Funders Begin to Look Upstream — to Women
In early October, Pitchbook reported that venture funding for female founders hit its lowest quarterly total in three years. This is particularly notable at a time when overall U.S. venture capital numbers in 2020 are on par with previous years despite the pandemic. Female founders are understandably concerned (can women please catch a break?), and those who have been working to build a culture of inclusion and diversity in the space are alarmed. I believe this trend should be equally troubling to our entire VC sector.
At this point, we all know what the data show: portfolios have better returns when diverse backgrounds and minds collaborate to build strong companies. Research also shows that, despite this knowledge and the recent strides made in the industry towards change, the uncertainty of the pandemic may have overshadowed these facts and reversed recent progress. Many VC’s are again playing it safe and sticking to the networks they know — the “pattern recognition” that is part of the faulty received wisdom of our sector.
It may be business as usual, but for women, “business as usual” will almost certainly usher back a familiar feeling of not belonging. As someone who is an outlier myself, having had a non-traditional path to VC and a background that diverges from the norms of education and career choices that the VC industry traditionally rewards, I know the feeling all too well.
I also know that the reason I am here today, doing the work that I do, is because at a point when I had nothing to show for myself but a hunger to learn about early-stage investing, a group of investors at ERA took a chance on me. As entrepreneurs, they knew something about the value of learning from pivots, and with immigrant experience like mine on the team, my own path was validated and acknowledged. I felt like I belonged, and it happened because someone with decision-making power sent the proverbial elevator back down.
Which brings me to the now widely circulated and very timely Women in VC report called “The Untapped Potential of Women-Led Funds”, which proposes an actionable solution to getting more funding for women. As the report notes (and I encourage you to look at how many women VC’s collaborated on this alongside Women in VC founders Jessica Peltz-Zatulove and Sutian Dong), “we need to be looking upstream, where there is more leverage and more potential for impact. We need to be talking about, and investing in female fund managers.” This mirrors my firm belief that building a generation of decision makers and check writers is the way to go for the long term and scale: build the elevators and build up those who’ll be sending them down.
Here’s the good news: this idea is gaining some early traction. Earlier this summer, NVCA — an organization that undoubtedly has a 360 view of the industry — launched VentureForward, a non-profit to support diversity and education efforts for aspiring investors. Venture capital funds are opening up senior roles (previously a non-transparent process) and recruiting women and diverse candidates for Partner roles. GV (formerly Google Ventures) just promoted their youngest and first Black female partner. Founders themselves are looking more and more to venture capital firms that will understand and relate to their needs — I’ve had many a conversation with women founders who have skipped diligence with firms whose teams (and portfolios) looked too uniform for comfort. That’s extra pressure for the industry that knows the connection between reputation and good deal flow.
As a key part of this, while I am a deep believer in more female (and diverse) General Partners and investors, it’s important that we don’t fall victim to the idea that only women can fund women — thus putting all the responsibility for diversity on women and diverse GP’s and taking the pressure off everyone else. Thankfully, LP’s — the lifeline for venture capital funding one step further upstream — are starting to understand that and set the ground rules for the sector.
While funding may have been constricted during the COVID-19 pandemic and women (and diverse founders) have gotten the short end of the financing stick yet again, the venture industry is changing. We are living in a unique moment when social inequalities are front and center for everyone.
What the industry needs to aspire to and get comfortable with are two things: one — looking at diverse portfolios as a baseline for good deal flow, and two — getting comfortable with the idea that lifting women up doesn’t mean knocking down someone else.
