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Women Are Hacking Venture Capital, And People Don’t See It Coming

tl;dr: Trish Costello argues that gender balance in venture capital is bad, but changing. Here’s how she is working to change the venture industry. 

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We all know the sorry state of women in the venture capital investing world. Research shows that 4 percent of venture capitalists are women. Insiders know that it’s even worse. Once you remove the women EIRs and the advisory, retired and administrative partners, we’re left with perhaps 1 percent women as true VCs.

One. Percent. Women.

One percent representation, in the industry that decides how and where to deploy the funds that fuel entrepreneurial growth.

One percent, when women-led, private-equity backed companies deliver higher returns on less capital, on average, than male-led teams.

One percent, in a nation where women are earning the majority of all undergraduate and graduate degrees.  

One percent, in an economy where women buy 85 percent of consumer products and are responsible for 60 percent of business purchases.

This is makes no sense. And it has to change. But it’s not happening inside the traditional male venture world. Believe me, I tried.

I placed some of the most accomplished and successful women and men in venture capital as the co-founder, CEO and now CEO Emeritus of the Kauffman Fellows Program. Over 25 percent of our Fellows in the first ten years were women. I thought we were making a big dent in the field. But although these women had slightly higher internal rates of return compared to their equally impressive male colleagues, the same level of inclusion, promotion, respect and expanded opportunities often didn’t follow. Even the world’s most brilliant women had difficulty breaking through the Mad Men culture.

But today, I’m more optimistic than ever. That’s because revolutionary VCs and forward-thinking institutional investors are beginning to grasp that while conventional venture capital will continue to be important, it’s not going to be the only game in town.

The change is a twist on the most fundamental and long-standing principles in the industry — the VC Golden Rule:

She who has the gold is changing the rules.

The venture world runs on OPM – other people’s money. And while traditional venture guys haven’t seemed to notice, women have been building wealth for the past 30 years, quietly and consistently taking one-half to one percent of the share of U.S. wealth each year. Women now control nearly half of all personal investable assets in the US, estimated at over $14 trillion. Women already control approximately half of US estates over $5 million. Wealth managers project that an additional $1 trillion of wealth will change hands annually for the next 20 years, and 70 percent will go to women — the largest intra-generational wealth transfer in history.  

This new generation of wealthy women are educated, experienced, sophisticated and confident. Forty-seven percent say they are taking greater control of their assets and are open to taking more risks with their money. An eye-popping 90 percent, in a recent Morgan Stanley Wealth report, say they want to invest a portion of their wealth in women-led companies or in companies whose actions express their values.

And it’s not just talk. There are seven times more women in angel groups today than ten years ago. Women are stepping into leadership roles in family offices, endowments and pension funds.  And by the way, these women aren’t amused by those who can’t — or won’t — recognize other talented women.

Finance has been called the ‘industry women love to hate.’ A recent study of ultra-high net worth women by the Luxury Institute reveals that only 1 percent of them believe their brokers, advisors and private bankers know how to talk to them effectively. (That’s only a little bit better than their opinion of the bro-focussed private jet services.)  Unimpressed with the options, and with exceptional wealth and power, women are looking for new ways to focus their investable assets and rejecting models built by and for others.  

You’d think the new equity investing platforms like AngelList would be finding favor, but instead they reflect the same old biases: Few have even 5% women investors as members.  A ‘better, cheaper, faster’ approach to the traditional venture capital model isn’t good enough.  

But change is coming.   

First, exceptional and enterprising women VCs are creating their own funds, realizing that it’s no longer necessary to be a standard-issue lone woman in a fund.

Others, like me with Porfolia, are hacking the VC system, creating a process customized for women but inclusive to all. These are a new, streamlined, scalable, collaborative global model of venture investing that has the power to shift who green-lights exceptional companies now and in the future.

Portfolia recently closed its second ‘learn-by-investing’ fund for the year. The Rising Tide Fund, co-managed with Next Wave Ventures, an organization committed to educating new women investors, took three months to close and has 95 limited partners from 22 states and 5 countries.  Most of the limited partners had never invested in a venture fund or an entrepreneurial company before.  Many are C-suite executives or entrepreneurs, some have their own family offices, and a few sit on the boards of trusts and endowments.

Like all Portfolia funds, Rising Tide enables its partners to start small, invest annually, develop a comfort with venture investing, and diversify a small amount of money across 6 companies. Its first three investments have been closed: a medical device company, a SaaS employee training start-up, and a customer intelligence/big data company.  

Investors will move from these starter funds to larger industry-focused ones, investing $10,000 to $100,000 or more in individual or multiple funds annually, in areas such as Media, Active Aging, SaaS, Women’s Health or Children’s Products. Those who excel and have a passion for investing can train through a Portfolia Fellows Program to be Lead Advisors in future funds, sourcing companies, conducting diligence, advising on fund investments, and sharing in the carried interest.

The world is full of successful cashed-out entrepreneurs, corporate executives and private investors, who would have been recruited as VCs if they were men.  

For the 1 percent of women who are adapting and thriving in the man’s world of US venture capital, many of whom are my friends and supporters, I salute you and am rooting for your continued success.  

To the women who have been successful investors and VCs but are looking for more, better, different, richer — call me. We have companies to build and money to make.  

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Featured Image via Flickr user Jo Jakeman under CC BY 2.0. Image has been cropped.
© Mattermark 2024. Sources: Mattermark Research, Crunchbase, AngelList.