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April 21, 2010

More Women Needed in Venture Capital

Ed Zimmerman
Adjunct Professor, Finance and Economics
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A guest lecturer in my Venture Capital class — a female partner at a large venture fund — told my students that she wouldn’t chase a contested deal if the management team and board lacked women. In her experience, she (a) wouldn’t win the deal so why waste cycles on it, (b) might have difficulty with “fit” even if she did get the deal, and (c) would rather use her time more efficiently on deals where she had an edge. A New York Times article on April 18, 2010, detailed this problem from the entrepreneurial side: Women are not starting as many companies as men, are having trouble getting them funded and are running into sexism in Silicon Valley’s well-known venture funds.

Perhaps even more distressing is the recent post by The Funded, a popular VC blog that provides Zagat-like reviews of venture investors. It came out with its list of the best VCs, ranked by the extent to which CEOs like working with them. Of the 84 VCs and super-angels who topped the list (from their database of more than 17,000 individual investors) only one woman made the grade: Maria Cirino at .406 Ventures in Boston. Clearly women constitute more than 1/84th of the current pool of venture investors.

How do we break this cycle if we are in fact experiencing a redlining of women in the venture capital ranks?

The success of the Gilt Groupe has made it clear that there is tremendous value in understanding how consumers approach purchasing and demonstrates a competitive advantage for women executives going after consumer Internet ventures. But right now it is an outlier. According to recent research by Professor Ann Bartel and the Women’s Executive Circle of New York, less than 11 percent of executive officers in New York are female. In the Fortune 500, that number is around 16 percent. In a study of Stanford’s MBA graduates, only 10 percent of the executives at start-up ventures are women. Yet nearly 40 percent of MBA graduates are women.

So how do we go from almost 40 percent of MBA graduates to only 10 percent of the execs at start-ups? How are start-ups, which are supposed to be at the cutting edge (and which are generally run by a younger set than the Fortune 500), worse on this issue than the Fortune 500? What can repeat players in the VC market do to equalize the representation of women in senior management at VC-backed startups?

Another guest lecturer (a male CEO of a VC-backed company in which I am an investor) showed a slide with his 12-person management team, all of whom were male. When a student (appropriately) queried why there were no females in management, he descended from the podium, handed her his business card and said “apply.” Two years later, that company has grown tremendously and has some extraordinarily talented women, but none are in the boardroom or have made it to the top echelon of management (yet).

What are entrepreneurs doing, and what role can VCs play, to bring more women into the world of start-ups and venture capital? Is there a tipping point or critical mass? In companies where there are two senior female executives or board members, is there a higher percentage of females company-wide? Some research indicates that having a higher percentage of women in senior management positions equates to better firm performance. If mixed-gender teams are likely more effective, should start-ups go out of their way to achieve critical mass?

Ed Zimmerman is an adjunct professor in the Finance and Economics Division and teaches the Venture Capital class. He is chair of the tech group at the law firm Lowenstein Sandler and angel invests through Grape Arbor VC.

Photo credit: Flickr/rogue3w