ELIAN D. ALVAREZ

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Why Venture Capitals should back companies with female founders?

Aug
03

Although, venture capital has invested a huge amount of money in the IT sector and contributed to innovative developments, yet, it still faces the same gender equality problems as any other sector does. A study by the Babson College examined the state of women in the venture capital sector. Around 7000 companies that got venture capital (VC) funding were evaluated.

According to the study, the percentage of women partners in VC firms was 10 percent in 1999, but it has reduced to only 6 percent now and venture backed companies that have female founders make 12 percent more revenue than companies with male owners. Despite that, only 2.7 percent of the companies fueled by venture capital had female chief executive officers between 2011 and 2013. Whereas, according to a 2014 research report of the Fortune, only 4.2 percent of the partners are women in the VC sector.

 

Issues Faced by Women in the IT Sector

Women in the IT sector have initiated a number of campaigns that are based on ‘asking for more’, especially when it comes to STEM (Science, Technology, Engineering, Mathematics) education, fair policies, mentors, pay raise, and salaries. Moreover, women have also come forward with the hardships that include unfair salary negotiation and maternity leave policies and gender bias.

These issues have led to many campaigns, conferences, and summits. However, despite all these stories of hardship and inequality, no change has come. A clear example of this is a when Ellen Pao lost her case in 2015 for gender discrimination. She claimed to have been left out of networking events because she was a female and was not promoted to be a partner while her male colleagues were promoted ahead of her.

A partner at Canaan Partners, John Balen, said that the male dominating culture begins right from the school and there should be a conscious effort to break that cycle. Candy Brush who carried out the Babson College study is of the opinion that a journey toward becoming a venture capitalist starts from your college and professional network. If 2.7 percent of the firms have females at the executive position and 15 percent of the venture-backed companies have one female on their team, it represents the small possibility of it happening.

 

Macro Factors – The Cause of Decline in Female VC Partners?

As discussed, the percentage of female partners in VC firms have reduced from 10 percent to 6 percent since 1999. Macro factors, including a dot com bubble burst of 2000 and credit crunch of 2008 have also contributed to the decline. VC companies had to go for downsizing during those downturns. The majority of the firms were not so big; they had to lay off on the basis of “last in, first out” – minorities and females in this case.

Another macro factor was the rising popularity of the technology market during the past two decades, especially after Facebook and Google. Having a technological edge was what mattered the most. Although, there has been a shift in this attitude, yet, there are so many investors who still want a technical partner in their team.

The founder of Brooklyn Bridge Ventures, Charlie O’Donnell, said that there are only a few females who are software engineers, therefore, it automatically leads a firm to hire more male partners.

 

Can Gender Equality Lead to Business Opportunity?

The managing directors and co-founders of the Women’s Venture Capital Fund, Monica Dodi and Edith Dorsen, once had a rendezvous with finance and investment professionals to talk about the more risk-intelligent approach in the VC sector. Their fund is the outcome of that meeting. Dorsen was of the opinion that the purpose of initiating this fund was to explore the untouched opportunity with female founders as a focal point. She further went on to say that firms with gender inclusive teams tend to perform better and are very competitive, but not everyone fully understands it so as to generate return out of it.

In a research carried out by Babson college, it was revealed that companies with females in the executive team are 64 percent more likely to have better valuations after the first funding and 50 percent chance to perform better at the last funding.

The founder of the Female Founders Fund, Anu Duggal, said that she visits the Silicon Valley four times a year to interact with partners of the top venture capital funds. She has observed a shift in attitude with a positive change. If the current trend continues, the VC sector and technology market might experience a major shift and massive success in times to come as it moves in the direction of gender equality.

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