Women Breaking Barriers in Venture Capital

“A friend of mine who runs recruiting in a public company put it really well: men get four-lane highways on which to operate, and women get balance beams.” (Lara Druyan)

The male hegemony in technology and venture capitalism is ripe for disruption. In recent weeks, Uber CEO Travis Kalanick and VCs Justin Caldbeck and Dave McClure have stepped down ignominiously amidst allegations of sexual harassment in their firms. The NY Times (July 2017) spoke to 26 female tech entrepreneurs who had been sexually harassed by prominent VCs, blowing the lid off this longstanding problem in the industry.

Perhaps one of the most well-known examples was the 2015 case of Ellen Pao v. Kleiner Perkins Caufield & Byers. Ms. Pao—a former junior partner for KPCB with three Ivy League degrees—accused the VC firm of gender discrimination. She detailed unwanted sexual advances; her exclusion from male-only company trips; her lack of opportunities to advance; and ultimately how she was fired in retaliation for filing the lawsuit, stories which resonated with other women in VC and tech. While Pao lost the case against her former employer, it tapped into a groundswell of similar incidents, and the increased reporting of sex discrimination in tech was referred to as the “Pao effect.”

Despite a clear gender imbalance and mounting evidence of discrimination across the industry, five exceptional women have risen to prominence in venture capital through their hard work and ability to pinpoint promising ventures at their highest risk points.

“There’s a tremendous amount of research that’s been done on diverse teams making better decisions. It’s not just that you need a woman in the room in case you’re pitching a wedding site, a shopping site, or a beauty site; it’s that women bring a different perspective to every decision.” (Amanda Reed)

While successful investments rely on diverse knowledge and experiences, women consistently have been underrepresented in VC powerhouses across the country, especially in leadership. Interestingly, Ms. Winblad pointed out that there’s no official census on the demographics of VCs, and the profession isn’t tracked by the U.S. Bureau of Labor Statistics; that said, there’s still ample evidence of a gender disparity.

For example, the CrunchBase Women in Venture Report (April 2016) examined the top 100 VC firms around the world; only seven percent of the partners—54 of 755—were women. A startling 62 percent of the firms had no female partners. Fortune (April 2016), relying on data from PitchBook, found similar figures; it reported that 5.7 percent of all decision-makers in VC firms were women—only 52 of 906.

Following the Ellen Pao verdict, Wired put the problem bluntly in a headline: The Gender Problem in Venture Capital is Really, Really Bad (March 2015). The article reported that Harvard Business School professor Paul Gompers—an expert witness for Kleiner Perkins—had detailed data on women VCs. He made the case that KPCB was relatively egalitarian compared to other firms; drawing from an analysis of 30,000 VCs from 2003 to 2013, he stated that between 77 and 79 percent of firms had never had a woman represent them on the board, and more than 75 percent didn’t have female VCs at all. Putting aside the strangeness of arguing that KPCB didn’t have a gender problem because other firms were so much worse, this analysis illustrated the gender problem plainly.

Not only are women underrepresented in VC firms, there are also relatively few women in executive leadership, particularly in the Silicon Valley. In fact, the Center for American Progress (May 2017) found that at S&P 500 companies in financial services, women comprise 54 percent of the labor force but only 29 percent of executives and senior-level managers and only two percent of CEOs. The study also found that 43 percent of the 150 top-earning public companies in the Silicon Valley had no women in executive leadership positions. For women of color, these gaps were even more stark.

Additionally, drawing from BLS data, the Institute for Women’s Policy Research (April 2017) reported that women suffered some of the largest earnings disparities in financial occupations; female personal financial advisors, for example, earned only 58 percent of the men’s average salary in 2016.

“If there’s a woman pitching an idea, there’s not necessarily a diverse group of decision-makers that she’s facing in the office.” (Amanda Reed)

The gender disparity doesn’t stop with VCs; it extends to the entrepreneurs on the other side of the table, as well. Male founders receive vastly more VC funding than female founders. Ethan Mollick, a professor of management at Wharton Business School, stated that while 38 percent of new businesses in the U.S. are started by women, only between two and six percent receive any VC funding.

In Babson University’s Diana Report: Bridging the Gender Gap in Venture Capital (Sept. 2014), lead author Dr. Candida Bush reported that between 2011 and 2013, 985 of the 6,793 VC-funded companies in the U.S.—only 14.5 percent—had a woman on their executive team; also, only 2.7 percent of the same companies had a female CEO. More surprisingly, a mere $1.5 billion of $50.8 billion invested during those three years went to companies with women CEOs; this represents only three percent of all VC dollars invested.

More recently, Fortune (2016) found that 5,839 male-founded companies received funding compared to 359 female-founded companies; put differently, male-founded companies were more than 16 times as likely to receive funding. And women actually received only 2.19 percent of all VC dollars invested in 2016, less than the average between 2011 and 2013.

Overall, the underrepresentation of women among VCs stymies growth, creativity, and decision-making. There’s an abundance of evidence showing that companies with gender and ethnic diversity do better than their peers; in one of many studies, First Round Capital (2015) found that their investments in companies with a female founder outperformed those with all-male teams by 63 percent.

“I grew up sailing, which has been a more male-dominated sport; I was used to spending more time around men. Sometimes I think about that when I’m sitting at a table…Well, here I am again—the only female in the boat.” (Emily Paxhia)

In interviews with Ann Winblad, Lara Druyan, Emily Paxhia, Amy Boyet, and Amanda Reed, several themes emerged. Drawing on their extensive experience as executives in investments, here were some of the oft-cited explanations for the lack of women venture capitalists and VC-backed entrepreneurs.

There’s an entrenched culture of misogyny in technology and venture capital. All five of the interviewees acknowledged that they were usually one of the only women in the room. They shared examples of unfair treatment, ranging from minor annoyances to outright discrimination. Ms. Reed recounted how female professionals may present ideas which are ignored—at least until a male colleague parrots them: “I think we’ve all had the experience where you have an insight and you say something, and people kind of shrug it off. And then a guy in the room says the same thing, and everybody’s like, ‘Oh my gosh, that’s brilliant.’ So there’s that.” In a similar vein, Ms. Paxhia observed, “I feel like if you’re the female at the table, sometimes the eye contact doesn’t go to you; it goes to your male business partner, and that can be frustrating.” Touching on how old boys’ clubs in the Silicon Valley can make women feel unwelcome, Ms. Winblad recalled a company which “issued statements to their employees before outings stating, ‘Have fun together, but avoid threesomes.’” Also, Ms. Winblad—one of the most prominent VCs in the San Francisco Bay Area—told the Silicon Valley Business Journal how in the early days, she was the only female speaker at a tech conference; as a result, she was forced to share a hotel room with an entertainer for the men at the event: a stripper.

Social progress is slow and beliefs are difficult to uproot, especially among the older generation. Relating to the point above, older men in positions of power may have different expectations of women’s role in business. Ms. Boyet mentioned, “I think some members of the older generation can be difficult with their memories of a time when it was appropriate to speak disparagingly of women, the martini lunches where you get away with saying, ‘Who wears the pants around here?’ That generation is disappearing.” Also, stubborn assumptions about men’s and women’s differing abilities can impact professional interactions; Ms. Paxhia related feeling intimidated in some finance situations: “In general, the finance world is more male-centric, perhaps due to societal assumptions that men are good at math and women are not. I do get intimidated occasionally when I’m in a more traditional finance situation just because it does tend to be extremely male, and they’ve all been raised in that faith.” Additionally, there’s an abundance of research showing how difficult it is to change minds; people have a tendency toward “confirmation biases,” or gravitating toward information which is consistent with their existing beliefs. By extension, it’s probable that people seek out evidence confirming their persistent stereotypes and prejudices against women. Finally, Ethan Mollick, the aforementioned Wharton business professor, pointed out that there may be a male hubris/female humility effect, as well. Men tend to be supremely confident in their competence and take personal credit for successes; on the other hand, women are less likely to attribute their accomplishments to their own abilities. As Ms Winblad revealed, “someone said to me today that confidence is a great elixir. It helps you with everything.” The gendered difference in the expression of a trait central to entrepreneurship and VC may be affecting the number of women entering those roles.

Women don’t have an equitable pipeline of professors, mentors, and thought-leaders. Not surprisingly, all of the interviewees acknowledged that they didn’t have many female role models or entrepreneurial resources in their universities or companies. Not having equitable access to people of influence can curb women’s chances of becoming successful entrepreneurs or VCs. Remembering her experience in college, Ms. Winblad revealed, “I was the only woman in the math class, the only woman in the computer science class, and one of three women in the business class. I never saw a female instructor, and I bet if you ask women today, they’d say the same thing.”

When decision-makers are predominantly male, so too will be the businesses they fund. The old adage “birds of a feather flock together” is also called homophily. Wharton business professor Ethan Mollick stated that since VCs are mainly men, they invariably make more connections with male founders. Ms. Reed said memorably, “If there’s a woman pitching an idea, there’s not necessarily a diverse group of decision-makers that she’s facing in the office.”

Female entrepreneurs tend to start businesses in smaller and lower growth industries. As discussed above, women start 38 percent of new businesses, but they’re mainly in areas such as retail and food, which are less likely than tech companies to be VC-funded endeavors. Ms. Reed pointed out, “There are more men starting companies that are at the venture level…women are opening hair salons, bakeries, and small accounting businesses, but it’s mainly men behind ventures.”

Female- and male-founded companies are viewed fundamentally differently. In Fortune (March 2017) Kathryn Minshew—cofounder and CEO of career site TheMuse—argued that women are judged on performance and men are judged on potential, a theory corroborated in studies of “soft discrimination” at work against women. For potential-focused entrepreneurs and VCs in particular, the implications of this difference can be devastating to women’s chances of success.

“The one thing to remember is that we’re the opportunists and the entrepreneurs are the visionaries…we don’t run the companies; we don’t invent the ideas; we just see patterns.” (Ann Winblad)

The five interviewees also offered powerful advice for women looking to become venture capitalists.

Hire your boss, and if he’s a man, check out what his wife does. This applies to women entrepreneurs, VCs, and beyond: if possible, judiciously choose your boss, paying thought to his or her behavior both in and out of the office. One executive offered advice she wished she’d had earlier in her career: “Hiring your boss is very important. The best thing you can do if you’re working for a man—you ought to look at what his wife does. Who they marry tells you a lot…I’ve found that the men—whether they were my peers on board or people I worked for—men who married Barbies were the biggest problem.”

Choose your culture. Similar to the point above, hire the company you keep. A company’s values not only shape the intraoffice dynamic, but they also shape brand and public perception. Uber, for example, has recently been condemned for its “winning-at-all-costs” mission statement and general chest-thumping. This toxic ethos led to unethical business behavior beyond the numerous sexual harassment scandals which took down more than 20 employees and the CEO; their controversial values have also led to the development of the (probably illegal) Hell software, which tracked drivers from rival company, Lyft; it led to the top-secret Greyball program, which misled law enforcers about the location of Uber’s cars. In short, whether a workplace is an inclusive, healthy environment is typically apparent on the surface.

Several of the interviewees pointed out that a corporate culture is usually pretty obvious through its mission statement, the public behavior of its employees, and the demographics of its workforce. Ms. Winblad observed, “It’s really important for young women starting their career journey to not only find the right starting point or company—because this is a journey—but also to really understand the culture that they’re joining….We can look out for each other, that’s true, but you’re going to end up looking out for yourself; you should look clearly and don’t ignore bad signs. Usually bad behavior is not a one-off; it’s symptomatic of a self-destruct button that’s pretty obvious when you look at it.” From the entrepreneur’s point of view, she added, “If you don’t feel comfortable with the person that you’re looking to get funding from, don’t take money from them because they’re not going away. They own part of your company.”

People are paramount. There’s a Spanish proverb which says, “Dime con quién andas y te diré quién eres.” It translates as, “Tell me who you hang out with and I’ll tell you who you are.” It’s the same in business. Finding the best people is instrumental both as an entrepreneur and VC. All of the interviewees pointed out the importance of seeking out quality coworkers, business partners, and entrepreneurs. When asked how she decides which companies to fund, Ms. Paxhia put it bluntly: “The first thing we are trying to look for is team. You can’t always find the perfect team in a company, but you try really hard because every time there’s a challenge in a company, it usually comes back to a team problem, so we really try to look at the founders.” Ms. Reed similarly stated, “I think that really, the people with the most experience will tell you that it’s people and markets, but people first…It doesn’t matter what happens in the company; it matters that you’re putting yourself in the mix with really bright people you admire. It’s really the company you keep that determines your career.”

Seek out mentors or sponsors. Related to the point above, having the right mix of supportive and influential people is integral to succeeding as a VC. Ms. Boyet remarked, “I’ve always chosen my jobs not by what they pay, but by the experience I’m going to obtain. I’ve been very strategic in joining groups where I have a good mentor, and so thankfully, I’ve worked for a lot of men that have been staunch advocates for an equal seat at the table.” Ms. Druyan took a different approach, distinguishing between mentors and sponsors: “There are a lot of people who seek out mentors, and I think mentorship is great, but what you really want to find is a sponsor. A sponsor is a very different thing from a mentor. Mentors will give you advice: ‘Oh you should have done x and y.’ A sponsor is somebody probably internal to your organization, who is actually going to push your career.”

Don’t shy away from painful learning opportunities—i.e., lean into experiences. None of the interviewees had an easy or linear career path; many of them had to learn the courage to fail along the way. Ms. Boyet emphasized the importance of having multivariate learning experiences: “I’ve got a good toolbox; I’ve looked at hundreds and hundreds of offerings, and I think that’s part of the key of getting into finance—building up that experience, having some war wounds. In a broker-dealer world, you get those quickly.” Ms. Winblad mentioned that she exposes herself to new perspectives constantly: “You just need to stand in the river of innovation and never take your deal flow for granted. I try to have meetings with three to five people a week that I’ve not met with before.”

Have the courage to make mistakes or fail. In venture capital, not all investments will bear fruit. Ms. Winblad recounted how John Hummer, her firm’s cofounder, asked her if she was willing to fail; she revealed, “It was important for him to ask me that because not all of our companies will be successful. We’re going to have to shut some of them down because they weren’t the right people; it wasn’t the right product; it wasn’t the right timing; the competitors were unknown…we’re dealing with assumptions, not facts.”

Be an opportunist, not a visionary; look for patterns and be an analytical thinker. A central tenet of being a VC is not prescribing a pathway for people starting businesses, but rather taking advantage of the best-executed ideas in the marketplace. Ms. Winblad summarized the difference between VCs and entrepreneurs succinctly: “The one thing to remember is that we’re the opportunists and the entrepreneurs are the visionaries…we don’t run the companies; we don’t invent the ideas; we just see patterns.” Ms. Reed noted that the best moments to be an opportunist are often when everyone else is panicking. She pointed out, “Bubbles are cyclical in venture, but unfortunately a lot of people run away when they should be going in the opposite direction; that’s when you start companies. A lot of things happen: people get laid off their companies, so they start their own; valuations come down because people are all freaking out. It’s exactly when you want to start businesses.” She added, “Some of the best businesses were started during the darkest hours; Uber and others began in 2007 and 2008. Those were pretty dark times with the market, but they proved to be great vintage years for original start-ups. Great vintage years for venture funds are also found in the down-period.”

Pay attention to your geography and business environment. Being at the right place at the right time is crucial to becoming a successful VC. There are many factors which play into it, including local laws, culture and customs, population size, and industries represented in an area. Of course, as the web continues to disrupt the geographic considerations, physical location may not be as important, but these days, meeting face-to-face with entrepreneurs is still most common. Drawing on wisdom from her brother and business partner, Ms. Paxhia stated memorably, “Capital flows to where it’s treated best.”

Smart machines are the future. When asked which technology sectors show most promise into the future, the interviewees were unanimous: intelligent machines are on fire right now and show incredible potential, including investments in self-driving cars, deep machine learning, and the internet of things (IoT). Ms. Winblad mentioned, “Many young companies have been funded in the last two to three years on the themes of machine learning, artificial intelligence, and that general plane, so we are going to see things get much, much, much smarter in the future.” Echoing those predictions, Ms. Reed stated, “We went from microcomputers to minicomputers to mobile; it’s a shift to IoT where everything is ‘smart’ in your life—your clothes, your toaster, your refrigerator, your car—and that’s a massive creation of new platforms everywhere.”

Look for unique opportunities at the fringes of saturated industries. Ms. Paxhia’s company, Poseidon Asset Management, invests in nearly 30 portfolio companies related to cannabis, addressing various verticals of its use, from sales-tracking to agritech. Recalling her experience doing brand consulting for major companies such as American Express and Pepsi Co., she noticed that they existed in markets that had been addressed to the point of saturation. The cannabis industry, by contrast, was still in its infancy and had total room for growth: “I saw that cannabis was an emerging market opportunity, and unlike the businesses that I was working for—ones where they were all competing for a very addressed market.” She elaborated, “There’s a lot of pent-up demand around cannabis from a medical and adult use standpoint, and there aren’t as many products and services to cater to that. Also, the businesses that are running tend to be underserved by software products, appliance solutions, and other aspects. For me, it was just a blank slate of opportunity.”

Become an entrepreneur or take on a leadership role at a company with great potential. Ms. Druyan shrewdly pointed out, “If you want to get into venture capital, the best thing you can do today is join a company on a really, really strong trajectory to become a private company; having a leadership role at a company that is hitting it out of the park is a great path to get into venture capital.” If possible, this should start from an early age. Responding to a question about advice for a daughter who is an aspiring VC, Ms. Winblad said, “Make sure that she has an entrepreneurial job…something that requires her to manage the problem set, accomplish goals, achieve the goal lines, and earn money on her own.”

Don’t expect a linear career path. As illustrated by the multivariate backgrounds, degrees, and professional experiences of these five remarkable women, there are countless routes to becoming a VC; none of them are linear. Ms. Reed articulated a common misassumption among people: “I think that when you’re starting your career, it can seem like you can make a master plan—as if there is one path to success and it has a linear quality to it. What becomes clear is that life is a string of unexpected events and decisions that end up landing you wherever you are.” Ms. Winblad acknowledged that career paths are often serpentine and presented the critical skills successful people pick up on their journeys: “There are many broken parts along the pipeline to becoming a venture capitalist. You don’t graduate from college and become a venture capitalist; you need operating skills, so that means you have to have success in operating a company; you need the technical acumen to be able to build these products, which means that you probably have a technical background. Eighty-five percent of venture capitalists have advanced degrees, as well. It’s a high bar.”

“One of the ways that women are getting into this business is starting their own firms….That’s how I got in; no one invited me—I arrived.” (Ann Winblad)

The lack of women in VC and technology firms is not just dispiriting, it’s bad business; a team of homogeneous decision-makers is more likely to miss opportunities to fund the most promising ventures. Wharton professor Ethan Mollick summarized this point well: “Every year that goes by where we continue to fund the exact same pool of overwhelmingly male, overwhelmingly white founders is one where we are missing out on the opportunities to find important new innovations and develop new enterprises that a more diverse founder base would support.”

Overall, it’s clear that misogyny is more rampant in male-dominated work environments. Whether unconscious, conscious, or outright explicit, the biases toward men in this industry are well-documented and unignorable. For those working in high leadership in venture capital, consider this your call to action:

Make firms more transparent. As mentioned above, Ms. Winblad commented that there’s no official census on the number of women working in venture capital. Furthermore, these businesses are traditionally opaque and secretive since they don’t have public shareholders or open boards. Many do not have human resource departments which can promote appropriate relations between VCs and entrepreneurs. While some features may be baked into the nature of venture capital, increasing the transparency and bringing to light the gender disparities in employment, pay, and funded founders is the first step in addressing the disparity.

Correct past mistakes publicly and apologize. Ms. Winblad mentioned that she admired the CEO of Salesforce Mark Benioff for noticing the difference in pay between men and women and fixing it publicly. Having the courage to admit wrongdoing and fix it openly is an indicator of a mature, nimble company.

Support a #DecencyPledge. Appalled by the pervasiveness of sexual harassment in venture capital and technology, LinkedIn CEO Reid Hoffman presented a #DecencyPledge, encouraging fellow movers-and-shakers to post about this issue in their favorite medium. His post stated three things: VCs are in the same “moral position” with entrepreneurs as a manager to an employee or professor to student; people should speak up when they see inappropriate behavior; and VCs who support zero tolerance for this behavior should cease doing business with the perpetrators.

Make hiring blind. Minimize biases by excluding demographic information from resumes. Blind recruitment can be tailored to each company to control for what’s important in succeeding in the job. The process can help overcome biases; diversify teams; and promote more meritocratic hiring.

Support investor firms that are reworking the status quo. There’s been a surge of angel networks funding women and underrepresented minorities in recent years. Listed according to CrunchBase ranking, here are only a few of the funds seeking to promote women and minority entrepreneurs and leadership in venture capital:

• NewMe Accelerator
• Plum Alley
• Golden Seeds
• Halogen Ventures
• BBG Ventures
• Female Founders Fund
• Backstage Capital
• The Perkins Fund
• Astia Angels
• SoGal Ventures
• Rivet Ventures
• MergeLane

Celebrate the courage of women such as Ellen Pao, Niniane Wang, Susan Ho, Leiti Hsu, Wendy Dent, Kristen Ablamsky, Claire Humphreys, Rachel Renock, Gesche Haas, Lindsay Meyer, and all others to come. These women are heroes for exposing some of the most powerful men in the Silicon Valley and beyond. Countless other victims have been quietly paid off or stay silent to protect their reputation, hireability, or investments in their companies. There shouldn’t be extra “costs” associated with being a woman or non-white in business.

Ann Winblad, Lara Druyan, Emily Paxhia, Amy Boyet, and Amanda Reed are five exceptional women who have made the “balance beam” a little wider and more navigable for aspiring VCs and entrepreneurs.

Now let’s build a four-lane highway.