The implosion of Binary Capital in the summer of 2017 catalyzed a media narrative around gender imbalance in venture capital. Arguably the spark was lit by Susan Fowler’s blog post about Uber’s workplace culture earlier in the year. But given the outsized role of venture capitalists in determining the fate of promising technologies the question soon focused on the issue of women’s leadership at these firms.
How many women-led venture capital firms are there in the United States?
We fielded this question from a variety of prominent institutional investors and many VCs themselves. But the inquiry came with more questions: How would you find these funds? How would you engage and analyze them? And could you put them into a pooled vehicle to make my life easier as an investor?
So we decided to tackle this assignment and answer the question unequivocally that there are indeed many extraordinary women leading their own venture firms. Through our research and analysis process at Different, we found over 90 women-led venture firms currently in the fundraising market.
Here’s how we did it.
We started with the criteria and our database of 900+ US venture firms. Which firms would qualify for consideration? We faced several key choices that would shape our sourcing funnel: whether to consider firms purely comprised of women partners, firms that had at least one woman as a partner, firms with no women as ‘partners’ but with notable roles as Principals, Venture Partners, etc.
Given the paucity of women in venture to begin with, we decided that as long as firms had at least one woman partner with significant decision-making influence, we would include them. In practice, we monitor the gender ratio of General Partners in a firm, but a firm doesn’t have to be 100% woman-led to qualify. We decided to exclude firms that only had female representation through its Venture Partners (which are usually part-time roles for deal sourcing only) or Principals (which usually have limited ownership and final say in investment decisions).
We then went to our network. At Different, we know thousands of General Partners across hundreds of firms, and have close relationships with many of America’s startup ecosystem leaders that help us identify new firm before they even launch. So we put out a call to a host of VCs, Angel investors, institutional investors and others, asking them to send us women-led funds. From an initial group of about 20 firms, our list almost immediately doubled.
As firms were referred to us, we met with each of the management teams. And in those management teams was the added power of camaraderie — nearly every firm we met with has referred another woman-led firm to us. We’d stumbled on to a disaggregated yet collaborative network where each woman VC knew of at least a few others, and every woman VC was excited to introduce us to her peers.
Incredibly, we nearly quintupled our roster of actively fundraising women-led firms from 20 to 90 in a few short months. These 90 firms and their respective GPs hail from over 30 different geographic markets, invest in more than 20 different sectors, and leverage widely different backgrounds and experiences to inform their strategies.
So can we move on?
We believe there’s much to be done about diversity in venture capital. Numerous reports — such as those from Axios and NVCA — explore the lack of representation across the asset class. The Partner rosters of many established firms look virtually unchanged since the Eisenhower era. According to AllRaise, 74% of US venture firms lack a single female partner.
Beyond representation, we believe the challenge is to get these women funded.
We’ve had investors complain that they’d love to back women-led funds, but they just can’t find any. Obviously they don’t know where to look. Fund investors (LPs) need to stop perpetuating the story that there’s no women in venture, and consider allocating to some of the funds that are in market today.
Stop pattern-matching from masquerading as business intelligence.
From our perspective, even well-meaning efforts to back more women investors result in funding the usual suspects … and those least in need of catalytic capital. We have found large institutions announce efforts to invest in women with great fanfare, only to make the bars so high that only a small fraction qualify. Or they use the same old-boy pattern-matching (prior fund track records, college attended, athletic accomplishments, etc.) to the exclusion of many promising candidates. Too often gender lens strategies are actually public relations campaigns.
We have found that the venture industry has hundreds of talented women investors. Many women leaders in the field are starting their own firms. To affect meaningful change in the industry, we need to move meaningful amounts of capital to these firms.
This is Part 1 of a 2-part series. In Part 2 we’ll discuss the tools Different has created to move beyond pattern-matching to business intelligence and help more LPs commit more capital to promising women-led firms.