The next set of dominoes that needs to fall is the venture-capital system. This is the bastion of sexism in the technology industry. It has encouraged the frat-boy behavior by investing public funds unwisely and appointing members of their boys’ clubs to company boards.
As tech companies are bettering themselves, the venture-capital system seems to be getting worse. A new study by Candida Brush, Patricia G. Greene, Lakshmi Balachandra and Amy Davis of Babson College reveals that the proportion of women partners in U.S. venture-capital firms declined from 10 percent in 1999 to 6 percent in 2014. The leading firms are the worst offenders, as Dan Primack of Fortune magazine learned. He performed an analysis of the top 92 venture-capital firms and found that, of the 542 partner-level VCs in these firms, only 23 are female — a paltry 4.2 percent. He said this percentage would actually be lower if Sequoia Capital — which is one of the top five firms—disclosed how many partner-level VCs it had. Sequoia refused to provide him with this information but acknowledged that none of its investment partners are women.
Sequoia isn’t unique; most venture capital firms refuse to provide data on their partnerships and investments. Just as technology companies did for several years before coming clean on diversity data, VCs claim these data are a trade secret.
In truth, VC firms do have a lot to hide. The Babson research revealed that only 2.7 percent of the 6,517 companies that received venture funding from 2011 to 2013 had female chief executives. Minority-led firms surely fare even more poorly. If VCs did disclose their partner and investment-diversity data, their investors — which include pension funds, universities, and state governments — would likely protest or walk away.
It isn’t that venture firms aren’t aware of the issues. They go to great efforts to dress up their Web sites to include pictures of women and they tout small donations to women and minority groups. This creates the illusion that they support diversity. But if you look at the teams that make investment decisions, you will find few women and few members of minorities. Primack learned that the technology industry’s top venture-capital firm, Andreessen Horowitz, does not have even one female “senior investment partner.” This is not obvious from the Andreessen Horowitz Web site. It has pictures of several women, many of whom have the title of “partner” — something that is usually reserved for VCs who make investment decisions.
This puts women and minorities at a major disadvantage. The Babson study found, for example, that VC firms with female partners are more than twice as likely to invest in companies with a woman on the management team (34 percent of VC firms with a woman partner versus 13 percent of VC firms without a woman partner).
Sexism, racism, and ageism also have a code name that VCs use with pride: “pattern recognition.” Venture capitalists claim to know a successful entrepreneur, engineer, or business executive when they see one. As I detailed in my book Innovating Women, one famous investor said at a major technology conference: “If you look at [Amazon founder Jeff] Bezos, or [Netscape Communications Corp. founder Marc] Andreessen, [Yahoo Inc. co-founder] David Filo, the founders of Google, they all seem to be white, male nerds who’ve dropped out of Harvard or Stanford and they absolutely have no social life. So when I see that pattern coming in — which was true of Google — it was very easy to decide to invest.”
Innovating Women also includes a powerful essay by Heidi Roizen. She told of her experience before achieving success and becoming one of the few women in venture capital. When she was pitching to a Boston-based VC, “one of his partners engaged in a pantomime in the corridor, making a circle with the fingers of one hand while poking his other fingers through the circle, then thrusting his hips in a sexual fashion.” She found it rather hard to concentrate on her pitch and did not get a term sheet from that firm. And once, while pregnant, she was asked by a male Silicon Valley investor how she’d be able to perform after her baby was born. He said to her “My partners are concerned that when you have this baby, you are going to lose interest in the company and not be a good CEO. How can you assure us that won’t happen?”
An African-American woman, TD Lowe, who had just moved to Silicon Valley, told of her shock and dismay at meeting one of the top investors in Silicon Valley. She wrote, “When I reached out to shake his hand I got a lukewarm response, and then, before I could even begin to share why I was there and what my start-up was all about, he told me that the best thing I could do was to forget start-ups and get a job. He insisted that I would never be able to make the right connections to be successful in the valley. I walked away stunned. This place had been painted as a utopia for intelligent people with good ideas, so I came to Silicon Valley, only to discover that there was little difference from the South I left behind.” I have been mentoring Lowe and know that she is motivated and brilliant — this was not because of her ability or competence.
It is more than a matter of what is fair — or even legal. Billions of dollars of public money are being squandered. The Kauffman Foundation analyzed 20 years of investment data from nearly 100 VC funds. It found that the majority of funds produced lower returns than the public markets. It concluded that institutional investors, including larger state pension funds, endowments, and foundations, are being shortchanged by their investments in venture-capital funds. Illuminate Ventures found that the average venture-backed company run by a woman had annual revenues that were 12 percent higher than those run by men and used an average of one-third less capital. An analysis by Dow Jones VentureSource of more than 20,000 venture-backed companies in the U.S. launched in the years 1997 to 2011 revealed that senior positions in successful start-ups include far more women than in unsuccessful ones — 7.1 percent vs. 3.1 percent.
It is time to hold the venture-capital community accountable and to demand that it publish diversity data. At a discussion hosted by Politico in San Francisco, Janet Napolitano, former Department of Homeland Security secretary, who is now president of the University of California, promised me that she would have her investment team look into the university’s venture investments and find ways of adding the necessary pressure. We need to have other funds do the same. This will benefit the innovation ecosystem and the economy by causing more dominos to fall.