Female venture capitalists are unicorns. They are rare, magical and like their mythical counterparts, are becoming sought after. Lucky for us, they are real, and their superpower of changing the overall success rate of female-led startups is not the stuff of fairy tales. It's real and the number one reason why we should be encouraging more women to join investment firms.
With only 11% of women making up the industry, we have a long way to go, but those who are ahead of the curve are already benefiting. How? For female entrepreneurs, a female partner improves their probability of a successful exit. For venture firms, it helps them pick better projects and improves the chances of success for startups they finance.
Here's how female VCs are disrupting the business world and why we need more of them if we want to see meaningful change.
1. Women Investors Encourage Diversity
Have you ever heard of the homophily principle? It's more common name is "birds of a feather flock together". It's how we form tribes and create connections with people that share our morals, interests and beliefs. While it's always great to connect with other like-minded people, it can cause a problem in the venture capital world.
Most VCs are white men and consequently form connections with those from a similar gender, ethnicity and social background. By not having investors that reflect diversity, it prevents women and minorities from gaining accesses to these networks.
In an op-ed by Chamath Palihapitiya, the founder of investment firm Social + Capital said it best: "We need to invite more people into the decision making: young people, black, Latino, female, LGBT and others who aren't necessarily part of the obvious majority. If we surround ourselves with a more diverse set of experiences, perhaps we will then also prioritize a more diverse set of things."
Each time that we continue to fund the same pool, we hold back innovation and miss out on opportunities to solve problems and create a healthy and diverse founder base. Having more women on VC boards is not only about gender equality, it's about giving everyone a voice. It’s about using our different life perspectives and alternative outlooks that address the needs of more than one demographic. Women bring diversity that opens the door opportunities for business development and success.
2. Women VCs Play a Vital Role in Closing the Gender Gap
According to a report published by the Harvard Business Review, there is a 25% point difference in the exits of male-led and female-led startups. As soon as you introduce VCs with female partners, that difference disappears. There is no longer a gap between the success rates of startups founded by either gender. How is that possible?
The findings suggest that VCs with women partners are better able to advise or evaluate female-led startups. But for female entrepreneurs who secure funding by VCs solely led by men, these startups are far less likely to be acquired.
Interestingly, venture capital financing also impacts the performance gap. Female-led startups struggle to achieve the results of male-led startups unless they are financed by VCs with female partners. So while we have all been so busy blaming recruitment for the gender gap, venture capital is an excellent way to address this problem from a different angle.
3. Women Investors Network Differently and Create Meaningful Relationships
It's no secret that women and men approach things differently. Men are known for taking risks and for confidence in their abilities. Women, on the other hand, are more cautious in business and often attribute their success to everything else other than their sheer talent.
This difference in styles often leaves women behind. According to a study by LeanIn.Org and Mckinsey & Company, a woman's odds of advancement are 15% lower than a man's. One of the reasons for this has to do with a difference in how both genders network. While both agree that sponsorship is a vital ingredient of success, men and women have different types of professional networks that result in different levels of support.
Women tend to prefer smaller networks that are built on a mutual value system and create meaningful and supportive relationships. Men see their network as a way to further their careers and are more concerned about what the relationship can yield rather than a shared value system. Women also tend to stay away from after-work events where most networking takes place. Not because they don't want to develop these relationships, but because they would rather do strategic networking during the day, so they have time to tend to family responsibilities.
As a result, women's networks are not as wide or influential as men. But we do a better job at meaningful relationship building. This is why we need more women VCs so that there is a presence in their networks who can help businesses, which solve real problems for women, grow. With such obvious financial and cultural benefits to having female investors, we need to create environments that women want to be a part of. If we want to help more female entrepreneurs succeed, one place to start is at the top. Simply put, the world needs more women in venture capital firms.
