Venture Capitalists Are Using the Wrong Tools to Improve Gender Diversity
The female startup CEO was emailing again. It was the final stage of a potential funding deal with a venture capital firm, and she was negotiating hard to close it. “I saw that as a CEO she was doing her damnedest for her company,” one young female venture capitalist told us during a recent interview. “But the general discussion, even from internal women at our organization, was ‘I don’t want to work with someone like that. She’s too pushy. She’s too aggressive.’ I really don’t think anyone would [have said] that if she was a guy.”
It’s just one example of gender bias that we found in our recent research into the venture capital (VC) industry, which is one of the most male-dominated in the United States today: only approximately 10 percent of VC investors are women, and less than 5 percent of all VC funding goes to female entrepreneurs.
Besides being a moral issue, gender equality in venture is a huge business opportunity that most VC firms are ignoring. Paul Gompers and colleagues have shown that diversity significantly increases both overall fund returns and the profitability of investments at the individual portfolio company level. In fact, VC firms that increased their proportion of female partner hires by 10 percent had 9.7 percent more profitable exits and 1.5 percent higher overall fund returns each year, on average.
So far, the prescriptions for increasing the proportion of women have generally focused on fixing individual behaviors: male investors should diversify their networks and make a greater effort to mentor and elevate their female colleagues; female investors should support and coach each other; and female entrepreneurs should learn to pitch like their more successful male counterparts. Despite this advice, the number of women in the industry has not increased markedly, nor has VC’s famously hypermasculine culture changed meaningfully. Could this be because by emphasizing individual behaviors we have been trying to solve the wrong problem?
To answer this question, we partnered with the New England Venture Capital Association to conduct 21 in-depth one-on-one interviews (like the one above) with female and male venture capitalists. In collaboration with CulturIntel, we also examined more than 500,000 open-source online conversations about gender and diversity between venture capitalists and entrepreneurs. What we discovered was both entirely expected and utterly surprising.
...Read more at the Behavioral Scientist.
Written by By Siri Chilazi, Anisha Asundi, and Iris Bohnet.
This post is a shared excerpt from the Behavioral Scientist.
Image Credit: Tim Mossholder/Unsplash