ELIAN D. ALVAREZ

- VENTURE CAPITAL - ANGEL INVESTMENT -
- ENTREPRENEURSHIP - LATAM - INNOVATION -
- INVESTMENTS - PRIVATE EQUITY - FINANCE -

The Key for Venture Capitalists Better Performance

Jul
20

Venture capital is a booming sector in developed economies. With the increasing trend in venture capital investments, a lot of research work is being carried out for its growth and continuous developments. Recently, a working paper has been posted on the National Bureau of Economic Research by professor Paul Gompers from Harvard University and a Ph.D. student Sophie Wang.

 

Greater Gender Diversity

According to the paper, if a venture capital (VC) firm hires a partner who has daughters, it is more likely to perform better as compared to other VC firms. But it does not mean that a girl totally understands what’s hot in the investment market and what’s not. Gompers and Wang conducted a study of large venture capital companies between a period of 1990 and 2016. They observed that the partners of the firms with higher gender diversity have, on average, more daughters. During the period of their study, it was revealed that VC firms with higher gender diversity have shown better performance as compared to firms with partners that do not have daughters.

The study also revealed that raising daughters decrease the element of biases toward women and it eventually leads to hiring more female staff. Researchers noted that firm partners who had daughters that were above 12 years of age had instilled a culture of higher gender diversity. They said that it goes hand in hand with fathers experiencing a likely gender bias faced by their daughters as they grow up.

 

Having a Daughter – A Step Toward Successful Deals?

72 percent of the venture capital companies do not have any female investors, therefore, the effect of having a daughter should be considered. The study conducted by Gompers and Wang comprised of 998 firms with 1400 investing partners. They employed a mathematical model and concluded that if each partner of VC firms had a daughter instead of a son, the firm would have experienced successful deals with a growth of 31.6 percent on return on capital employed than an average growth of 28.7 percent.

These calculations were based on reasons, such as, generation of better ideas in a diverse working environment or the opening of new avenues to access better deals.

 

The significance of “Having a Daughter” Effect

It is not astonishing, however, that by replacing a female child with a male child, the chances of hiring a female investor increases by 24 percent for VC companies. According to the study, 8 percent recruitments in the past 15 years were female and an increase of 24 percent would only represent a ratio of 10 percent in the VC sector.

The ratio of daughters in the VC sector is not so low. It represents a ratio of about 125 male children for 114 female children. This is consistent with the national demographic figure of 51 percent boys. It indicates that apart from an artificial genetic selection, the argument of daughters having an impact on the VC sector does not seem to be strong.

It has been acknowledged by researchers, because the basis of this view is mainly to eliminate the gender bias and also to emphasize its importance for the prospects of the venture capital market. Those who seek to have gender equality in the VC market can rely on the gradual change that has taken place in the sector over the years.

 

A Move Toward Gender Equality

In 2014, a financial market where venture capitalists operate, women represent 54 percent of the labor force, wherein, 18.3 percent of the women are board of directors and 12.4 percent are executive officers. A managing director and co-founder of the Women’s Venture Capital Fund, Edith Dorsen, is of the opinion that teams with greater gender diversity are more competitive in the market and companies with such teams have higher chances of financial growth. The majority of the people have, so far, not been able to fully understand that it is a real opportunity to earn high profits.

Anu Duggal, a founder of VC fund called F Cubed, started her firm in 2013 and the main purpose behind it was to change the common perception. She is building a network of support that comprises both men and women. This network will be focused on finding the most innovative ideas and entrepreneurs.

Gender Balance in Venture Capital

May
04

Venture Capital has been in existence for a very long time.

However, the sector has experienced growth and massively evolved during the past two decades. From Facebook to Google, organizations supported by venture capital firms have contributed a lot to the economy. Although the industry is still young as compared to other sectors, one in every five public companies in the United States uses this mode of financing. It is basically used by innovative minds that are high risk takers. Not only do venture capital firms provide funds, but also offer network access, strategic guidance, mentorship, etc.

However, despite the continuous growth, the industry still faces a huge gap between genders as men are leading the venture capital market. In other words, the more it changes, the more it stays the same, especially after analyzing the demographics based on gender.

 

Gender-wise Statistics of the Venture Capital Market

According to a survey, the percentage of women as decision makers in the U.S. based venture capital firms is 7 percent and they control only 4.7 percent of the venture capital (VC) invested in the market during the past five years. Moreover, out of 1,019 professionals who take strategic decisions in 227 VC firms in America, the number of females was just 72. Furthermore, 169 of these firms had no females at a strategic level. These firms managed to raise about $153 Billion within a period of four years from 2012 till 2016, and only $9.51 billion of it was controlled by women.

 

Development Over the Year

Another analysis was conducted last year on sample years between 2011 and 2015. According to that analysis, the percentage of female decision makers was just 5.7 percent in the U.S. based VC firms. It shows an increase in the overall number of women in the industry, representing a 17.7 percent increase in female decision makers at a strategic level.

 

More Investment in Companies with Male Executives

Furthermore, when it comes to which firm gets the venture capital, male majority takes the lead. According to the CB Insights, organizations with men in executive positions receive 98 percent of the venture investments, which is about $1.88 billion.

All in all, there is a need for a lot to be done especially for women in the VC industry. Megan Quinn, a growth investor at Spark Capital, said that every individual has a role to play in this industry, whether it is an entrepreneur, press, or existing VC firm, and she doesn’t agree with the notion that there are not enough qualified women to be in this sector. A small percentage of women depicts the issue of gender inequality in the VC sector and also in the world of technology.

 

Why Lack of Women in VC Persist?

Ann Miura-Ko, a partner at Floodgate, also share the same thoughts as Quinn’s. She said that there was a time when most of the small firms had female decision makers and firms experienced a small increase in applications from women. She further stated that women feel welcome in places where there are more female colleagues as they usually question whether they can fit into male-dominated organizations or not.

The managing partner of New Enterprise Associates (NEA), Scott Sandell, talked about the reason why the VC firms around the world don’t usually have female partners. He pointed out the fact that some women simply leave the place for personal reasons. He also said that people working at a strategic level are usually promoted from within a firm. They make their way up from an associate level all the way to the top. However, he admits the fact that although there is no conscious bias against women, there is probably an element of unconscious bias, which is represented in the form of a small number of females at a strategic level. NEA is currently holding trainings to remove any sort of unconscious bias that may occur in the VC firms. He further added that this issue can easily be resolved and it has a tendency to sort itself out, but it does require attention.

 

Today, women constitute more than 50 percent of the consumers’ spending power and studies have revealed that the absence of female perspective in the board room will ultimately affect the profits.