Half Our Startups are Founded by Women — and I’m Surprised and Delighted.

Somehow, after our first year running Arena Ventures, half our startups are led or cofounded by women. Surprised? Yup, me too. Jeff Lo and I started Arena in early 2015 with a simple focus: invest in people — not products, not markets and certainly not metrics.

From January 2015 through the present day we invested in 21 early stage companies, 10 of which are founded by women. Of those 70% are female CEOs. And yet Arena has no social mission, no “female founder thesis” and no obvious reason to invest in so many women.

But a conversation last week with Kara Weber and Lizzie Francis got me thinking about the female founder ratio at Arena. We had initially met at my home to discuss Brilliant Ventures, Lizzie and Kara’s latest venture focused on advising, investing and generally supporting female founders. As we went through the Arena Ventures process of sourcing, analyzing and running diligence in deals I realized there might be something unique about our process.

Female Founders at Arena Ventures

Female Founders (Above) Clockwise from top-left: Leura Fine, CEO of Laurel & Wolf; Leiti Hsu, Susan Ho, Amy Guo, Co-Founders of Journy; Akta Adani, CEO of India Boulevard; Danielle Morrill, CEO of Mattermark; Margaret Laney, CMO of Mytable
Female Founders (Above) Clockwise from top-left: Payal Kadakia, CEO of Classpass; Niniane Wang, CEO of Evertoon; Kanjun Qiu, CEO of a stealth AI startup; Christina Saas, COO of Andela; Amanda Micallef, COO of Arsenic

But before I get to that revelation how about a quick run through of the challenges facing female founders.

In a venture capital industry where articles like “78% of YC Startups Have No Female Founder — And That’s Progress” dominate I’m shocked. Sort of…

Or these articles where we pat ourselves on the backs with prose that points to marginal improvements like “Female Founders On an Upward Trend…” And yet that positive trend means only 18% of funded startups have female founders. WTF — that doesn’t sound equal to me…

And then you see shit like this moronic investor texting Sarah Nadav telling her women should focus on raising babies not leading companies (reality check — women, like men, can do both)

I’m not a woman so I can never adequately express the bias female founders face. But I know it exists. The math alone tells us there’s some bad shit going on in this industry. And yet I don’t believe the majority of it comes from malicious bias. The reality is the female-founder-hater-texting-VC above is not in the majority. He, like the minority of freaks in our business, is an outlier. Instead, I think the poor female founder ratio comes from unintentional bias caused by poor investment frameworks and techniques.

As I mentioned before, Arena Ventures doesn’t have any social mission or practices focused on funding women. Jeff and I like to invest without regard for gender, race, sexual orientation or whatever other bias keeps investors from investing in great founders. But of course a lot of us feel that way right — right! I’m now eight years into this investing world and I can confidently state that most investors aren’t sitting around trying to figure out how to screw over women, minorities or the LGBTQIA community. Most of us are in this business to (1) return great profits to our investors and (2) support world changing companies and amazing founders. We don’t win by being bigoted, racist or sexist.

So if most of us are out there aiming to invest in great people; and if we can also agree that founder potential is evenly distributed among the broad populations of women and men, then why are most gender investing ratios so fundamentally skewed?

Here’s my opinion: Most investors don’t have a real framework or techniques for investing in so called “amazing founders”

The one thing that’s really unique to Arena Ventures is our framework and process to analyze and understand founders. I never really thought of this before Lizzie and Kara started probing my thoughts. But our detailed founder framework, besides giving us an edge and helping us identify truly amazing founders, is quite possibly the sole reason we have an egalitarian investing process resulting in an almost even number of female founded startups.

I’ve written before about our “Big 5 Questions” — this is our over-arching framework that helps us decide on whether we fund a deal. But within our very first question “Would I start a company with them (the founders)?” Is a deeper and more detailed framework that analyzes the talent, behavior, attitude and character of the founding team. I won’t get into the details here but at present we have 33 distinct characteristics we look for in founders (things like Vision, Judgement, Focus, Execution Speed, Learning Curve, etc). In addition we have several techniques we use to observe and understand those characteristics. Those techniques include: rapport-building; reverse chronological bios; life pivot points; false challenges and more.

Without getting into the fine details or proprietary nature of how we analyze founders, I’ll summarize by stating it’s rigorous, documented, and practiced individually and as a group. It’s a process we repeat with every founder and it’s also a process that encourages us to challenge each other and hold ourselves accountable to our process. When we debate deals we avoid statements like

“I like that dude, he really gets it — I think he’s a winner and that product is beautiful — oh and by the way SVAngel is investing and XYZ fund is ready to fund his A”.

Instead you’re more likely to hear:

“Her vision is unique and a little odd, she’s extremely focused and demonstrated great judgment with x and y. Her learning curve is off the charts — look at how she started here, didn’t know anything about x or y just three months ago and now she knows more than most. She’s hands on doing x, y and z. However I am concerned about whether she’ll impose her will in x and y areas and I also didn’t get a sense of her competitive level or her ability to understand and take measured risks. We need to dive into that on the next meeting”

And here’s why I think our framework and practice is important. Without a well defined framework it’s much easier for an investor to resort to unintentional bias. It’s easy to make judgments and invest in people who look like you. It’s easy to invest in people who look like your past successes (even if being a wealthy geek from MIT/Stanford wasn’t the true key to that success). It’s so easy to make superficial decisions when there’s no process guiding your thoughts. Accountability goes out the window when you don’t have a framework. Without a detailed and repeatable framework, and techniques and tactics to work through that framework, investors start to invest in what feels comfortable and familiar. We continue to fund a bunch of dudes that feel like winners and spin great stories — but we avoid the real job of investing in truly great founders.

I’ll admit we’re not perfect — far from it. I think we have an amazing process and a unique edge and we’re constantly trying to improve the art and science of understating the people behind these startups and our founder framework — our Tactics, Techniques and Procedures will evolve. But because we are so intently focused on founders we get better with time and we genuinely focus on founder qualities and avoid the hidden biases that lead to poor investing decisions. We’ll still make mistakes but at least we’ll learn from them and understand our mistakes in greater detail.

Also, just because our process resulted in an even ratio of female / non-female founded companies, this isn’t any reason to accept that our process will result in the best companies and the best returns. However, if we are correct in our approach then we’re quite likely to be more correct than others since we use a documented and repeatable process. I fundamentally believe that founders should be the key focus of any early stage investor. At this stage products are rough and evolving, metrics are wrong or misleading, markets are relatively unknown and changing, and the social, technological and economic forces that will weigh heavy on your startup are difficult to predict. These areas should be considered — and they do weigh into our decision. But the biggest determinant of success is a great founding team. The right people can navigate and lead through those chaotic waters ahead. And so we’ll remain focused on our founder thesis.

And hopefully we’ll continue to invest in a brilliant group of kickass ladies :)

Want to know more about those amazing female founders and their companies? Here’s a quick list and links to all of the badass ladies we backed in the last 14 months:

  • Kanjun Qiu — CEO Stealth AI company
  • Amanda Micallef — COO Arsenic

Interview: Life of an Entrepreneur, Arsenic Magazine Amanda Micallef

  • Susan Ho, Amy Guo, Leiti Hsu — Cofounders Journy

* NOTE: we’re investors via acquistion of Fitmob