Funding: Why money is missing when it comes to creating and sustaining female leaders in high tech

By Nicki Gilmour, CEO and Founder of theglasshammer.com (New York City)

Part 1 of a 2 part series on “Why women should stay technical,” an introduction to our upcoming event Women in IT: Staying Technical and Getting to the Top, held in conjunction with Goldman Sachs and Accenture.

Recently, the New York Times reported on the lack of access to funding for women playing in the start-up environment of Silicon Valley. The numbers reveal just how underrepresented both professional executive women and female entrepreneurs are, citing that women account for just 6% of CEOs of the 100 top tech companies. Women create only 8% of venture capital money to fund tech companies – despite women owned businesses providing 40% of the US’s company revenues. In fact, in 2009, Techcrunch’s The Funded list included only one woman.

Why are the numbers so low? Well, it seems to be a function of critical mass (or rather the lack of it). The same dynamics keeping women out of the boardroom explain why women are not as easily funded in their businesses.

“It’s not like people are making an effort to exclude people, but I see very little diversity in the candidate pool,” says Aileen Lee, a partner at the leading venture capital firm Kleiner Perkins Caufield & Byers.

The Importance of Networks

Sharon Vosmek, CEO of Astia, a non-profit that works with female entrepreneurs says,“Women tend to network with women and men tend to network with men, it plays out on the golf course, in the boardroom and its certainly playing out in high-growth entrepreneurship. “

Men control 92% of the money that seeds start-up companies, and the access to that money is then dependent on the strength of the female entrepreneur’s network.

For example, the Kaufman Foundation has completed a research study [PDF] on the effects of gender and the allocation of money in Silicon valley. The study reveals that female entrepreneurs more frequently close deals with VC firms that have female partners.

Pattern Recognition – An Excuse for Stereotyping

Network quality isn’t the only issue women face when attempting to secure funding. Stereotyping is another challenge. As Janine de Nysschen writes in a recent New York Entrepreneur Week guest blog:

Investment is in the jockey, not the horse. Stanford research and a study by the Simmons College School of Management point to VC mental filter as “a template consciously and unconsciously developed over time within an institutionalized context and based on the venture capitalist’s experience with mostly male-led venture projects, fostered by industry preferences and patterns of behavior, formed by education and networks, and guided by personal life experience.”

VCs call it pattern recognition. Or, to put it another way, as VC John Doerr from heavy-hitters KPCB does: if you’re white, under 30, a technical geek with no social life, and a Harvard or Stanford dropout, you can line up for VC money.

And of course, women often remain penalized for their family lives when seeking funding. Myra Hart writes an interesting piece in the Harvard Business Review about the experiences of Zipcar founders Robin Chase and Antje Danielson while they were seeking funding, and the VCs’ perception of family as a risk in their investment.

“Danielson was about six-months pregnant while they attempted to raise money. Chase had just taken a year out of the workforce to try to get her family organized and in order. Do you think those were red flags for the VCs? Though the VCs didn’t say it, they had to have been wondering, ‘If things go wrong at home, will you still be doing the work?’ Now, there are certainly men who are very involved with their families and their children, and if anything went wrong they would be there too, but that question does not come up. And I don’t mean it’s not articulated; it’s not even clicking in. VCs just don’t think about the family demands when they’re talking to men. So looking at a woman as the founder and entrepreneur, I think it is reasonable to assume a new dimension of risk—the risk being ‘What is going to be the commitment when there are strong family pulls?'”

Robin Chase was most likely forced to step down when it came to round two of financing, despite her proven competence and ability to meet performance goals. According to a Portfolio.com article, former Zipcar board member Paul Davis, a general partner at Cambridge, Massachusetts-based Seed Partners, which supplied A-round funding to Zipcar, explained “They decided she wasn’t ‘fundable’ enough.”

Fundable – a simple matter of stereotypes.

In theory, VCs should want to back women-owned businesses, especially those in the tech sector. As Cindy Padnos, founder of Illuminate Ventures, which invests in women-led start-ups, explained to the New York Times, “When you have gender diversity in an organization, you have better innovation, and I don’t know where innovation is more important than in the high-tech world.”

Mark Heesen, president of the National Venture Capital Association says, “There are more women in the world. They represent a greater share of markets and purchasing power. Being more proactive about increasing their presence in the industry just makes sense.”

There are success stories to point to now, too. For example, this past month Ning founder Gina Bianchini stepped down to work with her business partner and Netscape founder Marc Andressen – with over 2 million networks built on Ning’s platform and 40 million Ning users worldwide. The good news is that according to the identified trends, women will now have one more high profile advocate in the venture capital world. After all, Bianchini herself has been there.

Is the tide turning? Come to our event on July 8th and we will discuss why women should stay technical as a strategy to get to the Boardroom and to the VC money.