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The vicious funding cycle that makes it hard for women to compete in tech

SAN FRANCISCO, CA - OCTOBER 08: (L-R) Kleiner Perkins Caufield & Byers Partner John Doerr, Google Executive Chairman Eric Schmidt and U.S. Senator of Kentucky Rand Paul speak onstage during "Why Can't Tech Save Politics?" at the Vanity Fair New Establishment Summit at Yerba Buena Center for the Arts on October 8, 2014 in San Francisco, California. (Photo by Michael Kovac/Getty Images for Vanity Fair)

The jury is still out (literally) on the sex discrimination suit between Ellen Pao and her former employer, venture capital firm Kleiner Perkins Caufield & Byers.

But win or lose, Pao's legal quest has put a magnifying glass on the status of women in Silicon Valley -- and testimony from her former boss John Doerr, one of the most successful venture capitalists out there, highlights a vicious cycle in the way start-ups are funded that can limit women's ability to succeed in the tech industry.

In testimony earlier this month, Doerr advised people wanting to break into venture capital to start out as a "successful entrepreneur" -- saying that hands-on experience and mentorship matter, according to re/code.

But he also acknowledged that it's too hard for women entrepreneurs to get funding, according to the Wall Street Journal, which leaves a limited pool of women with the right skills to be venture capitalists.

But just who is in control of the money? Venture capitalists. Like Doerr.

Firms like Kleiner Perkins are often a major source of funding for tech start-ups, essentially placing significant financial bets that can have a huge effect on how companies develop and which ones succeed. Doerr himself is something of a legend in the field, amassing a net worth reportedly in the billions by making early investments in tech companies like Google and Amazon.

Kleiner Perkins' legal team painted Doerr as a champion for women in the field, touting his record in bringing women into the firm and backing Pao during much of her tenure at the company, as well as his record of investing in female entrepreneurs.

But in a 2008 meeting of venture capitalists, a recording of which was played during the trial, Doerr described a pattern he looked for when choosing where to invest. A white, male, elite pattern.

If you look at [Amazon founder and Washington Post owner Jeff] Bezos, or [Netscape Communications founder Marc] Andreessen, [Yahoo 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.

Doerr himself said at the trial that the venture capital field is "largely male," according to re/code, which other research backs up. And there's plenty of research suggesting that, even if unconsciously, people tend to favor people like them -- a phenomenon called "ingroup favoritism" that some researchers believe is the driving force behind most modern discrimination.

This suggests there's a feedback loop in venture capital and the tech industry that effectively makes it much harder for women to compete: It is mostly men making investment decisions at venture capital firms. Those decisions generally favor male entrepreneurs -- who then become the next wave of venture capitalists, and they continue the cycle that contributes to most major tech companies having pretty abysmal gender diversity track records.

Kleiner Perkins' lawyers have argued they're actually doing better than the venture capital industry at large when it comes to gender diversity -- with 10 women currently sitting on the boards of companies it has invested in. According to expert witness testimony from Harvard Business School professor Paul Gompers, who was paid $900 an hour for his contributions to Kleiner Perkins' case, that puts them significantly above the average. He testified that in 2013 between 77 percent and 79 percent of venture capital firms had never had a woman represent them on the board of companies they invested in, according to Ars Technica.

Gompers' previous research suggests that women face significant barriers as venture capitalists. Nearly 60 percent of women in the field said they felt disadvantaged by their gender, according to a survey included in a 2014 Harvard Business School paper in which Gompers was the lead author. Some said the low number of female entrepreneurs hurt their "deal flow" and 65 percent said that some entrepreneurs preferred to work with male venture capitalists.

Mentorship gaps also contribute to gender bias, according to the survey. One in five respondents said they received less mentorship from senior colleagues than their male counterparts. But more than twice as many said they felt excluded from informal events at their firms -- suggesting that women in venture capital end up with less formal and informal help in navigating their jobs.

Kleiner Perkins lawyers have described Doerr as a mentor for Pao, who started at the firm as his chief of staff before being promoted to junior partner, and emphasized that she received professional coaching. But Pao alleges that she was excluded from events like a team dinner at former vice president (and Kleiner Perkins' partner) Al Gore's apartment and a ski trip in Colorado.

Ultimately, Gompers' 2014 paper found that women venture capitalists working at larger firms with more female colleagues tended to perform just as well as men. Although women under-performed in other circumstances, the researchers said that was the result of "a lack of contribution by the male colleagues within their firm."