The stats are compelling. But what do we do about it?
In September 2016, my colleague Liz Doerr and I noticed a startling trend: in fundraising for NRV’s Early Stage Growth Fund, we’d had over 150+ investor meetings but fewer than 10 of those meetings had been with women. Digging into the “why” behind that realization, we concluded not only that a gender imbalance in Venture Capital was pervasive globally, but also that a conversation needed to begin. That moment became the genesis of the Women in Venture (WiV) group.
WiV had its third meeting earlier this summer, and the body of research about both women entrepreneurs and women investors has been so compelling to learn about that I wanted to share those insights here to further the conversation.
So What Are The Stats?
Based on TechCrunch’s 2016 study of the top 100 global VC firms, 7% of investment committee partners were women and 62% of the VC firms did not have a single female partner.
The same study found that 10% of venture dollars globally went to startups with at least one woman founder. Read that one again – not 10% of venture dollars went to all-female teams, but 10% went to teams with at least one female founder.
A 2017 update to the TechChrunch study found a slight uptick in female investment committee partners, an increase from 7% to 8%. There was no change to the venture dollar recipients, with 10% of dollars still going to a team with at least one female founder.
All-women teams received just $1.9 billion of the $85 billion total invested by venture capitalists in 2017. That’s equal to about 2.2% of 2017’s total pot. Meanwhile, all-male teams received about $66.9 billion—roughly 79%.
Women control 85% of a household’s major purchase decisions and hold 60% of all personal wealth, so why are they so under-represented in both venture investing and as recipients of venture capital?
The reasons surrounding the lack of female VC partners, female VC investors, and female VC capital recipients are broad and complex, but we hypothesize a few things:
1) Recruiting Pipeline Constraints: VC firms largely pull new employees from investment banking-related firms. And the senior ranks of investment banks are largely male. Per metrics released by the top 5 US investment banks in 2015, at the executive level personnel were on average 80% male and 90% white. The lack of females in senior executive positions isn’t limited to investment banking; Forbes noted that as of May 2018, there were 24 female CEOs of Fortune 500 companies – merely 4.8% of the CEO list. Two of those 24 were women of color, and none were African American. The pipeline issue means that not only are there fewer senior executive women to directly recruit, but also that there are fewer women in senior roles to serve as mentors to ‘up and coming’ women investors and entrepreneurs.
2) Lack of Access to Information: Because private investment opportunities are largely forbidden from openly advertising due to SEC regulations, deals get done through closed-door conversations. Traditional “good old boy” networks can perpetuate, often unintentionally, the gender bias.
3) Risk Aversion: A variety of studies have shown that women are broadly more risk adverse than men. In a stressful environment the gap broadens further, as men’s risk tolerance grows under stress while women’s narrows. Related specifically to investing, a 2013 Fidelity Investments study found that 4% of women were willing to invest to achieve potentially higher return rate, even if it meant possibly losing some or all of the investment principal. 15% of men were willing to do so.
4) Fundraising Bias: A Harvard Business School study found that male vs female founders were asked different questions by VCs, and it impacted the amount of funding they received. Generally, men were asked about potential for gains (promotion questions) and women were asked about potential for losses (prevention questions). The bias in questioning came from both male and female VCs and it impacted significantly the amount of VC money founders raised. The HBR study noted, “Examining comparable companies, we observed that entrepreneurs who fielded mostly prevention questions went on to raise an average of $2.3 million in aggregate funds for their startups through 2017 — about seven times less than the $16.8 million raised on average by entrepreneurs who were asked mostly promotion questions.”
Sheesh. That’s pretty depressing. What can I do?
This is really the nexus of the conversation. Yes, a gap clearly exists. Yes, a complex mix of reasons are responsible. But what can little-old-me actually do about it?
Building awareness and starting a conversation was the foundation of WiV. But there are a few easily-accessible next steps.
1. Become a Mentor: A Kauffman Foundation interview of 350 female entrepreneurs cited "lack of available advisors" as the chief challenge to female entrepreneurship. A variety of mentor networks exist in Richmond and beyond that are looking for advisors, particularly female ones, to help coach and guide entrepreneurs. As an added bonus, getting to know entrepreneurs helps advisors learn about upcoming fundraising deals, helping to address the information gap around private investment opportunities.
2. Think about Investing: Educate yourself on the Private Equity & Venture Capital buzzwords, and explore the risks and rewards of PE & VC investing. The handout from our WiV event is a great place to start.
3. Contribute to the Conversation: Women in Venture will have a region-wide event at William & Mary this fall including workshops on how to invest, how to mentor, and how to fundraise. Stay tuned for details!