Where Are The Women In Venture Capital?

At the beginning of 2014, Forbes said the year would be a “breakout year for women entrepreneurs.” Indeed, Forbes had its reasons to believe so. According to a 2013 American Express-sponsored report, from 2002 to 2012, women-owned ventures with $10 million dollars or more in revenues increased by 56.6 percent—a rate 47 percent higher than overall ventures.

In that same time, women-owned businesses grew by 28.6 percent—again, higher than the 24.4 percent increase among all U.S. businesses. According to the Center for Venture Research at the University of New Hampshire, almost 20 percent of angels in 2012 invested in women-led ventures. That may not seem like a lot, but it was a 40 percent increase over the previous year.

While progress continues to be made, some issues are stubbornly persistent. In March, when Poets&Quants released its Top 100 MBA Startups, based on funding raised, there were only three startups founded solely by women (Rent the Runway in 11th with $114 million, Birchbox at 16th with $72 million and Stitchfix at 22nd with $47 million). What’s more, the first woman-founded venture not by a Harvard graduate was Piazza, all the way down at 62nd with $15.5 million raised.

A VENTURE CAPITAL VOID

More recently, the gender discrimination lawsuit involving venture capital giant Kleiner Perkins Caufield & Byers (which funded five Poets&Quants Top 100 Startups) and former partner Ellen Pao has put the issue in the limelight again. Although Pao failed to win the case against her former employer, it’s opened up the conversation surrounding representation of women in funding-rich Silicon Valley.

Today, the number of women in venture is actually improving. And according to Angela Lee, an assistant dean at Columbia Business School and founder of 37 Angels, an angel investment network that trains women to invest in early-stage startups, that is a good thing for women-led ventures.

“As the number of women being angel investors has increased, the number of women-led companies funded has increased,” says Lee. “There was a time when the number was around 4 percent of women in startup funding. Now it’s up to 18 to 20 percent and you see more funding in women-led companies.”

‘WE INVEST IN AND HIRE PEOPLE WHO LOOK LIKE US’

The difference might be as simple as having comfort with those we can relate to and understand better.

“We invest in and hire people who look like us,” Lee says. “We naturally gravitate to others who look like us. It could be race, age or educational background. It’s not just a women versus men thing—it’s a diversity thing.”

She also likens the issue to growing diversity amongst students and professors at business schools. “You see initiatives to diversify classes at business schools,” Lee explains. “And you see more diversity in faculty. But the difference is many professors are close to retirement, so you can increase diversity as others retire. The senior partners at venture capital firms aren’t old. They’re like 40. So it’s hard to make change when the people at the top aren’t going anywhere.”

A DIVERSITY IN PARTNERS AND MARKETS

Hence, you have the value of a firm like 37 Angels. And others are popping up all the time. The New York Times recently featured women-led early-stage investment firms such as Cowboy Ventures, Aspect Ventures, Broadway Ventures and others that are attempting to disrupt male-dominated space. However, are women-led early stage investment firms enough when the issue is having female representation at the top of established venture capital firms.

Professor Linda Darragh at Northwestern’s Kellogg School of Management, who serves as the executive director of the Kellogg Innovation and Entrepreneurship Initiative as well as the Helzer Center for Private Equity and Venture Capital, says having women as partners at top venture capital firms can help diversify the markets those firms can invest in.

“In the past few years, I’ve heard stories of women-led ventures having a hard time generating Series A funding because the investors don’t get beauty or other women’s markets,” says Darragh. “In one instance, a male partner went home to his wife and told her about the product and she said it was an amazing idea with a huge market and he should invest in it. So it helps to have investors understanding the markets.”