The Business Case to Fund More Gender Diverse Teams

FACT: Male-run VC firms are missing great investment opportunities because those companies are led by women

Two big problems VC firms should attack head on if they want to invest in more gender diverse companies

  1. Pipeline Problem: Is the problem at the top of the funnel, with the pipeline (% diverse teams with which you take a meeting)?

The economics of diversity: data to support why you should seek out diverse teams in the companies you back

  • Women entrepreneurs have 21st leadership skills like learning agility. According to the Korn Ferry Institute, women entrepreneurs score higher in “agile learning” and other key leadership attributes than either male or female executives holding C-level and VP positions.
  • Women-led companies are more capital efficient. According to Illuminate Ventures, the average venture-backed company run by a woman had achieved comparable early-year revenues using an average of one-third less committed capital
  • Inclusive organizations deliver higher returns. Again according to Illuminate Ventures, organizations that are the most inclusive of women in top management achieve 35% higher ROE and 34% better total return to shareholders versus their peers.
  • A company’s odds for success (versus unsuccess) increases with more female executives at the VP and director levels. According to Dow Jones’ report “Women at the Wheel” on the effect of women leaders on start-up success.
  • Female representation in top management brings informational and social diversity benefits to the top management team. According to research in the Strategic Management Journal, which argues that these benefits enrich the behaviors exhibited by managers throughout the firm and motivate women in middle management.
  • Funding is disproportionately allocated to companies run by men, creating a gap that is waiting to be filled. According to the 2014 Diana Project, from 2011–2013 just 985 of the 6,793 venture capital–funded companies (15% of all businesses receiving seed, early-state, and later-stage venture capital funding) had a woman on the executive team. Only 2.7% of these companies (183 of 6,517) had a woman CEO. Click here for the original Diana Project report in 2004.
  • Women entrepreneurs still cite access to funding as a primary challenge, making this funding gap an opportunity to differentiate. According to this survey conducted by the Kauffman Foundation in November 2014 and also supported by this research conducted by Sarah Thébaud in December 2014.
  • Unintended bias influences investment decisions and “distort perceptions of the viability and investment-worthiness of an innovative idea.” Gender influences VC evaluations most when the person, rather than the venture, is the target of evaluation, according to this research supported by the Michelle R. Clayman Institute for Gender Research at Stanford University and the National Center for Women and Information Technology, and this research by Sarah Thébaud.

What you can do to take action

  1. Hire a female investor. 4% VCs are women and 77% VC firms have never had a woman investor. And yet, according to the Diana Project research, VC firms with women partners are twice as likely to invest in companies with a woman on the management team and three times more likely to invest in companies with women CEOs.
  2. Support your female colleagues. Patricia Nakache suggests you ask yourself these questions: “Are women being recruited to our firms? In what ways can they advance in their careers here? Do they get real, viable opportunities to succeed? Are they among the first staff cut during a market downturn when the venture industry invariably contracts?” (via Patricia Nakache)
  3. Support, encourage, and fund female founders to start their own venture capital firms (via Jason Calacanis)
  4. Measure your conversion like you would any sales funnel (via Hunter Walk)
  5. Use Crunchbase, which just added gender to company profiles.
  6. Mentor at one of the 10+ seed or pre-seed accelerator targeting women-led companies (see this list and message me if you would like an intro)
  7. Get involved in other organizations in the ecosystem supporting women-led companies. (see this list)
  8. Co-invest with funds that invest exclusively in women-led companies or at least look to fund a high percentage of diverse teams. (see this list)
  9. Measure the performance of your gender diverse teams against those that are not.
  10. Encourage your existing investments in male-run companies to seek out female candidates for key hires and open board seats.
  11. Write a blog post like Nick Beim, Hunter Walk, Jason Calacanis, Sam Altman, or Adam Quinton to demonstrate you appreciate this problem (opportunity) and how you are actively addressing it.

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Joshua Henderson

Joshua Henderson

1000% committed to helping women innovators transform industries, cure diseases, and build scalable businesses

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