The Solution to Sexism and Bias In Venture Capital: Throw Money At It
Every time sexual harassment allegations rock Silicon Valley, there’s a lot of talk about fixing ‘the problem’–and not enough money invested in doing so.
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In what is just the latest round of very public sexual harassment charges, Silicon Valley is wagging their tongues and fingers at Justin Caldbeck, co-founder of Binary Capital. Six women have come forward to accuse Caldbeck of sexual harassment. These women were pitching Caldbeck for an investment or looking for mentorship. Venture capital deals should not come with an unspoken clause that says women entrepreneurs need to tolerate this kind of behavior in order to scale their companies.
Further rocking Silicon Valley is the resignation of Dave McClure, co-founder of 500 Startups, following multiple allegations of sexual harassment. McClure's downfall is particularly striking because 500 Startups holds widespread respect for funding a diverse portfolio and promoting inclusion.
The thing is that Caldbeck and McClure may be the faces of the problem this month, but there will soon be another face to take their place. Remember this, this and this? Every time a new scandal breaks, the media and Twitter explode in shock, call for heads on a pike and publish 100 think pieces on the Silicon Valley "problem." But nothing changes, because, in many ways, bias, sexism, sexual harassment and assault are woven into the venture funding cultural tapestry. This behavior isn't just something that pops up here and there because of one rotten apple. This behavior is a foundational part of the ethos that powers the venture community.
There are exceptions, of course. We've seen leaders like Reid Hoffman step up to the leadership plate to commit to changing that ethos from the inside out. Hoffman called on his peers to repost and promote a "Decency Pledge" that calls for zero tolerance of sexual harassment from VCs. Only time will tell whether this pledge translates into behavior change, but now, we applaud this step loudly.
Missing from all of these conversations though is the fact that sexual harassment and assault are just one piece of the sexism pie. Simultaneously, we need to have more conversations about the way VCs talk about women, the way they interview us and assess our business' trajectory, the way we get shut out from opportunities and the blind eye towards our buying power as consumers.
"Unconscious" bias is still bias.
Here are just a few recent examples of the pervasiveness of these biases:
- Last week, a group of researchers analyzed pitch Q&A sessions at TechCrunch Disrupt NY and found that the questions asked to the male- and female-led startups were focused in very different directions. The men who were pitching were much more likely to receive questions about their big goals, achievements and ideals. Conversely, the women tended to be asked "prevention" questions about risk reduction, security, responsibility and safety. The funding results were telling. With quality and industry controlled in the study, the startups that were asked mostly prevention questions raised about 7x less capital than those who were asked aspirational - or "promotional" questions. That translates to the women founders raising far less money than their male counterparts.
- Another study looked at the way VCs in Sweden talk about male vs. female entrepreneurs showed that the investors assessed the guys' aspirations and the women's potential for failure. The way we talk about women can be nuanced in its biases, but it does matter. The same study showed that women entrepreneurs were only awarded, on average, 25 percent of the applied-for amount, whereas men received, on average, 52 percent of what they asked for. Women were also denied financing to a greater extent than men, with close to 53 percent of women having their applications dismissed, compared with 38 percent of men.
- Last week also saw a firestorm of articles about a self-proclaimed VC who admitted on air that he doesn't hire women for fear he'll get sued. Ironically, discriminating against women by not hiring them because they are women is a fast track to a lawsuit.
What can be done?
For more women-led startups to be funded, to scale their businesses and to succeed in tech careers, the entire ecosystem needs to shift towards a new modus operandi. Even for the good guys and gals in the industry, it's important to remember that even if you're not directly part of the problem, we need you to be a part of the solution.
First and foremost, VCs need to pony up the money. This means funding more women entrepreneurs. Currently, only 3-10 percent of venture capital, depending on the study, goes to women-led companies. Beyond the clear inequity in that statistic, it's also just bad business sense. The 2016 BNP Paribas Global Entrepreneur Report showed that women entrepreneurs' companies delivered 13 percent higher revenue than those led by men. Higher revenues = better returns for investors.
VCs need to also recruit, foster and promote women at their firms. This solution is actually bandied about quite a bit, and as it turns out, more nuance is needed. Women venture partners are not necessarily more likely to fund women-led companies. A Bloomberg analysis showed that top venture firms with senior women partners funded the same number of companies led by women as those firms with no senior women partners. There are funds that exist to back women founders, but those are still few and far between, and it will take decades to reach critical mass. For these reasons, we like an idea proposed by Saujin Yi, an entrepreneur and investor, for VCs: commit a set dollar amount or percentage of your fund to investing in women-founded companies. This solution eliminates unconscious biases and the reluctance of female partners to champion investment prospects that are led by other women.
Invite women entrepreneurs in to the startup ecosystem - quite literally. Mentor them. Introduce them to your networks of successful founders, investors, media and advisors. Connect them with resources that will help them grow. The inside baseball club has to expand for investment parity to have even a fighting change. Expand the deal flow lens by asking women entrepreneurs which other founders are impressing them lately.
At Circular Board, we are working for change through Alice, the new AI advisor that connects women founders with the resources, tools and mentors they need to scale - no matter where they are located or who they know. We will be highlighting investors that are committed to improving access to capital for women and minorities, making connections and tearing down barriers to entry into the existing startup ecosystem.
We also need brave women entrepreneurs to keep speaking up when investors harass them. It's not easy, and it's certainly not fair. But we have to hold the creeps' feet to the fire. Right now, the money is listening, with major investors and firms pulling out when an ugly harassment story comes to light. This matters, and it's important.
Most venture capitalists will tell you that they're looking for the next big disruptive product or model to bring in the insane returns on investments. Right now, we're on the brink of a major disruption of the startup ecosystem, and if we were Silicon Valley, we'd be placing bets on the firms who are ready to play ball with founders who have earth-shattering ideas, no matter their gender, color or background.