Women invented windshield wipers, the first computer program, life rafts, wireless transmissions technology, the paper bag, Kevlar, fire escapes and, mind you, chocolate chip cookies. If good ideas had come only from people who looked like America’s founding fathers, then a wealth of advances and joys might have been delayed or missed entirely.
Today many of the most important new inventions are funded by venture capitalists (VCs), and these investors live in a world of metrics. It is a data-driven business. It is also a business that professes to want to offer equal opportunities to women – which is why I was surprised to discover how little data is actually collected on this subject. As a female partner at Bloomberg Beta, a corporate venturingl fund investing in startups that aspire to make business work better, I am often asked what can be done to change the fact that less than 5% of partners in venture capital firms are women.
An idea I have been thinking about is to follow the money. Limited partners (LPs) – the investors who fund VCs – have the power to change the dynamics. The capital that VCs invest in startups comes from their LPs, which are often big financial institutions – pension funds, university endowments, or insurance companies. They can also be corporations – like our fund’s investor, Bloomberg) – high-net-worth individuals or governments. LPs invest tens of billions of dollars annually in venture capital funds. Without LPs, there is no venture capital.
If LPs were to use their financial power to increase transparency about gender in venture capital, then this would send a signal to venture funds and make them more accountable. Bloomberg Beta is starting to collect the absolute numbers annually. The raw data will provide a good foundation to run future analyses. Ideally all LPs would collect the data, in a consistent way from fund to fund, on the following factors:
• Female non-partner investor hires at the VC firm – women are graduating from engineering and business programs in sufficient numbers to significantly increase entry-level hiring.
• Female founders the VC has financed – 7% of venture funds go to women-owned firms. Yet 23% of entrepreneurs seeking angel funding are female. The gender composition of a VC firm matters to founders.
• Female partners at the VC fund – there are a number of women-led venture funds, and I expect that over the next few years more women will move from senior operating roles to the venture side. LPs should continue to be open to investing in these funds.
• Composition of the VC-backed startup boards – the number of female board members and total independent board members for the fund’s later-stage investments. There are many talented women in operating roles who could be major contributors to a startup’s success. We at Bloomberg Beta signed on as a founding partner of the Boardlist, a networking site promoting women for board membership.
Study after study shows this also makes business sense. We have ample evidence that inclusive teams make for superior performance. Of the more than 20,000 venture backed companies from 1997 to 2011 analysed by Dow Jones, successful startups had twice the median proportion of female executives compared with unsuccessful startups.
As startups continue to transform our society, it is important to take into consideration the potential that gender inclusion can have on innovation. This also holds true for other forms of diversity, such as race. Having a narrow selection committee could mean missing out.
We are simply asking that we VCs begin to collect the data and that LPs ask us for it – a sort of transparency pledge. Women contribute to 25% of gross domestic product growth. Women are starting more companies. Women outperform men in both brokerage performance as well as hedge fund performance. Why not see how this plays out in venture capital? With so many new funds being formed, the opportunity for LPs to change the game is now.
Special thanks to Adam Rothenberg, Angela Martin, Beezer Clarkson, Brad Feld, David Shipley, David Tisch, Emily Chang, Fred Wilson, Jennifer Klein, Joanne Wilson, Josh Kopelman, Ron Conway, Roy Bahat and Tim O’Brien for their help with this piece.
This is an edited version of an article first published on Medium. Karin Klein is expected to speak on this topic at the GCV and NVCA conference, SHIFT: Accelerating Corporate and Venture Partnerships, on October 28 in New York City