Women represent less than 10 percent of high-level venture capitalists, and they have been leaving the industry at twice the rate of men, according to Gatekeepers of Venture Growth: The Role and Participation of Women in the Venture Capital Industry. The study is the latest report of the Diana Project, a multi-year, multi-university study of women business owners and business growth opportunities. The research ultimately seeks to determine whether having more women in decision-making roles in the venture capital industry would provide greater access to women entrepreneurs who seek funding.
Women led 28 percent of all U.S. businesses in 2002, employing more than 10 million and generating $1.5 trillion in sales. Yet female entrepreneurs historically have received a disproportionately low share of available venture capital, as little as 4 to 9 percent.
"The venture capital industry is among the last bastions of male dominance in the business world," says Carl J. Schramm, president and CEO of the Kauffman Foundation, noting that the current picture for women venture capitalists is similar to that for female attorneys in 1985, when women made up only 13 percent of the legal profession, compared to nearly 30 percent today. "This study underscores the importance of women entrepreneurs to our nation's economy and is a critical first step in understanding the reasons for the tremendous capital gap."
The Diana Project, named for the mythological goddess of the hunt, is composed of the following researchers:
- Candida Brush, Boston University
- Nancy Carter, University of St. Thomas
- Elizabeth Gatewood, Indiana University
- Patricia Greene, Babson College
- Myra Hart, Harvard University
According to Myra Hart, most currently sought-after VC candidates have backgrounds in engineering, physics and bio-technology - fields in which women are just beginning to make inroads. "Because the industry is dominated by men, women trying to launch or further careers as VCs have few first-degree connections with those (men) in positions to hire or promote them," Hart says.
Specifically, for the period from 1995 to 2000, the Diana researchers looked at: where high-level women VCs were in the industry; their influence in decision-making within their firms; and the extent to which they increased the flow of women-led deals to their partnerships. Among their key findings:
- In 1995, women represented 10 percent of management-track venture capitalists, falling slightly to 9 percent in 2000, despite significant growth in the industry.
- Only 27 percent of venture capital partnerships had females in management in 1995; by 2000, that number had fallen to 25 percent, and most of these managers were the only key females in their firms.
- By 2000, 64 percent of women who had been VCs in 1995 had left the industry, while just 33 percent of male VCs had left the field during that same time period.
"With so few women in managerial-track positions, the social and professional networks critical for opening the doors to venture funding are all but absent for female entrepreneurs," explains researcher Nancy Carter. "Male and female venture capitalists don't consider deals that come over the transom. Rather, they prefer to pursue opportunities presented by entrepreneurs with whom they have a network connection. Lacking such connections, women entrepreneurs have much less chance of getting to the negotiating table."
Among the handful of women who do hold high-level positions in the venture capital industry, most believe they have influenced the decision-making process in some ways. However they insist they subject women-led ventures to the same standards and scrutiny as any other deal.
Says Diana's Patricia Greene: "These findings will surprise and may even disappoint those who expect women VCs to automatically push to fund more women entrepreneurs. The women VCs we interviewed stressed their funding decisions are gender-blind."
Decisions may be based on the merits of a deal rather than on a social agenda, but the proof that "gender matters" is in the numbers. The study found that:
- Seventy percent of women venture capitalists were in partnerships that had closed deals with women-led companies.
- Since only 4 to 9 percent of all deals go to women, it follows that women played a major role in most of the deals that went to female entrepreneurs, regardless of how few they were.
Notes Trish Costello, CEO of the Center for Venture Education, "Like their predecessors in corporations, trailblazing women VCs couldn't afford to be seen as marginalized if they pushed too many deals involving women entrepreneurs. Emerging women in the field see their access to women-led deals as offering comparative advantage."
As with other male-dominated professions, it may take decades for women to reach parity in the venture capital field. But perpetuating the status quo without decided measures to increase their role and participation is certain to keep the playing field from ever becoming level.
"While it's important to recognize that venture capitalists are simply looking for good investments -- whether led by men or women," notes Mark Heesen, president of the National Venture Capital Association, "it's just good business to work with female entrepreneurs and VCs. 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."
According to the study, having more women venture capitalists would mean:
- increased opportunities for direct network connections between venture capitalists and women entrepreneurs;
- a greater number of proposals brought to the partnership by women entrepreneurs;
- less chance that firms would miss out on investing in promising ventures led by women;
- more opportunities for women-led ventures to access capital and build wealth; and
- a more powerful voice for women in the entrepreneurial progress of our country.
Adds Schramm of the Kauffman Foundation: "VCs hate to think they're missing something big, and as long as they pass over women as partners or investments, they are."