intentional and that there are no easy answers for even measuring the unconscious bias, let alone resolving it. “I get into business with people with whom I can make money and have a personal connection with – and with an eye to whether I will enjoy working with that person.”
At Yaletown Partners Inc., in the chic section of Vancouver’s downtown, and one of the biggest nodes of the city’s burgeoning technology hub, Partner Mike Satterfield agrees with Irwin’s assessment. “For any company, how you get started is by getting together with people who you came up with in the beginning,” Satterfield says. Getting into the VC game, he joined “a couple of guys wanting to get a firm started – not dissimilar from a lot of other opportunities.”
Satterfield agrees that the numbers look dismal now and the trend lines are not particularly encouraging, but there are “a few things [that] give me hope it’s going to change,” Satterfield says. “If you look at enrollment trends for women getting into technology programs at major universities, the trend is still somewhat downward, but it’s still around a third – and the tech industry generally in the last decade is more of a meritocracy, in terms of getting a startup going. It also doesn’t take a lot of money, compared to what used to be needed to get it going.”
With more female talent rising through the technology programs and through undergraduate business program graduates, the number of female founders is bound to rise – and once they have their successful exits, they’ll become the funders of the future, Satterfield suggests.
“There are ways to move the needle on this,” he says. “Affirmative action strikes me as a bad term, but there are things to do programmatically to encourage this, like getting more women into the sciences… The right place to put it is in encouraging women to get technology educations and over time, I think that will bubble its way into the sector. Getting into sales, finance, technology – those are good jobs,” That, along with more focused mentorship by men and women, can ultimately pave the path to VC partnership.
“Over time, there’s no reason to think that women-led companies are going to fare any worse when it comes to strutting their stuff. For venture now, I would say your ability to get something done and show good financial results, customer acquisition ,and user engagement is much more important than a decade ago when it comes to attracting investors.”
On the flip side: pitching and receiving
One of the consequences of an overwhelmingly male-dominated VC industry at the partner level is that female founders of tech startups seem to have a harder time raising capital; as noted above, the vast majority of the folks getting millions to fuel their dreams of tech stardom are guys – but not all.
Catherine Dahl is the CEO and co-founder of Beanworks, which has raised millions to help drive growth for its automated accounting workflow solution. She’s very conscious of the rules of the game – and has overcome a slanted playing field. “Nothing is overt,” Dahl explains. “Still, what I feel like is that I’ve had a tougher time raising capital than my male counterparts, thinking of the ones with similar growth rates… I’m a woman over 40, so I get dismissed.”
Dahl doesn’t begrudge her male counterparts’ success and is enthusiastic about promoting the great innovators across the board in the local tech hub – but she does still recognize a difference. “You just have to work harder, be stronger, be that much more successful to get better valuations.”
The irony is that female-led ventures may actually be better run and more successful in the long term on average than those run by males, explains Katherine Hague, the founder of Female Funders, an organization which provides an online education program that quite simply “helps women fund and get funded.” In one much-cited study noted in Forbes, 15 major female-led firms achieved a return of almost 50 percent in 2010, compared with an average S&P growth of 25 percent. The effect isn’t limited to the tech world: a 2013 study mentioned in the same article showed that “women-owned or managed hedge funds did very well indeed, with healthy returns of roughly nine percent compared to three percent for hedge funds led by their male-led counterparts.”
“The bias not to fund women-led ventures is perplexing because female businesses are more profitable, higher growth and more likely to succeed.”
“The bias not to fund women-led ventures is perplexing because female businesses are more profitable, higher growth and more likely to succeed,” Hague says. If the free market is truly rational and investors are chasing the biggest rewards for the lowest risk, then the gender divide we’re seeing on the investing side simply shouldn’t exist – or if anything, based on performance, perhaps ought to be skewed the other way.
That said, at least one variable in the mystery of selection bias for funding already seems pretty well understood. Talking to a range of female VCs and founders, the common thread was a sense that women tend to undersell themselves in pitches to VC investors. “It’s absolutely true,” Dahl says. “I knew a guy who asked for a valuation that seemed not to make mathematical sense – and I have a problem with that. I’m getting better at pitching, but I didn’t do well at first. It takes coaching.”
Or, you could just find a male co-founder – a seemingly perverse but possibly commonplace tactic for female founders who can see the same numbers everyone else sees. “I knew one female VC who decided to go out and start a company. She had so much trouble raising money that she hired a male CEO to be the face of the company.”
It’s not a step Dahl endorses, but she understands the motivation – and looks forward to a time when the situation will be different, when a critical mass of female founders and investors is reached. “It’s like Google, which couldn’t understand at first why women would come to their company and only stick around for three months – but it was because early on they were often the only women. They didn’t feel welcome.” Even that example of positive change seems to be stretching it: women now make up roughly 30 percent of Google’s workforce – though engineering and leadership positions still remain overwhelmingly male-dominated – but the point is taken: it took a concerted effort in advertising, recruiting, and mentoring to make even that evolution happen.
Dahl is far from alone in her observations of how women behave on the pitch.
Campfire Capital Partner Brooke Harley founded the VC firm after serving as Lululemon Athletica’s Director of Business Development for five years (during a high-growth phase in which their market cap increased 800 percent). She’s also seen this effect. “Men may be more likely to present the very best-case scenario and have no qualms about presenting the highest possible outcome, versus women who would be less comfortable with stretching what’s possible,” Harley says. “The difference in confidence is real. I do think if we’re really getting into it here, my observation is that women are socialized from a young age to look for social approval. That’s in their body language, rather than showing up and telling how it is with the same level of confidence. I think to the extent investors pick up on that, they have less confidence in the message.”
As insidious as the bias against female funders can be, it’s not clear that having female investors in the room will necessarily level the playing field.
“I met with a female founder who pitched to me,” recalls Real Ventures General Partner Janet Bannister. “I told her, your numbers have to show more growth if you want to get a VC interested. She came back and increased the numbers by 10 percent. Still not high enough, I said. A guy would be higher to begin with – and then double the numbers! That really struck me.”
Jennifer Li, a co-founder of Vancouver’s Musefind, can relate to that situation – though her company ultimately did get VC backing. “One thing I’ve experience personally, though it happens to many female CEOs, is that women still have a clique or pecking order mentality, which comes from the boy’s club affecting them.” She recalls one pitch session in front of 30 women as absolutely the worst experience, where they asked for documents that seemed unrelated to the pitch, for instance, or asked questions that were totally out of context. “I’ve pitched to 70 investors in the last five months and my experience with women has always been negative. I had one female VC look me in the eye and say no one is going to raise $1 million for our idea – despite the fact that we were one of the fastest-growing startups in an accelerator.”
Li suspects the reaction she was getting from female VCs was tied to inexperience – and that as a bigger ecosystem of women investors builds, individual investors will increase their network, support and experience – and in the end, provide a more positive reaction to female founders.
Thinking back to her own experience on the other side of investor pitch sessions, Harley thinks that founders of any gender who are confident and technically capable, who don’t look for approval and are just confident in the market opportunity, will be successful.
The numbers today don’t entirely bear out that positive assessment, but things aren’t entirely bleak. Certainly, change is happening much slower than we might expect in our click-friendly age of Tinder-ized instant gratification. Today, we want to have things as soon as we want them. But in this case, it’s hard not to want quicker change.
The benefits of gender diversity
Campfire invests across North America in “tech-empowered consumer and retail startups” – and in their small firm, their investment committee has three men and three women, of all different ages. Harley notes that the diversity on their team reflects greater diversity generally in the retail industry. “I see that in other industries, there’s still a challenge,” she says. “For behavior to change and for there to be more diversity, they (the people hiring new partners) have to believe their results will be better if they’re more diverse as a group.”
Just as selection bias is hard to see, it’s also hard to scientifically show the benefit of diversity of background in the board room – yet that impact can be felt, at least anecdotally.
Irwin recalls one moment in particular where the difference seemed pivotal. The company had a good product and seemed to be ahead of its competitors in the market. Yet it was undergoing yet another round of financing – and in the absence of a bridge funding round, a lot of investors were going to lose their shirts and the company would have to shutter its doors. Relationships were falling apart under the stress and there were some very ugly conversations. It was looking dire.
Brenda Irwin was the one woman in the room – and she knew that to save the company, move the financing ahead and ultimately have their big bet pay off, she was going to have to make the move. “Egos get in the way… it was a stalemate among the men,” she says. She’d listened carefully and picked up on an opportunity that all of the men had missed, negotiated a separate agreement while getting two of the four financial institutions on board and finally presented terms – which her dumbfounded, grateful colleagues were pleasantly surprised to see.
“No one wanted to be the first to move, but I did,” Irwin said. “I was swinging above my weight on where our fund stood versus the others, but they just needed someone to broker the deal. When my CEO asked me how I did it, it was tough to explain: but I think it’s because I can see though the issues differently. Maybe women can listen and speak differently, communicating to individuals and getting past the egos.”
Change can happen more quickly if people recognize that benefit – and if they have the right mentors, Irwin adds. Prior to being an investor, she taught science and her objective was to get women talking about pursuing careers in science and technology. After later finishing an MBA, she says she had no interest in becoming a VC or investment banker, even if many of the graduates in her class were heading in that direction. The right mentor changed her path, opening her up to the possibility.
“A recruiter came in to visit my professor and my name was the only one he gave. His confidence is what fueled me into the profession. He tore a strip off that recruiter, who didn’t even want to interview me. It was a brilliant example of me having an advocate. It’s like the old line about investing: you’ve got to meet people before you meet the money.”
Feature image courtesy Techedlive on Flickr