In 2010, only 3.6% of venture investments were made into companies that were founded by all-women teams. Those investments were about half the size of the average venture deal, so all-women teams only received 1.8% of total capital invested. Both of those numbers have increased, but not by much. In 2019, 6.9% of deals and 2.9% of invested capital went to all-women founding teams. Clearly, the venture industry has a long way to go.
VC firms are under pressure to improve diversity internally and in their portfolios, in order to preserve their reputations, to ensure continued returns, and because it’s the right thing to do. Diversity takes many forms, but in the wake of #MeToo many investors and advocates are focused on improving venture’s gender balance.
Part of the issue is time: venture firms operate on ten-year fund cycles and the partners for each fund are established at the time the fund is raised. Most investors will stay with the firm for the lifetime of the fund, which reduces the opportunity for new partners until the firm raises a new fund. VCs can decide to add partners to increase diversity, but they have a financial incentive not to since more partners splitting the same money means less for the existing partners.
New firms have no such restraints. Several large and successful new firms of the past decade have been founded by female investors, most notably Mary Meeker’s Bond ($1.25 billion first fund), Penny Pritzker and Alexa von Tobel’s Inspired Capital ($200 million first fund), Aileen Lee’s Cowboy Ventures ($95 million third fund), Trae Vassallo’s Defy Ventures ($262 million second fund), and Kirsten Green’s Forerunner Ventures ($360 million fourth fund).
These firms are increasing the diversity of investors but they may also be a key lever to increasing the diversity of founder funding. According to Luann Abrams, founder of accelerator FoundersPad, “I see a lot of women starting companies who don’t waste their time going to see VCs who are mostly male partners.” These female founders are deliberate about seeking investment from firms with diverse or, even better, female-led partnerships, she says.
Increasing investor diversity isn’t limited to new funds though. The younger generation of venture capitalists is more diverse than their more senior partners. Vanessa Larco, who joined NEA as a partner in 2016, says that her firm recognizes that “you need more diverse opinions [to] see things that others may not see to identify the outlier opportunities.” Larco says she isn’t alone—three of the four boards she sits on are majority women.
Nicole Glaros, Chief Investment Strategy Officer of accelerator Techstars, says that the industry has changed dramatically since she entered it in 2002. Glaros says that she is part of a 1,000+ Slack group of women investors—a huge step since “there may have been only 20 or 30 of us 10 years ago.”
Many female investors point to the success of All Raise, a non-profit formed in early 2018 to help increase diversity among founders and funders. The organization advocates for diversity and creates mentorship roles between experienced and new investors and founders. NEA’s Larco says that the organization “made a huge difference” in her start in the industry.
All Raise’s goal is to double the number of female partners in US venture firms over the next decade and, over the next five years, to increase the amount of funding going to startups with at least one female founder from 15% to 25%. Given that the number of female partners has doubled since 2016, it’s certainly possible that All Raise could accomplish its goal of doubling again within a decade.
But the group’s investment target looks harder today than it did when All Raise was founded. At that time, the industry had just finished its best year for funding startups with at least one female founder: 14%. That percentage declined to 10% in 2018 and was 12% in 2019—essentially flat with the 10-year average of 11%. But Techstars’ Glaros is hopeful that each generation will help the next: “As more women come into CEO roles and global roles, they will pull the next generation up.”
It’s worth noting that the Bay Area does poorly in terms of funding women even by the standards of venture capital. While the capital invested in all startups in the New York region was only 27% of the amount invested in the Bay Area (2006 to today), the amount invested in all-female founders in New York was 78% of that in the Bay Area. The New York tech scene is nowhere near as diverse as it ought to be, but Silicon Valley has even farther to go.