The Real Reason There Aren't More Women in VC
I was in New York several weeks ago, going to meet a noted startup investor named Pete (not his real name). During the course of our conversation about business ideas, I decided to ask him his thoughts on why there aren’t more women in the field of venture capital.
His answer? “There just isn’t a population of qualified women who want to become VCs.”
Pete went on to say that if you are a qualified women who wants to become a VC, then you’re in the trenches already. According to Pete, there simply aren’t qualified, interested women standing on the sidelines. They are either in—because they want to be in—or they’re out. And that’s either where they belong or where they want to be.
Could he really think that? I wondered. Though venture capital represents one of the most sought-after fields for top business school grads today, women represent only 8% of the investment professionals at the top 25 VC firms. If women were in VC at the rate they wanted to be represented, wouldn’t we expect numbers a bit closer to parity?
I cannot ascertain with certainty why Pete came to the conclusions he did. My guess is that he chose not to delve beyond the superficial appearances of the situation. Or, scarier yet, that he believes similar lines of thinking, such as “all kids from the poor inner cities who want to become doctors are able to. If they are not in medical school it’s because they don’t want to be there.” Maybe he did ask a question or two, and the answers somehow led him to his belief. But based on my research and conversations with women both in and out of VC, I am quite sure that he only saw the proverbial tip of the iceberg without fathoming the depths that lie underneath.
Pete, here are the real problems preventing women from taking a larger position in VC—and a few ideas on how to reverse the course.
They’re Coming, But They’re Not Staying
Perhaps the entrenched gender divide can be seen in a different light when one reads New York Times journalist Jodi Kantor’s September 2013 article on Harvard Business School’s gender equality initiatives. In her article, Kantor highlights the problem of the bias towards women in VC when she reports that former Highland Capital Partners co-founder William Boyce advised women students at HBS to stay away from venture capital because “men don’t want you there.” Rather than being welcomed at the doors of investing, women are being given the message to not even try.
Nonetheless, some women ignore messages like Boyce’s and choose to move forward. One female VC in Boston I talked to told me that the real problem is not getting women to come to the field, it’s “getting them to stay in.” It’s a reiteration of what happens in other high-profile, high-pressure industries: As women simultaneously climb the ladder and build their families, they face pressures that men don’t—that men don’t even understand. This particular Boston VC, for example, was harangued by her bosses when she was six months pregnant. Her boss was upset that she wasn’t projecting enough during client presentations. “Projecting? I was having trouble breathing.”
Of course motherhood becomes a common narrative for why women leave competitive fields that require many hours, but I spoke with a plethora of women in VC who are not mothers but experienced similar issues. As another women VC told me, “[the VC community] is a mafia.” Tommy guns aside, the upper ranks of VC is a real “old boys’ network” that can seem impenetrable, even to women who are already in the field. There are very few mentors, women or men, willing to be role models and help shepherd the career of junior women in VC, and so before they reach the upper rings, they’re opting out. And without the networks and social affinities in place, attracting new women to the field becomes challenging.
The Issues of STEM and Risk
There are two, more technical, common reasons I’ve learned as to why women don’t enter the field the way men do, which I do believe contribute to the problem and are worth noting.
In the current landscape, having a STEM background is certainly desirable for venture capitalists. In his book on venture capital, Flybridge Capital partner Jeff Bussgang comments that the most desirable VCs come from technical backgrounds such as math, computer science, or engineering—backgrounds that traditionally attract fewer numbers of women. Which makes the gender gap make sense for these top VC hires. As DFJ partner Heidi Roizen has also written, “We don’t have more women in venture capital because women aren’t graduating with degrees in engineering and technology. If you want to be hired by a venture capital firm, you have to have a background in engineering or entrepreneurship.”
But, even without STEM backgrounds, a number of people do enter into VC. And this is where we need to look closer. If many men enter the field without the STEM background, then why can’t women achieve the same success?
As Angela Lee, founder of women’s angel investing network 37 Angels has stated, women don’t feel comfortable in attempting to jump into a field where they are not 100% qualified. Even if women are qualified, if they don’t feel overqualified, they prefer to stay on the sidelines. Men, on the other hand, don’t necessarily see that as a barrier. They simply jump in.
Women also tend to be more risk-averse than their male counterparts and may not be comfortable with the inherent risk in venture capital. According to a survey of financial analysts and investment advisers discussed in a 2009 Wall Street Journal article, “women felt it was much more important than men did to avoid incurring large losses, falling below a target rate of return and acting on incomplete information. In short, women are more risk-averse than men. And they shy away from uncertainty: Asked whether having ambiguous information would reduce their confidence and raise their perception of risk, 92% of the women said yes, versus just 69% of the men.”
But let’s put these issues aside for a minute and remember that encouraging women into VC is just smart business. Women investors tend to invest in more women-led companies, which has been shown to improve the performance of VC firms as a whole. What's more, as investors, they can help their portfolio companies succeed. “Women [VCs] also contribute differently at the board level,” Deborah A. Farrington, founder and general partner at StarVest Partners has said. “They are oriented to providing meaningful assistance by mentoring and teaching others as partners, not preachers. These traits are valuable to VC-backed companies as they seek advice and mentorship from their investors to guide their growing businesses.” It is in all of our best interest to encourage women to join the venture world (and then stay in and excel).
But, as is the case with many complex issues, one has to attack the problem at many levels. Part of the solution, of course, lies in increasing the number of women who study STEM subjects. In today’s world, it is still the technical background or knowledge that gains an entrepreneur or business leader respect. And thus, it is the study of these technical topics that also gains women access to the venture world.
But it is also more than simply obtaining an understanding of STEM. I believe there’s another solution—one that will help women not only feel more comfortable entering into VC, but also break into this mafia-type world: If women can find communities that welcome them, train them, and mentor them, then they can gain expertise outside of the top VC firms and, I believe, become more easily integrated into the venture world.
By that, I mean finding communities where women can feel comfortable with investing, comfortable with risk, comfortable working with the concepts of term sheets and due diligence and convertible notes. A report from the Kauffman Foundation reiterated this sentiment when it wrote that “people who are kind of interested in angel investing are put off by the terminology and their lack of knowledge…[M]any smart people are still nervous about the words.”
My feeling—a feeling reiterated by successful men and women in the venture world—is that angel investment firms that actively seek women investors are an excellent bridge for encouraging women to try their hand at startup investing. Eventually, this experience will lead to greater involvement in venture capital.
The good news is, the growth of angel firms over the past 10 years has been enormous. Several of these firms specifically seek to encourage women in the field of investing. Golden Seeds seeks both female and male investors to invest in women-run companies. Pipeline Fellowship only seeks women investors to invest in women-led social ventures. 37 Angels has only women investors but looks to invest in both women and male led startups. 37 Angels also makes education an important part of its curriculum, providing several weeks of training to prospective angels on how to analyze and consider deals.
I've seen firsthand that these women-focused angel firms help overcome the barrier for women of breaking into the investing world. The knowledge and contacts gained from working in the angel investment community have become a runway to entering the world of venture capital.
It’s time we start making it possible for women to become comfortable angel investors—and then effective members of the VC community. But, of course, we can only start talking about solutions once we recognize the problem.
So, my final words to Pete are that he needs to read a bit more about he problems preventing women from joining VC rather than perpetuating the myth that women don’t want in. Pete, there is so much work that needs to be done. Why don’t you lend a hand? I’d encourage you to dig deeper and see that the problem is not one of ability, but a much deeper issue with many facets at play.