Women in Venture Capital: Is There Progress on Both Sides of the Deal?

By Michelle Hendelman

According to recent data from PitchBook, more women-founded companies are receiving venture funding than ever before. Specifically, 13 percent of venture capital deals favored women-founded companies in the first half of 2013, compared to only 4 percent in 2004. While this growth signals a step in the right direction, it is undoubtedly a slower rate of growth than we would expect.

In that same period, the percentage of women earning MBAs increased slightly from 34.8 percent in 2004 to 35.9 percent in 2011-2012. These numbers are an improvement considering that in 1990, 33.9 percent of women graduated with MBAs. Women continue to make up a larger percentage of MBA graduates in the United States, so this makes us question just how much change is occurring when it comes to start ups and funding new ventures. Is it really still such a strongly male-dominated landscape? Where are the women?

Furthermore, PitchBook’s data reflects all industries and sectors and interestingly almost half (40 percent) of the distribution of money was allocated to women-founded companies in the retail sector in the first half of 2013.

However, when you put the industries –such as technology where women continue to be underrepresented–under the microscope, it is clear that there still a lot of progress to be made.

Looking at this from the lens of women on boards and in decision making executive roles, technology companies with at least one woman founder comprised just 10 percent of the venture capital deals through the first half of 2013.

Addressing and Overcoming the Underlying Issues
A research report entitled, “Women Entrepreneurs and Venture Capital: Managing the Shadow Negotiation,” released by the Simmons School of Management explored how gender constructs impact the male and female entrepreneurs, as well as the investors responsible for providing the capital. Simmons’ researchers claim that in addition to the overt business procedures taking place in a venture deal, there is also a very important underlying interaction occurring simultaneously: the shadow negotiation.

They write, “As Kolb and Williams suggest (2000), women in negotiation face additional issues both on and off the table as hidden agendas and masked assumptions play out as a result of often unintentional, but still powerful gendered biases and assumptions.” That being said, the researchers suggest several things that successful female entrepreneurs do in order to gain access to funding.

Some of these tactics are:

• Relate to investors through their families or trendy consumer behavior
• Find investors with a history of funding women-founded businesses
• Network strategically with insiders who will endorse you and your brand
• Prove that you know how to interact with investors and play the VC game
• Demonstrate the fact that you are a risk taker
• Overcome your own gendered ideas that might be subconsciously holding you back

Access to Funding is Still an Issue for Women
In 2010, The Glass Hammer reported on the extreme lack of women within the active Silicon Valley startup environment, both on the entrepreneurial side and the investment side. We discovered similar dynamics are preventing women face in getting their businesses funded, as well as keeping them out of the boardroom, namely networking, pattern recognition, and generalizations about women being less fundable.

Constance Freedman, Managing Director, Second Century Ventures, suggests that some of these dynamics might still be affecting women’s advancement on both sides of venture capital deals. “Venture capital is a difficult field to break into for men or women,” said Freedman, “and one of the challenges for women is building relationships necessary to get into that first apprenticeship role that transitions later into a leadership role.”

She added, “In most of the board meetings I attend with investors and executive teams, I am still the only female in the room. When the majority of executives are men it can be challenging to form those key mentoring relationships that are necessary in this field.” According to Freedman, there is still a stigma around professional men and women forming personal relationships. This is an outdated perspective, she said, that needs to change in order to see real progress for women.

“I don’t feel any overt discrimination,” Freedman said, “But I do think there are more opportunities available for men than there are for women given that there are just as many deals struck outside of the office as within it.” On a more general basis, the lack of diversity in the tech and venture fields is a problem in general for companies and investors whose growth trajectories depend on differentiation and yet they are lacking the advice at the top that they could leverage from diverse viewpoints.

Advice for Women Entrepreneurs
Freedman encouraged women not to self-select out of potential opportunities. She said, “Studies show that some women choose not to pursue all of the opportunities available to them because they assume a negative outcome before they even try.”

Freedman added, “In the REach technology accelerator program I run, we received over 150 applications last year and only 2 came from women entrepreneurs. Companies within our inaugural class experienced growth rates ranging from 100-2000% and raised an aggregate of almost $10M either during or immediately after the program. There are positive things happening in this space, and I would love to see more women entrepreneurs putting their best foot forward and reap the rewards as a result.” Early applications for the REach class of 2014 program showed a similar trend – only one female led company has applied so far to the program; she is hoping to see the women “show up” and submit their ventures for consideration for the March 1 deadline.

She also emphasized the importance of persistence regardless of whether you are on the entrepreneurial side or the investment side. “Some companies have to pitch one hundred times before they secure funding,” said Freedman. She added, “On the venture side, women need to try and find their niche and demonstrate how they can be valuable to any firm.”