As Women’s History Month comes to a close, we spoke with Aileen Lee (Cowboy Ventures), Jennifer Carolan (Reach Capital) and Loretta McCarthy (Golden Seeds) to get their perspectives on everything from how to move toward more gender diversity in the startup world to why investors should think twice before using the term “good guy,” plus their reactions to PitchBook data on where venture dollars are going.
The current landscape
In 2016, about 17% of global VC deals involved companies with at least one female founder. That number seems pretty low on its own—but compared to the 7% recorded in 2007, it’s a notable jump. There are a handful of firms and angel investment groups out there that focus almost exclusively on female-founded startups—BBG Ventures, Pipeline Angels and Female Founders Fund, to name a few—but for most firms, the percentage of such deals is likely significantly lower.
Another way to look at the data is to focus on female-led, as opposed to female-founded, companies. About 9% of global VC deals in 2016 involved companies with a female CEO, up from 6.8% in 2007. That data point is telling because it means that a female was in charge of the company at the time investors backed it.
Cowboy Ventures, which Lee founded in 2012 after nearly 13 years at Kleiner Perkins Caufield & Byers, has a more diverse portfolio than average: About 30% of its companies have a female founder, according to PitchBook data.
"There was a common misconception that we only invested in female founders,” said Lee (right), adding that her firm backs companies that have the most potential for success, regardless of gender. “We don’t make a point of investing in women. … We want to invest in prominent founders and teams.”
Carolan said the philosophy is similar at the edtech-focused firm she co-founded, Reach Capital, where 25% of portfolio companies have at least one female founder, according to the firm's data.
“We haven’t really seen an increase in our pipeline,” said Carolan, who transitioned into the VC world after spending several years as a teacher. “It’s education, so you’d think maybe companies selling products to schools or parents [would have more female founders]. It’s disappointing that there aren’t more female founders in the industry.”
A shifting industry
All three women have seen positive changes in VC over the last several years. But a transformation is still in the early stages, which is why they’ve each been outspoken about the continued need for diversity in investing.
Since launching Cowboy Ventures, Lee has become somewhat of a symbol for female venture capitalists—no doubt due in part to her famous coining of the term "unicorn" to describe companies that reach billion-dollar-plus private valuations. In her time as a VC, she has noticed a bit of an attitude change from male founders—particularly the way they view diversity. Before, she said, it was rare for a male founder to view a lack of diversity as a problem. But as of late, founders are taking notice of the studies showing that diverse teams perform better. “Now there’s a high likelihood that Caucasian men will come to us and say, ‘I think it’s hurting us that we’re not diverse.’ That’s a change. That didn’t happen before,” Lee said.
From McCarthy's perspective, as managing partner of Golden Seeds' women-focused angel network, the VC landscape is different now than it was 10 or 15 years ago largely because the number of female entrepreneurs and business owners has jumped. As a result, McCarthy (right) said, the percentage of venture deals involving female founders and female-led companies has naturally increased.
The shift toward gender equality is noticeable on the investor side, as well. Carolan said she’d noticed that VC firms are realizing how important it is to have female investors on their team. “There seems to be a little bit of pressure… Sequoia has a woman, Greylock has a woman, firms don’t want to be the last place to not have a woman investor,” she said.
Although the environment is improving, the numbers have plateaued a bit in recent years. From the years 2014 to 2016, the percentage of global VC deals for companies with at least one female founder rose by less than 1%, per PitchBook data.
To improve diversity in funding, Lee and Carolan agreed the landscape needs to change from all angles: both from the top down and the bottom up.
“Investors have to stop just talking about the importance of diversity and actually truly add more diversity to their investment teams,” Lee told PitchBook. “I’m disappointed to read PR again and again from VCs that say they care about diversity, yet they added another male to their one open investment slot. They say, ‘We really wanted to add a woman, but he’s just such a good guy.’ … That phrase bugs me.”
The most efficient way to increase the number of female-founded companies that receive VC funding is to have more female venture capitalists. “Women who have more numbers on the investment team invest in more women,” Lee said.
Carolan agreed, and added that women investing in women isn’t simply due to an “unconscious bias”—anecdotally, she believes companies with at least one female leader perform better.
McCarthy echoed that sentiment. "The higher the percentage of decision makers inside of VC firms that are female, the higher the likelihood that female-founded companies receive funding," she told PitchBook. "All it really means is that both brains are at the table. ... It might encourage firms to consider types of investments or teams that are not identical to what they've done in the past."
Another way to push up the funding numbers for female-founded companies, of course, is to have more female-founded companies. That pipeline needs to start from a young age, Carolan (right) said, and continue all the way through higher education. “We need curriculums that encourage girls to take ideas to the next level and pursue them. …. We need great teaching in STEM subjects.”
Carolan herself said she was intimidated when she entered the male-dominated world of VC investing, and one thing that helped was female role models—including Lee, who was a mentor to Carolan when she founded Reach Capital. Once girls and young women have more female leaders to look up to, the number of companies they found should naturally go up, as will the number of female investors.
All three women are hopeful about the prospects for their gender in the startup world—but it may be a slow burn. Lee and Carolan are both seeing more women in leadership roles, but the best potential for improvement may lie in the next generation.
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