Venture capital firms are critically important to developing many new businesses. They provide funding and expertise to new businesses in order to help them grow in return for partial ownership of the venture, which they hope to sell in the future at a profit.
And business is booming. Just how big is the venture capital industry? The top 10 venture capital firms for 2014, as judged by Entrepreneur magazine, have $51.3 billion under their management.
But very few venture capital partners, and even fewer managing partners, are women. One recent study by two MBA candidates, Monica Leas and Julie Oberweis, published in TechCrunch explores why.
The article states that about 4% of deal-making venture capitalists in California’s Silicon Valley are women. A similar study by Babson College found the total number of female partners in venture capital firms declined from 10% in 1999 to 6% in 2014. By comparison, as of 2013, 20% of law and accounting firm partners were women, according to the Pittsburgh Post-Gazette and Forbes.
The Pipeline
Many venture capital partners are former CEOs of high-tech companies with strong science backgrounds. One reason given for the lack of female partners is the low representation of women in the scientific fields and even fewer who are high-tech CEOs. These CEOs are seen as self-confident, optimistic risk takers. They possess qualities not often seen in women, according to some in the industry.
Those supporting the status quo claim that women just need to be patient as the pipeline of female candidates gets bigger. The study’s authors suggest the pipeline system is broken and is used to justify an utterly male-dominated industry.
Networks, Relationships, and Unconscious Bias
The industry is led by “alpha guys” competing in an intense environment. Given their status, they have developed networks with other powerful men that enable large, profitable investment deals to be made.
On the other hand, female partners told the authors of the “death by a thousand paper cuts” instances of daily bias and prejudice against them, such as the following:
- not being invited to 5:00 p.m. meetings on the assumption they want to be home with their kids,
- being asked to take notes at meetings or being handed coats to be put away, and
- being asked how they’ll juggle managing investments and parenting their children.
Successful female partners state they’re able to “play with the boys” harder and better than the men do. Some females in venture capital have been able to rise to the top by starting new firms.
Structural Barriers
Many small venture capital firms are nimble and aggressive when it comes to getting new business, but they may be reluctant to adopt rules and protocols needed to prevent sex discrimination in partnership decisions.
Many women working for venture capital firms are analysts, so internal promotion would help, but that practice appears to be diminishing in the industry.
Furthermore, when there are fewer partners, there is less room to move up and little incentive to change. Turnover of partners is low, and it can be difficult to remove a partner. One male partner the authors spoke to told them the best way to break into the industry is to wait for a partner to die.
The Future
The authors stated they spoke with many male partners who realize there need to be more female partners. They want to make changes to enable more women to become partners. The Ellen Pao case, in which a former venture capital partner sued claiming she wasn’t chosen as a general partner because of her sex, has brought attention to the issue, but there is no forecast for any meaningful change any time soon.
Summing It Up
Although employment discrimination based on a person’s sex is illegal, the structure of venture capital firms makes it difficult to bring a case. Here, a partner may not be considered an “employee”; instead, a partner may be an “employer,” depending on the circumstances.
Even so, if you’re a female working for a partnership (venture capital or not) trying to become a partner and feel you’re being discriminated against, it’s important to document what’s going on:
- Take notes of any meetings or instances where derogatory comments are made.
- Keep track of any promotions to partner of men who are not as qualified.
- Get copies of any procedures or guidelines as to how partners are chosen and see whether they have been violated.
If you have questions or concerns about discrimination law and how it might apply to your situation, contact our office.
