Understanding the Venture Capital Gender Gap | HBR IdeaCast

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0:41What propels you? Propel with Gatorade electrolytes.

0:55Welcome to the HBR IdeaCast from Harvard Business Review. I'm Kurt Nikish.

1:06Women have been disproportionately affected by the COVID-19 pandemic. In the U.S., for instance, women left the workforce at alarming rates, largely due to child care needs in the year of schooling and working from home. Also affected, the limited numbers of female entrepreneurs. On the one hand, venture capital firms in the U.S. set a record high, investing nearly$130 billion in companies last year, much of that money went into fast-growing categories like healthcare, remote work, and e-commerce. But just 2.3 % of that money, literally a couple of pennies per dollar, went to startups led by women.

1:45That's down from about three pennies the year before, which, although extremely low, had been trending up. Now, Harvard Business Review has been featuring a lot of research and analysis of this trend. Go to hbr.org and type in venture capital gender gap, and you'll find all sorts of articles about how male and female founders get asked different questions when they pitch to VC firms and how it affects how much they get. About how the gender gap disappears when women fund women. But also about how just 12 % of venture capital firms have women deciding where funding goes. These inequities are widespread, slow changing, and honestly, they just don't make economic sense.

2:29Here to help us understand this ecosystem and what's happening is Jenny Lefcourt. She's a general partner at Freestyle Capital in Silicon Valley. She also helped launch a nonprofit called All Raise that is trying to change the inequality in venture equity. Jenny, thanks so much for coming on the show.

2:48Jenny Lefcourt:Thanks for having me. How did you get into VC funding? Well, I started on the other side, which is being the receiver of venture capital. I was a founder of two companies, a co-founder, which both raised a lot of venture capital. The first one was WeddingChannel.com, which I co-founded over 20 years ago. For both of those companies combined, I raised over$100 million. dollars. Was that remarkable at the time as a female founder? It turns out it was remarkable. And the funny thing is, I didn't know it at the time. So just I would go in there and I'd pitch my heart out. And I didn't know at the time that very little venture capital went to women, which I think helped me.

3:35Jenny Lefcourt:I often have said that ignorance can be bliss. But there are some things that I think worked in my favor that are worth understanding. One was the first one was very much a woman business, meaning it was based on wedding gifts. And so I think the men in the room really understood that we knew this market better than they did. And the second time around, I raised venture funding, but I also had a man by my side who I'd brought in to be the CEO. So I don't mean to say anyone, you know, it was just a matter of mindset. I think my mindset was helpful and that I didn't know it was supposed to be a problem, but I also had a couple other factors working in my favor.

4:15Tell me a little bit about your growing awareness. Like what were some of the horror stories or things that you saw that made you realize that this is a serious problem?

4:26Jenny Lefcourt:I'm almost embarrassed to admit the time it took me to kind of pull my head out of the sand as it relates to the lack of gender parity in venture capital. So as someone who had successfully raised so much venture capital, and then I was an angel investor. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense?

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5:35Jenny Lefcourt:An advisor to many companies. And a lot of them I was helping women raise money and they would tell me how hard it was for them as a woman. And I really told them it's mind over matter and that they were wrong. They must be imagining things? Is that basically what you were thinking? Well, it was a combination of my experience. and also this belief that Silicon Valley was a meritocracy and that venture capitalists won't care who you are, what color of your skin, if you can make them money. At one point, I'm embarrassed to tell you that I said you could be a purple person, and if you could make someone lots of money, they would back you.

6:21Jenny Lefcourt:I thought it just didn't matter. And it wasn't until I became a venture capitalist and looked around and said, where are all the women? There are so few of us. Because you just saw a parade of male founders coming in to pitch you, or you just saw male names on your calendar? When did you realize that? Well, my first realization was in where are my – I work very well with men, but I love having female friends and coworkers. And so I became a venture capitalist. I went to build my network of venture capitalists. And I knew a lot of them from my days when I was a founder fundraising. But as I was making those connections, and sort of, you know, reconnecting with people, I was aware at how few women there were.

7:11Jenny Lefcourt:And so as I got curious about that, I started to dig into the data. And the more I dug into the data, the more abysmal I realized the data was, not just on how many venture capitalists there were who were truly deploying the capital and being decision makers, but also how little of venture capital was going to women. I did not know until I became a VC myself. I have to admit this is something that just baffles me too, right? Because you would think that in a business where you're really trying to attract money to invest in companies to make money, you have very, very, very clear incentives. It just doesn't make sense that you would pass on value that comes into your boardroom to make a pitch to you just because of gender.

8:03It should be so easy for people to see value that other people aren't seeing and just invest in it and snap it up. Yeah.

8:13Jenny Lefcourt:So I guess I think a little education or breakdown of how the systems have worked may actually shine some light onto this. Okay. So venture capitalists use their network. We use our networks to deliver founders who then present to us and show us a vision and ideas that we can have conviction in. And so, one, you're relying on your network to show you that. And so, a lot of times, it's not so much that you pass because someone was a woman or someone was a person of color. You may never have seen it, depending on what your network looks like. And then the second thing is at the earliest stages, there is no data.

8:58Jenny Lefcourt:So you're looking to have this gut feeling, this conviction to believe. And so the reality is there's pattern recognition. And so you're looking someone across the table, do they look like someone who is going to build a big, powerful, valuable company? And most of those valuable companies had been built by white men. You know, that brings us to unconscious biases. So one, I think it's how many times are venture capitalists seeing the right companies, right? The right founders with the right visions. So you have to make - This episode is brought to you by Palmolive. Family time isn't just the big moments.

9:41It's weeknight dinners, sitting around the table, everyone talking all at once. So when the plates are empty and the sink is full, use Palmolive Ultra. Palmolive's most powerful formula removes up to 99.9 % of grease, leaving your dishes sparkling clean. And the new convenient pump makes cleaning even easier, so you can spend less time tackling dishes and more time together. Shop now at palmolive.com. Propel Fitness Water. With Gatorade electrolytes, zero sugar, and vitamins, Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you?

10:18Propel with Gatorade electrolytes.

10:20Jenny Lefcourt:sure that you have the right things in your pipeline. And then the second part is making sure, especially at the early days when there isn't enough data, that you have really parked your unconscious biases aside. Because if you don't, you're basically, you know, especially if you think about Mark Zuckerberg with his, you know, the young dropout from Harvard with the gray hoodie, you saw a lot of guys that looked like that getting funded after Facebook was successful. And that is pattern recognition at its finest, otherwise known as unconscious biases. So you're in this kind of catch-22 situation where to have more funding in female founders, you need more of them to be successful.

11:02But if people aren't putting money into them, they won't be successful.

11:06Jenny Lefcourt:That is correct. So I think there's a few things at play. One is because the first round of financing is a little bit more leap of faith, right? lacks the data, you believe in the team and you believe in the vision, you need more of those. So those rounds of capital are smaller. And then when those groups, those teams are successful, as their success grows and as their company grows, they raise more venture capital and the sizes of those rounds just keep getting bigger and bigger and bigger. So if you want to change the gender diversity and who is getting the venture capital, you actually have to get it at the earliest stages.

11:52Jenny Lefcourt:Because whoever's doing their massive, you know,$100 million round today, they got started five years ago. So when I look at the data, there's a few things that I like to look at to really say, like, can I have hope that this is changing, that this can go in the right direction, even if the numbers today don't show it. So two big things. One is what percentage of the decision makers, the people who are writing the checks, deploying the capital, sitting on boards, are women, right? Is there gender diversity in venture capitalists? And then the second is what percent of early stage financing are going to diverse teams?

12:39Jenny Lefcourt:Because if you just look at the number, the big number of how, what percentage of venture capital went to diverse teams in 2020, it is so small because it is super skewed by these large rounds. And of course, the large rounds are going to go to who was funded five years ago, which wasn't very diverse. Mm-hmm. So this is one reason that you founded All Raise, this nonprofit, to boost funding in female entrepreneurs and also pressure, really, venture capital firms to put more women into check writing roles. What kind of resistance have you encountered? So when we started All Raise three years ago, we felt like there was an opportunity to make a very positive difference in tech as it related to gender diversity.

13:38Jenny Lefcourt:And we felt like there were two sort of big levers to improve. One was the percentage of venture capitalists who were women, and the other was the percentage of venture capital going to diverse teams. So the interesting thing is those two are not siloed, right? They go together. And at the time, we were seeing signs of the power dynamic being with founders. And now I don't mean to claim that all founders have the power in this dynamic, but the quote unquote hot companies, those founding teams do. They have many firms vying to write them checks and be their investors. And what we were seeing. This episode is brought to you by Google Chrome.

14:24You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. Good sleep is everything. That's why OLLI's science-backed support is made with a blend of melatonin and L-theanine for both kiddos and grownups. So when your mind won't switch off, you've got something that can help.

14:59Erasing thoughts and restless nights won't stand a chance. Find OLLI's sleep solutions for the whole family at OLLI.com. That's O-L-L-Y dot com.

15:10Jenny Lefcourt:The thing was that those founders knew that diversity mattered. And they knew that to make their company wildly successful, not have a toxic culture, be sort of appreciated by people of all kinds using the product, they wanted to get diversity right out of the gate. And so they went looking for firms who were modern and diverse because they knew if they had people that they knew if their funders were diverse, they would have a greater chance of having a diverse board and then a diverse organization. So as founders began wanting firms who were diverse, it enabled us to let the firms know that, which turned out to be pressure for them to diversify.

16:05Jenny, do you think there should be a mandate for venture capital firms to have women in check writing, decision making roles, or a certain amount of money go into companies that are led by women or have women in the founding team? I ask that because, you know, there's interesting comps, right, with boards in Nordic countries where they have mandated a certain number of women on those boards. And it has substantially affected those boards and how they operate. And a lot of people who didn't even like the mandate when it first went in feel like it's had a positive effect. What do you think about that in the U.S.

16:50venture capital industry? Would that kickstart things?

16:53Jenny Lefcourt:I think that mandates often do kickstart things. So it may be a direction that we one day have to go in. Right now, I'm hopeful that we'll get there ourselves, we being the venture capitalists, before a mandate will even have to get put in place. because the impact is so great if people are truly educated on understanding why diversity matters and the impact, positive impact it can have on society and the profitability and success of the business. So because I am seeing so many people really get educated on the importance and monitoring it themselves, I guess I'm still hopeful that we as an industry will get there before we even need to put a mandate in place.

17:41I want to ask a little bit about the pandemic, right? Because funding in women-led startups went down from 2.9 % down to 2.3%. What do you think is happening currently? And does this trend worry you?

17:56Jenny Lefcourt:So we experienced a startup boom in 2020. And more capital was deployed than any other time, meaning more people were writing checks into startups than any other time. And it was because the pandemic accelerated so much change, the way that people were working, getting educated, shopping, exercise, everything completely changed. So two things happen with that. One is you have a lot of new opportunities showing themselves and young entrepreneurs, I don't mean young in age, but founders starting companies to chase those opportunities. And then the second thing was that you had insane acceleration for many companies that were helped by these pandemic tailwinds.

18:44Jenny Lefcourt:So there are companies that maybe had funding in the past that now the pandemic caused explosive growth for them. And you had a lot of venture capitalists trying to write really big checks and put them into their companies. With that, you had the numbers that you shared of the amount of venture capital going to diverse teams down in 2020 versus 2019. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks.

19:27Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. Good sleep is everything. That's why OLLI's science back support is made with a blend of melatonin and L-theanine for both kiddos and grownups. So when your mind won't switch off, you've got something that can help. Erasing thoughts and restless nights won't stand a chance. Find OLLI's sleep solutions for the whole family at OLLI.com. That's O-L-L-Y dot com.

20:01Jenny Lefcourt:But what you need to understand is the lion's share of that are in the growth rounds of financing, those larger rounds of financing. And so that's going to dwarf what's happening at the early stages. So it may not have been as much of a backwards slide as the 2.3 % seems. Right. So I don't believe the numbers show a greater backwards slide than I think actually exists. because I think that the growth rounds are a lagging indicator of gender diversity. And the early stage rounds are more a leading indicator on how are we doing on gender diversity. Now, I feel the need to point out, we were pretty flat.

20:48Jenny Lefcourt:We had been going up and to the right on early stage financing or early stage venture capital going to diverse teams. So it was still very disappointing. And definitely the pandemic hit that. But I don't think it is as bad as it appears because of these differences between what is the leading indicator versus the lagging indicator. I would love to say, though, that I believe that even with the early stage venture capital, that it got impacted by the fact that things were happening so quickly that venture capitalists and founders were relying on the old ways of doing things, which is relying on your network and going really quickly.

21:34Jenny Lefcourt:So going with sort of your gut or your quick conviction, or I can trust them. They're a serial founder, so I believe in them. And those are the things that often trap us into investing in the same people we've invested in the past, or just investing in our network. So I do believe that the pandemic still had an impact on early stage, the percentage of early stage capital going to diverse teams. I think it would have been more positive or more up and to the right like it had been if things were a little bit slower and we weren't relying on sort of some old bad habits. Now you're in Silicon Valley, you know, the giant Bay Area venture capital scene is your home.

22:18I'm curious what you have been seeing in these trends internationally. And do you think, you know, investing in women-led companies, female founders, whether that's an opportunity for other, you know, tech clusters or other venture capital firms in other places?

22:39Jenny Lefcourt:I do believe that the pandemic changed a lot of behaviors. And one of them is that it's not in the valley or just in the valley anymore. And we had already been seeing trends, but once again, pandemic accelerated these trends. And so I think that where someone is located, their gender, what college they went to, the people that they know, a lot of that carries less weight than it used to. And people are being more evaluated by who they are, how they think, the opportunity they're pursuing than a lot of other factors, I think, that were deeply at play with unconscious biases, with the old sort of Silicon Valley way.