Venture Capital Funding and the Sexism You Can’t Quite Prove

At the outset, it is worth noting that when it comes to the world of venture funding, I am a bit of an outsider.

Until a handful of years ago, I didn't even know what venture capital was, let alone anything about the complicated process of actually acquiring VC funding.

I don't know this world on an intimate, personal level. I don't know how it operates behind closed doors. I have no idea exactly what it takes to get inside that inner circle.

And if I tried to find out? I probably still wouldn't. That's the problem.

It's valid to ask: As an outsider, why do I care? Also: Why should you?

I care because it's a thing that's happening that feels clearly unjust, and I'm a sucker for righteous indignation.

On a less self-deprecating level, I care because I believe it negatively impacts our ability, as a whole, to create more innovative solutions to virtually all our problems. I care because by funding a product, you are giving voice to the idea that yes, it probably is necessary—and if we continue to ignore the contributions of women to the entrepreneurial space, we're essentially concluding that their ideas hold less value.

To draw titular inspiration from a New York Magazine article entitled Ellen Pao and the Sexism You Can't Quite Prove (we'll talk more about Pao later on), I entered into this topic less with the desire to try to "prove" a specific point, but rather to explore an issue that continues to rise to the top of conversation in the entrepreneurial space.

I also think it's important that we share this side of the story here on Bplans, as we are a voice in this space, and offer advice in terms of obtaining venture funding. It seems remiss, therefore, to not shed light on this issue.

Being an outsider, I also wanted to lean heavily on the actual research available on the subject, as well as the voices of women both in the tech space and who have successfully received venture funding.

So, I'd like to start by sharing the story of a female entrepreneur who did experience VC funding success—but still also felt the impact of the biases held by the industry.

A rare success

Giadha Aguirre de Carcer has had an impressive career.

Her background includes senior roles in both the banking and tech sectors, and she has launched four data businesses—including her current firm, New Frontier Data, which boasts a $20 million valuation and has received $5 million in funding.

Giadha Aguirre de Carcer via Her Agenda.

However, the ease with which she was able to secure venture funding was contingent on her ability to overcome what, in the VC world, is often an insurmountable barrier: the fact that she is a woman, and a woman of color, no less.

"In a lot of the industries in which I ended up launching companies, there was a pre-existing profile of what a successful entrepreneur should look like—typically a young, white male with a technical, finance, or political background," says Aguirre de Carcer. "Being a woman, and in particular a minority woman, I felt out of place in the context of this profile, and sensed that it may have impacted my credibility and ability to be accepted and assimilated into the fold, so to speak."

For Aguirre de Carcer, this bias permeated the process of seeking venture funding. "Even with an Ivy League education and a master's degree from a prestigious university, not to mention three years in one of the top investment banks in the world, I still had hurdles to overcome when it came to securing meetings and pitching investors," says Aguirre de Carcer.

To this day, although New Frontier Data has been successful, Aguirre de Carcer still feels the effects of biases against women that are often held by the business and tech communities. "More often than not, when my COO (who is a white male) accompanies me to an investor meeting, people still end up talking to him before approaching me, even when I am in the room," she says.

How are women faring in terms of VC funding?

Historically speaking, venture capital has not been an area that businesses helmed by women (or even with women as part of the founding crew, period) have been able to access easily.

While private equity has a history in the U.S. that dates back over a century, the "boom or bust" period of the 1980s to early 1990s is considered the period that marks the rise in private equity and venture capital funding as we know it today.

How did women seeking venture capital funding fare during this time period? I honestly couldn't tell you; there doesn't seem to be a wealth of published research on the subject, which is telling in itself.

However, we can start with the mid-2000s, as there have been numerous 10 year retrospectives in recent years. According to Fortune, in 2006, female founders were involved in only 2.95 percent of venture capital deals, and received .33 billion in venture funding. In clearer terms, that's 67 deals, compared with 2075 deals for male-founded companies, and that .33 billion is in contrast with the 18.29 billion received by male-founded companies.

In 2016, women were the recipients of 4.94 percent of all VC deals, or 359 deals compared to 5,839 male-founded companies. Women-led companies also received 2.19 percent of the VC funding, or 1.46 billion dollars, compared to companies led by men, which came in at 58.19 billion dollars.

This graph (and graphs of other data mentioned) via Fortune.

So, has the landscape for venture capital funding improved for women?

Clearly, but perhaps not as much as it should have.

While over the period of 10 years, the percentage of VC deals with women has nearly doubled, movement from 2.95 to 4.94 is hardly a huge increase, and hardly huge numbers.

Additionally, women actually lost ground over the past year in terms of actual dollar amount awarded by VCs to women-founded startups; in 2016, women were the recipients of "a smaller piece of the pie than in every year this past decade, with the exception of 2008 and 2012," according to Fortune.

So while it feels foolish (and almost, dare I say, ungrateful?) to turn a nose up at the strides women have made in the way of VC funding over the past 10 years, you have to admit that these strides have been pretty minimal.

Teams of male and female founders and the implication for team composition

Obviously, startup teams aren't always comprised of all men or all women; teams of mixed gender founders exist, and some of them get funding. This muddies the waters slightly, as it becomes more difficult to slice data. (The research I reviewed also made no mention of nonbinary or transgender founders and their success, or lack thereof, in obtaining venture funding.)

However, it has been found that mixed-gender teams (specifically, teams including at least one male and one female member) are the recipients of more deals than women-only teams; in 2016, mixed-gender received 1067 VC deals (remember, that's compared with 359 deals for female-only teams, and 5839 for male-only), and received 6.72 billion dollars in VC funding (again, compared with 1.46 billion dollars received by companies led by women, and 58.19 billion received by male-led companies).

The makeup of these mixed-gender teams is also worth assessing. A study via Dow Jones entitled "Women at the Wheel: Do Female Executives Drive Startup Success?" examined over 20,000 VC-backed companies and found that women's positions have primarily been in sales and marketing, rather than more "heavy-hitting" roles like chief technology officer and so on.

As such, it's possible to argue that these teams are not subject the same scrutiny as teams that place women in roles more central to the overall direction and financial success of a fledgeling startup. The same study also noted that companies with women in executive roles (at the VP and director level) were actually more successful—but we'll get to that next.

The economic argument: Are women-run, VC-funded businesses better bets (or are the small numbers skewing results)?

It can be argued that supporting women-run, VC-funded startups might be a good idea from an economic perspective.

A study based out of Babson College via The Diana Project looked at venture capital investments in women between the years 1999 and 2014. Broadly speaking, it suggested that female-led startups are a good financial bet. Most notably, they found that businesses with women on their executive team were more likely to be valued higher during both their first and last rounds of funding.

The Dow Jones study mentioned above also found that at successful companies, the overall average proportion of female executives was 7.1 percent, while it was only 3.1 percent at unsuccessful companies. The study concluded that “a company's odds of success increase with female executives at the VP and director levels.”

However, there is definitely an argument to be made that, as it's so much harder to even get to the point of acquiring VC funding as a female founder, the standards are subsequently higher. It follows then that this increased success of female-founded, VC-funded startups has more to do with the fact that there are fewer of them in the mix overall, so only the truly exceptional rise to the top.

Or, female-founded, VC-backed businesses could be a safe bet because they're simply more likely to be successful. After all, it is true that statistically speaking, women-led businesses are likely to have higher valuations and are often acquired for an amount greater than the total amount of venture capital raised.

Stitch Fix CEO Katrina Lake, via the Los Angeles Times.

An incompatibility of product with venture capitalist

Some argue that women fare worse than men when it comes to VC funding because VCs often simply don't see the benefit or need for the products or services women are pitching. That is to say, it is thought that women, who are primarily pitching businesses that will appeal to women, have a harder time hooking the interest of VCs, most of whom are men.

The premise here is that VCs often do not find these pitches resonant, as they have a hard time seeing the value in products or services that traditionally appeal to women.

Katrina Lake, founder and CEO of Stitch Fix, told Fortune: "I had an investor say, ‘I think you’re amazing, but I have to pick one or two board seats a year and where I feel really passionate about the business, and I don't think I can be passionate about women's dresses and retail.’"

I heard this same narrative from Anna Brockway, former Head of Worldwide Marketing at Levi’s, who co-founded Chairish with her husband:

"When I look back on my journey, I feel like I really went against the grain," says Brockway. "Silicon valley tends to have a bias toward a certain startup founder stereotype (i.e. 25-year-old male); thus, the fundraising process has been an interesting journey. Let’s just say that venture capitalists don't hear a lot of pitches from middle aged moms!"

Anna Brockway, via Lonny.

Brockway, like Lake of Stitch Fix, experienced a disconnect between investors and her target market. "Our business is an online marketplace for one-of-a-kind furniture and decor which inspires design lovers to express their personal style in their home; needless to say, our audience is mostly women," says Brockway. "For the lion’s share of the venture capital community (which are predominantly men), it requires a bit more imagination and consideration to understand the motivations of our audience. Obviously, they can get there; however, it’s not something that they may instantly appreciate. As an early-stage entrepreneur competing against a vast sea of startups seeking seed funding, first impressions matter a lot."

Hearing these narratives is definitely telling, but I can’t help but feel it fails to capture the entire picture. While I am sure that plenty of the businesses pitched by women to male VCs are targeting women specifically, it seems unlikely to assume that this accounts for the huge discrepancy between the number of businesses funded that are run by men versus women.

For one thing, the argument that male VCs cannot appreciate businesses pitched by women because they "can't relate" rests on the assumption that women are more likely to found and pitch businesses exclusively related to services for women—an idea that I find frankly implausible. This idea ignores that for every fashion and makeup-related startup, there are undoubtedly healthcare, financial technology (fintech), and a variety of other "gender neutral" startups backed by women that are not receiving funding. Not only that, but when you assess the questions VCs asked men by compared to those they asked women, it's evident that they vary drastically—even when the same type of business is being pitched.

And (at the risk of venturing into personal opinion territory), I give an awfully big side eye to the assumption that a qualified, experienced male VC cannot identify a good business opportunity simply because it's not something he would personally use or be interested in. If the venture funding criteria really was limited to only the products or services that VCs themselves would personally use, we'd be looking at a much less innovative business landscape in general.

Where does the onus of responsibility lie?

So, can we "blame" a specific circumstance or group of individuals for this outcome and lack of progress?

It's doubtful. There are a slew of contributing factors, and as much as I'd like to be able to boil the question of "why" into the pithy answer of "sexism," it's not that easy to articulate.

However, at the root is the fact that the majority of venture capitalists themselves are men. This brings up a host of issues, from the supposed incompatibility of VCs and female target markets, to the oft-mentioned "boys club" that seems to exist surrounding the VC community.

It stands to reason, though, that a more diverse group of VCs would lead to a greater diversity of businesses funded by VCs.

Actually, scratch “stands to reason”—research has shown that this pattern does in fact hold true. Returning to Babson's 15 year study of women in entrepreneurship, venture firms that have female partners are more than twice as likely (34 percent versus 13 percent) to invest in startups that have women as part of their executive team. They were also more than three times as likely to invest in companies that had a female CEO (58 percent versus 15 percent).

This is seconded by Techcrunch’s 2016 study on women in venture capital, that found venture firms with female founders or "an unusually high percentage of female partners" elevated interest in female-led businesses (though they were quick to point out that there is "scant evidence" to conclude that more female VCs directly leads to funding more female-led businesses).

Unfortunately, Babson also found that the number of women involved in venture firms has dropped; as of 2014, it was 6 percent, compared to 10 percent in 1999.

What about “leaning in”?

And what about the women doing the pitching? Are they responsible, personally, for pushing back against the difficulty women have obtaining VC funding?

There is an argument that when it comes to male-dominated spaces, women need to "lean in" (thanks, Sheryl Sandburg). I spoke with Katherine Regnier, founder of Coconut Calendar and recipient of VC funding, who said: "I once was told by a female VC that she would never give me a cent because I 'pitch like a woman.' It's interesting as we talk about the VC world being a male-dominated industry—from my experience women are not 'leaning in' to help the situation."

So, do women need to "lean in" in order to get VC funding? Should you be assertive (but still nice—always nice), and "pull up a seat at the table"? Sure, if it works for you. Lean in all you want.

However, I would push back against the idea that leaning in is the simple answer—or a viable solution to the issue of the bleak landscape women encounter when hoping to secure VC funding. I also believe it would be lazy reasoning for me to end the conversation there, without probing further.

To get an additional voice here (one with far more experience than yours truly), I spoke with Sabrina Parsons, our CEO here at Palo Alto Software. I knew that Parsons, like myself, was not a huge fan of the idea of leaning in, and I wanted to hear her thoughts about how she thinks it relates to VC funding.

Sabrina Parsons, CEO of Palo Alto Software.

Parsons argues that the idea of leaning in (pull up a seat at the table, be nice and cute, don't rock the boat) is not only ineffective, but urges women to keep silent in issues where they experience poor treatment and sexism within the workplace and, yes, even in the context of VC funding.

She cites the semi-recent example of Ellen Pao, who filed a gender discrimination suit against venture firm Kleiner, Perkins, Caufield and Byers, her former employer. While Pao ultimately lost her suit, the fact that she came forward about her experience (and sued a venture firm, no less, which I am assured by Parsons doesn't happen very often) has helped break ground for other women to come forward about their experiences surrounding sexism within the industry. For a recent example of this, look no further than the controversy surrounding Uber, precipitated by Susan Fowler's blog post, that led to the subsequent stepping down of Uber CEO Travis Kalanick.

According to Parsons, it is subversive acts like these which can help cause a shift within the industry at large and potentially lead to an increase in venture funding for women. "We need women to be disruptive," says Parsons. "If 'lean in' worked, wouldn't we be further along? We're not. We're not changing the numbers because 'lean in' doesn't work."

Wharton professor Ethan Mollick, who studies innovation and entrepreneurship, echoes her sentiment. "We know that about 38 percent of new businesses in this country are started by women, but only between 2 percent and 6 percent of those founders receive VC funding," he says. "There is a problem here, and 'leaning in' is not enough to solve it."

Ellen Pao, via Bloomberg.

So, again—why should you care?

Beyond endeavoring to exist in a business climate of fairness and equality, why is it valuable to have more VC-funded, women-backed businesses?

In a word, diversity—not just on-paper, more-women-doing-things diversity, but a wider pool of humans from whom to draw ideas. Mollick summarizes the issue with wonderful brevity:

"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."

At the end of the day, seeking out more female-led startups isn't just about creating a business climate that is more equitable overall (though that's certainly a valuable goal in itself): it's also about creating an entrepreneurial landscape where truly the best, most necessary, most innovative ideas command the spotlight.

Going forward

All that being said, it's natural to hope for tangible action steps we can take moving forward, based on what we know about women and venture funding.

The following suggestions include both steps women and men seeking venture funding can take, as well as some simple actions any small business owner can implement, to help work for a more diverse and inclusive venture capital, startup, and small business environment.

If you're a small business owner who is nowhere near the venture capital space (and this encompasses the majority of small businesses!):

• Research your vendors. Consider sourcing goods and services from companies founded by or led by women.
• Get involved in your local small business community in a way that helps create a more equitable small business environment closer to home.
• Use your voice and your platform to advocate for increased diversity in your community, in the industry you work in, and in the business community at large. Try to keep the conversation going in and focused on taking tangible action.

If you're a man seeking VC funding, what can you do? I asked Parsons how men seeking VC funding should respond to this issue. Her answer? Be willing to be introspective and examine your own values. "Men need to be aware of the climate of funding and the firms that they accept money from," she says, and urges men seeking VC funding to ask: "What are your values? What are your morals? Do you know how many female or minority partners the firm has? Do you care? How many minority- or women-founded businesses have those firms funded?"

Beyond carefully considering the money you choose to accept and the firms you choose to work with, have you considered adding women to your team? While it is a risk (didn't I just spend this entire article reiterating how teams with women present are less likely to receive venture funding?), it's one your company can stand to benefit from.

It's not only about paying lip service to the idea of diversity; as I discussed above, there is a case to be made for the argument that VC-funded businesses with women in executive roles are more successful. Not only that, but by creating a business with a more diverse cast of voices, you are creating a more expansive space and giving your new business access to a wider range of ideas.

Plus, you're helping create a business climate that is more inclusive, if that's your thing (and I hope it is).

And if you're a woman seeking VC funding? Parsons recommends that women be aware of the bias, and the fact that traditional firms are not funding women as frequently as men. She recommends women seek out women-owned firms, and funds that focus on women and minority businesses. "Then they need to kick ass and be super successful, and give the traditional firms 'fear of missing out,'" she says.

Sabrina and Noah Parsons, with their family.

Ultimately, I'm not here to offer an overarching solution (and it would be heinously presumptive of me to think that I could wrap this issue up neatly in 3000 words or so). Rather, I think it's valuable to continue to have this conversation, over and over again, until the needle moves, and to offer up the voices of real female founders who continue to experience a more challenging landscape than their male counterparts while seeking VC funding.  

The difficulty female founders face when it comes to acquiring venture funding means that the ideas of women are less frequently heard, period—and as a result, we all suffer a world that is smaller.

Resources: VC firms run by women, that fund women, and other noteworthy resources

• Women's Venture Capital Fund
• 21+ Venture Capital Firms with Leading Women VCs
• 15 Top VC Funds for LGBTQ and People of Color
• Female Founders Fund
• Meet The Top Women Investors In VC In 2017
• How One Pioneering VC Is Funding Women, People Of Color, And LGBTQ Founders
• Female Founded Companies That Have Raised a Series A in the Last Year
  
• These Women Entrepreneurs Created A Fake Male Cofounder To Dodge Startup Sexism

Briana is the content marketing specialist for Bplans. She enjoys discussing marketing, social media, and the pros and cons of the Oxford comma. Bri is a resident of Portland, Oregon, and can be found working remotely from a variety of local coffee shops. She can also be found, infrequently, on Twitter.