In her article Taking a Hammer to the Silicon Ceiling, Amanda Bennett hits on a real problem in the venture industry where spoken and unspoken biases have a significant impact: it is harder for women to raise money than it is for men. However hopeful one’s outlook, this is an uncomfortable and inescapable truth that the industry should acknowledge.
What’s the reason for it? I’ve been in the venture business for 14 years, and rarely, but sometimes, I’ve seen it come from unabashed bias about women’s ability to do as good a job as men. Generally this relates to the subject of women already having or potentially having children. I’ve heard people remark: “Wouldn’t that be a big distraction for the company, and how could they possibly be as productive as men in those circumstances?” This particular kind of bias is rarely expressed in a public manner but certainly affects the thinking of some. The good news is that as younger generations of investors assume more prominent roles in the industry, I think it will substantially diminish.
More often, I’ve seen the challenges female entrepreneurs face in raising money result from a bias that is rooted in the primary way venture capitalists make decisions, which is through pattern recognition. In a private conversation, a successful west coast venture capitalist expressed the issue to a friend of mine in a backward-looking empirical fashion that was an attempt to be unbiased: “look at the numbers – most successful startups are started by men in their 20’s and 30’s; the number of successful startups founded by women is much smaller.” Yes, but most startups in any historical timeframe were started by men in their 20’s and 30’s. This doesn’t speak to the likelihood of women succeeding, particularly since a significantly larger number of women are starting companies today than in the past.
Social scientists call this logical flaw selecting on your dependent variable: determining that A is a principal cause of B by looking only at cases of B. Used as the primary lens for evaluating new investment opportunities in venture capital, it creates all sorts of intellectual distortions and inertia and is the principal reason most venture capitalists are late to promising new trends and only jump on board when there is a significant pattern of success. I think this is the cause of the biggest challenge that female entrepreneurs face in raising money. Most venture capitalists have not internalized the success of female entrepreneurs to a sufficient degree to have it influence their intuitive pattern recognition, partly due to what they perceive as a lack of a large enough n and partly no doubt due to the fact that they have not worked with female entrepreneurs directly. It was also the cause of challenges that entrepreneurs faced in raising money in a variety of pioneering new fields, from personal computers to the internet to digital animation. Success by entrepreneurs in these fields was not yet a large enough historical pattern to influence investors’ thinking.
I believe this is changing. When I look at the number of female entrepreneurs who have built successful companies over the past 20 years or are doing so today, a significant historical pattern is definitely emerging. This group is comprised of some very impressive people, all the more so since they’ve had to clear higher bars than their male counterparts. Some of their companies are already significant successes, and others are on their way. A very partial set of examples that come to mind include Judy Falkner (Epic Systems), Diane Greene (VMWare), Julia Hartz (EventBrite), Jilliene Helman (Realty Mogul), Elisabeth Holmes (Theranos), Sheila Marcelo (Care.com), Natalie Massenet (Net-a-Porter), Alexis Maybank and Alexandra Wilkis Wilson (Gilt Groupe), Miriam Naficy (Minted), Alison Pincus and Susan Feldman (One King’s Lane), Kim Popovits (Genomic Health), Victoria Ransom (Wildfire), Clara Shih (Hearsay Social), Adi Tatarko (Houzz) and Anne Wokcicki (23andMe). And many dozens of others. If one does not see a pattern there, I think it may be due to lack of awareness of the facts.
I personally believe that the magnitude of success of these entrepreneurs and their peers is precisely what will finally move the needle for the silent majority of venture capitalists stuck on historical pattern recognition, for they will represent a significant historical pattern that one would ignore only at one’s peril. It’s only when venture capitalists fear they will miss out on something big that their behavior will ultimately change. Remember all those venture capitalists who thought that it would be challenging to make money on the internet, or in social media or on mobile? Those debates have been definitively won and lost, and today everyone invests in these areas. I think that those harboring concerns about investing in female entrepreneurs, even if they won’t say so directly, will ultimately abandon those concerns in the face of significant and increasing data relating to their success.
There is another bias that Bennett mentions in her article, one that creates disadvantages for female entrepreneurs but advantages for female venture capitalists: that the venture capital industry as a whole, given that it is primarily comprised of men, is slow to recognize opportunities in female-dominated industries. The first people to see big new opportunities in female-dominated industries are generally women, and many male venture capitalists may never catch on. This can lead to a particularly significant adverse selection problem for venture firms in today’s internet world, where social media and ecommerce, to name two major fields, are both dominated by female users. I believe the large number of successful ecommerce and media startups focused primarily on female users — from Pinterest and Houzz to the Honest Company and Net-a-Porter — has now become an historical pattern of sufficient scale that it will help increase the numbers of women in the venture industry going forward (although the industry moves slowly), since they will likely be better able to spot these opportunities than their male counterparts. And this will certainly help female entrepreneurs.
For all the problems that the venture industry has with investing in female entrepreneurs, there are some investors who do care and who do support female entrepreneurs in a significant way. And often this works out particularly well for them given the biases mentioned above. In her article, Bennett asks “would a man have seen what Sheila Marcelo saw: the need for a way to connect caregivers with those who need child, elder and pet care?” Certainly much less clearly than Sheila did, but yes, there was one. I invested in Sheila the day the company was founded based on my belief in her and in her vision. I invested in Alexis Maybank and Alexandra Wilkis Wilson in the very early days of the Gilt Groupe for similar reasons. I am close to investing in my fifth female founder. I invested in these entrepreneurs primarily because they were extraordinary individuals with big ideas who understood their industries and customers extremely well, and sometimes this understanding related to the fact that they were women. I’m very glad I made these investments and look forward to investing in more female entrepreneurs in the future.
I believe that in the long term, markets do tend to be efficient, and the success of these and other female entrepreneurs will ultimately erase the regrettable biases that female entrepreneurs have to fight against today.
Full disclosure: Beyond investing in female entrepreneurs, I actually married one (in a field very different from my own). She has been the greatest source of insight and learning for me on this subject.