Lauren Robinson is general partner at Highline BETA and executive director at Female Funders
For decades the research has been clear: businesses benefit from gender diversity. Women are starting businesses at a faster rate than ever before, and leadership teams that include women provide better financial returns for investors.
Investing in women is good for business. But for women founders looking to launch and scale successful businesses, access to capital remains a major barrier.
There is consistent data showing that deal flow is often sourced from pre-existing networks. This explains why women entrepreneurs have a higher likelihood of closing an investment when a female investor is involved: venture firms are twice as likely to invest in women-led startups if they have at least one female partner on their team, and women angel investors place greater importance on the gender of the founders they are considering investing in. Women entrepreneurs are more likely to access capital when there are women making investment decisions. This is critical when funding for female founders is stalled at 2.2 per cent of the total invested in the United States. We can do better.
WHY VENTURE CAPITAL NEEDS MORE WOMEN
Entrepreneurs, emerging technology and innovation are driving our future. It’s time to reconsider the role of private capital and its influence on the innovation funding. Among venture capitalists and angel investors, the numbers remain embarrassingly skewed. Across North America, only 13.5 per cent of partner roles at VC firms are held by women. Without women and more diverse perspectives at the table, funds miss out on deal flow and expertise, and female founders struggle to access capital. VC firms, angel investors, policy-makers and corporations all have a role to play in ensuring this change does not take another decade.
Specifically, corporate venture capital (CVC) groups are becoming increasingly involved in early-stage funding. According to CB Insights, global CVC deals have tripled in the past five years and CVC participation in seed-stage and series A rounds is rapidly rising. Corporations are also increasingly investing in independent venture capital funds as limited partner (LP) investors.
In a report released in May by Female Funders and Highline Beta, we found that there is little gender diversity among the top CVC decision makers. Using firm websites and data sources such as LinkedIn and Crunchbase, we gathered the title and gender of nearly 4,500 team members of more than 300 venture capital firms across North America. While women hold nearly half (47.4 per cent) of junior-level analyst roles in CVC, the representation of women drops off as seniority increases. At the top, only 15.9 per cent of CVC leaders are women.
Looking to today’s high-performing women executives is the key to changing numbers at the top: 82.6 per cent of women who hold executive or partner roles in CVC groups today come from within the company itself or a direct competitor. By providing female executives with opportunities to develop the skills and knowledge needed to evaluate and invest in startups, corporations can open doors for more women to pursue leadership roles in CVC.
Second, corporations can focus on retaining and nurturing the junior talent within their CVC groups. Currently, with each “step” up the career ladder in corporate venture, women’s representation drops. Clarifying paths to advancement, promoting internal talent, and creating meaningful opportunities for career growth will be crucial to solving problems that matter for a diverse population through innovation.
Finally, corporations have an opportunity to use their growing influence as investors and limited partners to drive greater gender diversity across our ecosystem. In 2018, women founders raised just over 2 per cent of all venture capital invested in the United States, and 90 per cent of capital invested went to funds with no women managing partners. CVCs have the opportunity to not just promote more women, but also to invest in more startups and venture capital firms with women at the helm.
Globally, many organizations are now including gender diversity in their investment strategies. BDC Capital launched a $200-million Women in Tech Fund, Goldman Sachs recently committed US$500-million to invest in women-led companies and fund managers, through Goldman’s Launch With GS initiative and programs like HearstLab Scouts, offer opportunities for women to work more actively with entrepreneurs and startups to stay connected to emerging trends in their industry.
We’re at the dawn of a new era for innovation, technology and venture capital. Corporations that recognize innovation road maps must be managed by diverse decision makers to be more effective at solving problems that matter to drive corporate growth and industry transformation.
Source: The Globe and Mail