Why Aren’t More Women in Venture Capital?

Even as women continue to advance in the world of business, they are still woefully underrepresented in the world of venture capital.

According to Harvard Business Review, the Small Business Administration found that women held the majority ownership in 36 percent of small businesses in 2014. However, the article states that only 9 percent of leaders in high-growth technology startups are women. “Of course, VC-financed tech startups are different from the general workforce. Your typical small business is not a future Uber or Facebook. Tech startups imply a science and engineering focus, two fields that are known to be less popular with women,” the article says.

Still, of those women who receive venture funding, their gains, again, are less than their male counterparts. According to Bloomberg research, from 2009 to 2015, women received an average of $77 million in venture capital funding to men’s $100 million.

Why is it that women receive less venture capital funding?

“There’s a constellation of reasons,” said Edith Dorsen, managing director and cofounder of Women’s Venture Capital Fund, which has offices in Portland, Oregon, and Los Angeles and is an early-stage venture capital fund that invests in high-potential companies that include women in senior leadership. “Access in venture capital is hard for anybody, no matter how talented the CEO is and however large the potential of the business seems to be.” However, a disconnect remains between the pipeline of deals and the pool of capital made available to female entrepreneurs.

One reason is bias. “There’s an inherent and usually unconscious tendency or bias of all of us to support and invest in individuals that we most closely relate to and identify with,” Dorsen said. And unless the venture capital firm is female-led, women likely aren’t the model for what venture capital firms are used to funding.

Still, not all would agree with this reasoning. “I don’t believe that there is a bias — unconscious or not — when VCs are funding women,” said Tanya Bakalov, CEO and founder of BetterSkills Inc., a talent development software platform based in Boston, which recently received $1 million from various VC firms. “The struggles are the same, in my opinion, regardless of gender. It’s more about credibility.” If entrepreneurs seeking funding don’t have the details of their business — the idea, structure, business relationships and more — ironed out, then VC firms won’t take them seriously.

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Instead, she thinks the problem with venture capital gains by women could come down to the fact that there simply are fewer women seeking funding. “I definitely see as a proportion less women starting their own businesses or going out and looking for venture funding,” Bakalov said.

Just as women broke into the workforce, they could similarly do the same in regards to receiving venture capital funding for their businesses. To speed up the process, women are helping other women do so.

The number of women who lead the funding for businesses correlates to the number of women who receive that money, especially in early stages of investing. According to the Center for Venture Research’s data, from 2014 to 2015, there was a decrease in both female angel investors and the yield for female entrepreneurs, the rate at which people sought funding and received it.

To push a trend of increased investment in female-founded businesses requires that both men and women mentor female entrepreneurs, said Karla Friede, cofounder of Nvoicepay Inc., a Beaverton, Oregon-based payment automation software for accounts payable, which received funding from Women’s Venture Capital Fund. Additionally, more funds need to target women, and venture capital firms should hire more female partners, she said.

“Women can make a dent in this change, but men need to understand the economic benefit and value of leading this change,” Friede said. “Once they do, the change will happen more quickly.” When society only invests in half of its population, such as men, the economy doesn’t reach its full potential in terms of ideas, creativity, growth and productivity.

To help women in the world of entrepreneurship, business leaders should pay more attention to the balance of diversity in their workforce, Friede said. As women and minorities advance in existing businesses, this leads to their ability to branch off and create companies of their own. “I am not suggesting hiring someone who is not qualified; rather, make an effort to balance your workforce and executive teams. Without this effort, both males or females will continue on the easy path of hiring people who look, think and act like them. The most innovative and creative companies will have a balance in their workforce.”

Lauren Dixon is an associate editor at Talent Economy.

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