The venture capital (VC) sector took a well-deserved pounding in 2014 for its gender imbalance at the partner level. The proportion of women partners in U.S. venture capital firms was small in 1999 (10%) and downright miniscule in 2014 (6%), according to Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital, a report by Babson College.
The impact on women cannot be overstated. Venture capital firms with female partners are two-and-a-half times more likely to invest in companies with women on the management team (34% vs. 13%).
All Eyes Are On the VC Industry and Its Lack of Diversity
Ellen Pao, former venture capitalist and former CEO of Reddit, lost her gender discrimination lawsuit against her former employer, Kleiner Perkins Caufield & Byers. This prompted an observation from Deborah Rhode, a law professor at Stanford University, who wrote in The New York Times that “even with her loss in the case, Ms. Pao’s suit succeeded in prompting debate about women in technology and venture capital.” Rhode continued, “This case sends a powerful signal to Silicon Valley in general and the venture capital industry in particular. Defendants who win in court sometimes lose in the world outside it.”
High-Profile Progress Is Being Made in Tiny Steps…
But in spite of Pao’s loss, progress is being made. The most high-profile venue is in Forbes’ 2015 Midas List. The list of top-performing venture capitalists included five women, up from four in 2014. One of those women, Jenny Lee of GGV Capital, made it into the top ten. That’s a first.
Even with that precedent in mind, there’s still a ways to go. Women represent only 4% of senior partners in venture capital firms with portfolios of $200 million or more, according to a Fortune analysis of data from Pitchbook, a venture capital research firm. To add insult to injury, only one woman partner was added between the analysis of 2014 and that of 2015.
…But Low-Profile Progress Is Making Bigger Strides
Women venture capitalists are leaving the big firms, but they’re not leaving the industry. They are setting up their own firms. These women include Jennifer Fonstad and Theresia Gouw (Aspect Ventures), Adele Oliva (1315 Ventures), Aileen Lee (Cowboy Ventures), Susan Mason and Jodi Jahic (Aligned Partners), Kirsten Green (Forerunner Ventures), Tracy Warren and Tammi Jantzen (Astarte Ventures), and Nancy E. Pfund and Cynthia Ringo (DBL Investors).
“I think that’s going to have more impact on our economy and more on women than if they would have stayed with their big firms,” said Trish Costello in Fast Company. Costello is CEO and founder of Portfolia, a crowdfunding platform geared to consumer products. She is also CEO emeritus and co-founder of the Kauffman Fellows Program at the Center for Venture, where she trained many venture capitalists. “My view and my message is that, yes, what’s happening in Silicon Valley right now is really unfortunate. It’s an old model, and they’re going to have to change, or venture capital in Silicon Valley is going to become almost irrelevant. But until that happens, we can change that [misfortune] ourselves with just a little bit of focus and a little risk-taking, and a little more energy around change.”
In September 2014, Susan Lyne stepped down from being CEO of AOL’s Brand Group to run a venture fund within AOL geared towards women-led startups. Lyne has held various positions at Gilt Groupe, Martha Stewart Living Omnimedia and the Walt Disney Company. The new fund is called BBG (Built By Girls). “I think that if 93% of the funding today goes to just half the population, that’s a market failure as well as an opportunity that we should exploit,” said Lyne in Geektime. BBG is small, with just $10 million that will be invested in 12 companies each year. So far, the fund has invested in 10 companies.
Additionally, Intel Capital launched a $125 million fund to back startups run by women and minorities as part of a corporate-wide effort to bring more diversity into the notoriously male technology industry. This new fund is part of a wider $300 million corporate effort to increase diversity in tech. “The big issue we have seen, because venture capitalists are on the leading edge, is that we need to engage here,” said Lisa Lambert, managing director of Intel Capital Diversity Fund, in a recent VentureBeat piece. “We see a lack of engagement and involvement across the industry as a whole. We want to be a catalyst. We believe it’s good business. Half the population is women. Women are leading in every other industry. And there is a tremendous demographics shift.”
Other funds are being formed as well. Springboard Enterprises, an accelerator for women-led businesses in technology, media and life sciences, is currently raising a fund.
Some women develop an interest in becoming a VC by starting as an angel investor. Serial entrepreneur Joanna Drake Earl learned angel investing by investing alongside investors at Broadway Angels, which is made up of world-class investors and business executives who all happen to be women. Her experience at Broadway Angels has given her the inspiration and courage to start her next chapter at Core Venture Group, joining a VC firm as a general partner.
By Measuring It, You Can Improve It
Kleiner Perkins recently released a diversity report, the first-ever from a venture capital firm. The report compares its 20% of investing partners that are women to the 6% industry average cited in the Babson report. In addition to measuring and reporting on the progress of its own diversity numbers, it is improving opportunities for women by expanding training programs for workplace bias, both at Kleiner Perkins and at the companies in which the firm invests. It is also creating a new initiative to advance and retain talent.
Where there’s a will, there is a way. Even the National Venture Capital Association (NVCA) formed a Diversity Task Force in 2014 to find that way. Its leader, Bobby Franklin, is making it his personal mission to improve gender and racial diversity in the sector. Finally, it is being recognized that diversity improves innovation, productivity, company performance and the overall economy!
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