Friday, August 31, 2012

Knocking Down Doors in Venture Capital

Jenn Wei, a Stanford MBA who once worked in investment banking, is now researching, chasing and negotiating deals in technology as a venture capitalist at Bloomberg Capital.  Last week, in postings that appeared widely in business media, including, she wrote about the startling, but not surprising lack of women in venture capital--in Silicon Valley (California), in Silicon Alley (New York) and at other pivotal venture spots around the country.

She reminded us of the glaring scarcity of females at negotiating tables, within network huddles when ideas are bantered about, and in closed-door meetings where entrepreneurs, deal-doers and investors decide the right amounts for an early-round investment to support the next new thing.

She offered a few reasons why women are not prominent in the industry and dared to propose solutions. She said women desperately need role models in the industry and industry participants need to take time to understand the likes, interests, and proclivities of women.

Her observations won't knock down doors, nor will they force those who run the best-known venture-capital firms to change the look, face and appeal of the industry overnight.  As much they should be, they aren't focused on demographics of who's who and who's where as much as they desperately chase the next "disruptive" technology enterprise.

But gosh, she makes a point that is obvious to anybody who takes a moment to survey who is in the industry--from those at entry levels to those who sign off on the big angel investments. Who's exactly roaming the corridors at top venture-capital firms? What did they do to prepare to be in the right place and the right time? Whom did they know?

CFN examined the statistics of the industry last year. See CFN-Venture Capital and Diversity.  Women comprise about 11% of the venture-capital professionals (based on industry surveys last year), while blacks and Latinos are virtually invisible at the major firms (firms such as Accel, Greylock, Sequoia, and Kleiner Perkins).  (Asians and Asian-American comprise about 9%.)

Wei pointed to the Midas List, a Forbes-magazine list of the top 100 in venture capital, those responsible for making the most lucrative investments in technology, those who have had successful track records in sniffing out the next Facebook or Zynga and getting in early, while accumulating board seats and significant numbers of pre-IPO shares. She had trouble finding women on the list. And she wondered why.

In the list's top 20, there are no women. Women have had modest success in leading technology firms (e.g., at eBay, H&P, Facebook, Yahoo, etc.). So why haven't they been leaders in venture capital? (Or why, for that matter, are blacks and Latinos still invisible in the industry?)

The top 20 on Forbes' list includes familiar names, including those who would likely be in a Venture Capital Hall of Fame, if such existed. It includes Marc Andreessen, Jim Breyer, John Doerr, Reid Hoffman, and Peter Thiel--not necessarily household names, but wealthy investors (a billionaire here and there) and legendary leaders of venture funds.

What typifies this top 20 among the top 100, beyond the fact that a little luck here and there certainly counted for some of their success and wealth?

1.  While some like Thiel and Andreessen became venture investors after their blockbuster successes from a start-up they founded (PayPal, Netscape, etc.), most of the others started out working in investor funds and worked their way up because of investment-related experiences, contacts, opportunities they took advantage of, and solid track records. Many of the same--without a doubt--joined the right venture firms and fell into the arms of sympathetic mentors willing to help someone follow their paths.

2. Many of them, plugged into technology updates and gifted with insight about technology trends or market behavior, hit more than a few home runs by getting in early in recent years with investments in Groupon, Facebook, Twitter, Linkedin, NetFlix, Pandora and Zynga.  One or two home runs helped build a reputation, which helped establish more contacts, funding, or entrees into whatever niche of the industry they needed or wanted to be in.

3.  Many have science, math, and engineering undergraduate degrees, permitting them to exist comfortably among professional engineers, computer scientists, or 22-year-old coding geeks.

4.  But most of this group are financiers at their core, competent in evaluating investments over 3-, 5- 7-year horizons, able to comprehend balance sheets and funding needs of start-up companies, expert at assessing growth prospects of a new company, sensitive to the tweaked structures of the capital structure of a young company, and experienced in deciphering board-room behavior.

So it's not a surprise that most in this group of 20 and a substantial number in the top 100 have MBAs in finance from top schools (Harvard, Stanford, and Wharton, being prominent in the top 20, and Consortium schools Berkeley and Michigan also being prominent in the top 100).

Basically qualities, characteristics and experiences many women (and others from under-represented groups) possess.  The doors are slightly ajar, and they might have to be knocked down in order for everybody to get in.

Tracy Williams

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