VCs, Angels and Investing in Women: What Are They Not Thinking?

ExclusiveFollow the money – If you’re trying to understand why things happen the way they do, it’s as good a hint as you’re ever going to get. In the business investment world, where ideas are funded and smart minds turned loose, you can follow dollar trails upstream to venture capitalists and angel investors – and the values and ways of thinking that critically impact the American business landscape. What follows is the first in a series of articles examining equity investment’s relationship with businesses that have traditionally been out of its mainstream, including women-owned, green and long-term-growth-oriented.

Facts are indisputably facts. And the facts are that women make up a minute fraction of the venture capital and angel investment community, and that women entrepreneurs receive a tiny percentage of that community’s investment dollars. And while there are a lot of ways you can look at, explain or explain away these facts, one thing is certain: When you take half the population out of the give and take of this economic equation, society, the economy and yes, investors themselves, are going to lose out.

The numbers are truly staggering in a backwards-thinking kind of way. As of about two years ago, 10.1 million U.S. firms were owned by women (that’s more than half), employing more than 13 million people and generating $1.9 trillion in sales, according to the Center for Women’s Business Research. Moreover, research has shown time and again that businesses with women at the helm, or at least with significant representation at the highest levels, consistently outperform significantly male-dominated organizations.

Now put on your cognitive dissonance hat and get this: According to Babson College research, only about 5 percent of all equity capital investments in the country go to businesses headed by women and just 3 percent get investments from venture capital.

While we do seem to live in era where working (and voting) against one’s own interest is as much of a rule and as an exception, investment communities have always done a pretty good job of watching (or at least scratching) their own backs.  So why are they shooting themselves and all the rest of us, while they’re at it, in the wallet?

Sharon Vosmek is the CEO of Astia. Founded in 1999 in Silicon Valley, the group is a not-for-profit organization that connects female entrepreneurs to investors, industry leaders, advisors and service providers. Despite Astia’s commitment to women, Vosmek points out that the role of the VC isn’t necessarily to support female entrepreneurs in the first place.

“I don’t see this as the work of VCs,” she says. “Their job is to make investments that return the best IRR [internal rate of return] to their LPs [limited partners].”

That said, however, she points out the business case for making such investments a priority: “What we know … is that companies that have women in executive leadership, outperform those that do not. Therefore, what we expect to see is a greater number and percentage of investments going into companies with women in those roles. Not because they need support, but because they outperform the market.”

So the question is begged: Why would a profit-oriented capital investment industry ignore such data? Is it about male bias against women? After all, 95 percent of VCs and 85 percent of angels are men.

Vosmek says there’s a problem with such a straightforward explanation: There just isn’t enough data to support the claim. Beyond the anecdotal, there’s just no information from “the inside” that shows a systemic anti-female approach to investment.

Fear, Not Loathing

There is, however, clear data about the power and impact of hidden bias and the fear of “the other” in the business world. The Level Playing Field Institute defines hidden biases as “perceptions, preferences, stereotyping of individuals or groups that often occur at the subconscious level… they may adversely impact our judgments and interactions with others and result in unfair behaviors. They become established and systemic in organizations and distort the playing field by conferring advantage for some and disadvantage for others.”

In a largely homogeneous world such as the VC and angel community and especially one dedicated to mitigating perceived risk though working with “known” quantities, the impact of this bias is bound to play itself out. So, in the end, what we might be seeing is less of a male versus female issue as much as one of same-sex cronyism and our preference for what Vosmek calls “all things like ourselves.”

“In our society, men and women are still by-and-large in separate business networks,” she explains. “VC and angel investment relies heavily on trusted business relationships; often for early stage investors, the only risk that can be mitigated is that of the individuals involved and if they are known to the investor. Trusted business relationships are always going to win in this scenario.

“You can see how within the high-growth space, groups who are not naturally in each others’ networks, will suffer as a result. Entrepreneurs will suffer because they will lack access to capital. Investors will suffer because they will lack access to the full complement of deals. [But] this is a societal issue, not one of VC or angel [investors], per se.”

Girl vs. Boy

There are some who, while agreeing with impact of the preference for same (or fear of other), say there are other forces impacting how women are perceived and behave as both entrepreneurs and business risk-takers. And some see it more simply than others.

Writes three-time start-upper, Brazen Careerist CEO and even brazener stereotyper Penelope Trunk in TechCrunch under the headline “Women Don’t Want To Run Startups Because They’d Rather Have Children”: “… you could tell that story [why women don’t get funding for startups] on one page: Startups move at break-neck pace, under a lot of pressure to succeed bigger and faster than any normal company. And women don’t want to give up their personal life in exchange for the chance to be the next Google. Or even the next Feedburner. Which is why the number of women who pitch is so small, and, therefore, the number of women who get funding is small.”

A more nuanced take, perhaps, comes from Cyan Banister, who is an investor, entrepreneur, and founder and CEO of Zivity, an artist/fan interaction platform that features comedy, music, animation and nude performance art. She has been named by Fast Company as one of the “The Most Influential Women in Web 2.0,” and is no stranger to the Silicon Valley investment scene and the fabled investment offices of Sand Hill Road. While her focus is primarily on the tech sector, she’s not afraid to make some broad brush strokes when looking at women in the entrepreneurial business world.

Banister agrees with Vosmek that “networking is largely at play” in the misfire between venture and angel investors and women entrepreneurs, but does say that gender differences are indeed another important element to consider: “In a world where taking risks is key,” she says, “women are more risk averse then men.”

This she attributes to “wiring” that goes back to our most ancient ancestors.

“People forget we’re animals,” she says. “We [women] are built to protect and nurture families while men play the role of risking their lives to bring back food. Just go to any poker room in a casino. How many women do you see? I’m not saying this is the case across the board, but men are largely more ready to assume risk than women.”

Banister acknowledges that these views may be controversial, but insists that they’re critical in understanding the dynamic behind why there are so few women investors and notable Google and Facebook-like stories involving female founders.

“When it comes to both playing the role of investor and that of the business person seeking investment, men and women are different,” she says. “Male investors traditionally seek big pay-off opportunities while women, me included, focus on slow growth over time. My husband [prominent investor and entrepreneur Scott Banister] is always looking for a 20-times return, while I look for two- or three- times return over time. I’m seldom wrong and he’s wrong a lot – but when he’s right, he’s right big-time.”

It’s true, of course, that “there are several prominent women who have launched their own startups and received VC funding  including Amanda Steinberg of DailyWorth,  Rashmi Sinah, co-founder of SlideShare, Robin Chase, founder of ZipCar, Caterina Fake who co-founded Flickr and spearheaded,” points out Meghan Casserly in Forbes.  But if Banister is right about these proclivities, it’s easy to see how a community populated by men is investing in men, and how those investees are making more noise than women when it comes to media-hypeable stories.  Banister, who says that women bring to bear their own brand of profit-making value to the workplace, notes “there are hundreds of female success stories – you just don’t hear about a female Mark Zuckerberg.”

Stepping Up and In

High-risk or not, are women showing up to seek investment in the first place? Babson College research points out that “women appear more reluctant to apply for loans – more than 10 percent of men seek external equity financing, but less than two percent of women do the same.

“It is my opinion that this has to do with exposure to the opportunity of raising venture capital – and it is not unique to women,” says Vosmek. “The reality is that for most people, if you do not have role models who have gone before you, you are less likely to pursue an opportunity. We need more female high-growth role models.”

She adds that women are not pursuing high-growth entrepreneurship commensurate with their representation in fields that should lead to high-growth entrepreneurship. Women, Vosmek says, represent 30 percent of MBAs, 50.4 percent of PhDs, and over half of all college graduates.

The very-visible-these-days Facebook COO Sheryl Sandberg recently gave a talk at TED where she addressed this issue. “Women systematically underestimate their own abilities,” she said, adding that studies show that women don’t negotiate on their own behalf. Moreover, “Men attribute their success to themselves and women attribute it to other external factors. If you ask men why they did a good job they’ll say, ‘Because I’m awesome.’ … If you ask women, what they’ll say is that someone helped them, they got lucky [or] they worked really hard… It matters a lot, because no one gets to the corner office by sitting on the side, not at the table.”

Both visibility (like that of Sandberg, Banister, Trunk and others like them) and encouragement can be enhanced, says Vosmek, by groups such as her own Astia, as well as others like Women 2.0, Golden Seeds and Girls in Tech.

“These organizations work to expose and inspire women to high-growth entrepreneurship – and then once they get there, ensure they succeed by giving them access to the networks that lead to capital and expertise,” she says, adding that groups like the OpEd Project, which are set up to address the dearth of female voices in the media, can also play a positive role.

A Note on Ethics

The bottom line here is that there’s a prominent convergence between ethics and values, and plain old good business sense when it comes to investing in women. This is quite notable, as it’s not always the case that doing the right thing means doing the profitable thing (though the point might be argued that in the long run this is always the sustainable case).

Says Vosmek: “I think the best investors clearly articulate their values and entrepreneurs would be wise to make sure they choose investors whose values align with their own. I believe that a commitment to building inclusive teams is a value that also happens to be smart business.”

Indeed, both Vosmek and Banister present as extremely smart businesspeople as much as they do female role models. For both, the issue isn’t so much about sexism as it is about the missed value proposition of bringing women to bear on profit-making.

There’s also a tragedy here that transcends opinions regarding the “why” of the situation. Consider our job-strapped society and try this on (also from Babson College): In the United States, “Women are starting businesses at nearly twice the rate of men – if these women entrepreneurs started with the same capital as men, they would add 6 million jobs to the economy in 5 years.”

For those of us seeking a jobs recovery – there you have it,” says Vosmek. “Solving this could be the competitive advantage the U.S. seeks.”

Image: kevindooley



Scott Adelson

Scott Adelson is EcoSalon's Senior Editor of HyperKulture, a monthly column that explores opening cultural doors to initiate personal change. He is also the author of InPRINT, which reviews and discusses books, new and old. You can reach him at