Narrowing the gap between women and men in the VC industry requires not only more education for all VC investors but also standardized data transparency to level the playing field when gauging track records.
That was one of the issues that Columbia Business School professor Angela Lee discussed in a recent conversation with Venture Capital Journal.
“There are lots of ways to demonstrate track record. The better you are at self-promotion, the better you are at being able to sell your track record,” Lee said. “Because there’s no standardization [of data], it involves the ability to do self-promotion. There is a gender correlation with who does more self-promotion.”
This week, Lee is leading an intensive four-hour course for about 50 female investors at the third annual Glaring Gap Summit in Tampa Bay, Florida. Lee’s course consists of the highlights of the eight-week in-person and two-day online boot camps offered each year by 37 Angels, a network of female angel investors she founded in 2015.
While Lee has offered her course at the Glaring Gap Summit since its 2020 launch by local Tampa Bay start-up hub Embarc Collective, this is the first year it will be held in-person rather than remotely due to covid constraints.
“People are so excited to connect with each other [in-person] because this isn’t just about teaching them the content. It’s about building an investment entrepreneurial ecosystem in Tampa,” said Lee.
The three audiences for the Embarc course include accredited investors, professionals in the early stages of their investment careers and students aspiring to become investors. Where the audience for 37 Angels’ boot camp is mostly accredited investors, Embarc focuses on educating the next generation of investors, Lee said.
“We’re trying to close the diversity gap around start-up investing,” she said. “People take this [course] to get into venture capital, to become angel investors, because 93 percent of VCs are white men.”
Lee’s four-hour course covers the entire dealflow process – from sourcing deals and conducting due diligence on start-ups to negotiating term sheets and post-investment activities. Using actual start-up cases, Lee focuses on real-world applications. The summit features a pitch forum where founders who are raising capital pitch to the 50 aspiring angels, who later write a diligence memo arguing why or why not to invest. Lee provides feedback on the diligence memos in an online workshop after the summit.
With 125 members, Embarc Collective is the fastest-growing venture-backed start-up hub in Florida, according to its CEO and co-founder, Lakshmi Shenoy. Embarc’s most recent Glaring Gap Report, released last fall, found that 18 percent of new start-ups in 2020 were led by a woman founder, compared with 23 percent the year before.
The proportion of funding going to women-founded companies rose slightly to 8 percent from 7 percent, but still trailed the national average by 3 percentage points. And while the number of women at Florida-based investment firms rose 36 percent in 2021, just 21 percent of venture funds in Florida have women partners, compared with 36 percent nationwide, according to the report.
The bias against female founders starts with the amount of time that VC fund managers spend on different slides in start-ups’ pitch decks, Lee noted, citing findings in a 2020 report by DocSend, which was based on insights gleaned from data collected on the DocSend Startup Index for Pre-Seed Funding.
DocSend found that GPs spend 50 percent more time scrutinizing traction slides in female founders’ pitch decks than those for men and 30 percent less time looking at the fundraising ask by women than they do for men.
Other research has shown that while female founders are typically evaluated based on their track records, male founders are judged by their potential for future achievements. White men also have greater access to networks than women and/or people of color typically have, which gives them an advantage since venture capital is an ecosystem driven by these networks.
Getting comfortable with uncertainty
One misunderstanding about early-stage venture capital, Lee noted, is that it focuses on financial analysis, like equity research and investment banking do. “It’s a much more qualitative exercise,” she explained. “People who want certainty struggle with early-stage investing. They want to be [able to say] ‘if x, y and z are true, then I can invest.’ It’s very hard to come up with a stable rubric that works for every start-up.”
That is the reason Lee teaches by giving attendees experience with various aspects of evaluating start-ups. “It’s very easy for me to come up with a framework of what to look for in a market, what a competitive landscape looks like,” she said. “So I teach the framework, then I apply it to a case study and then we apply it to real life. And real life is messy. Because we teach it experientially, the messiness and ambiguity come to life.”
Teaching at the summit has showed Lee that senior investors don’t necessarily have the most insights. “I find that the senior people are learning from the students. There’s a lot of peer learning. So VC insights can come from anywhere and any age. That’s what makes the course so fun. It’s that you have cross-generational learning,” she said.
Lee said she’s seen progress in the greater diversity of people now serving as GPs. But the percentage of dollars controlled by women or people of color is not increasing.
Although more women and people of color are starting funds, their first fund might be $10 million, while their male counterparts’ funds are more likely to be $25 million or $50 million, she noted.
The good news is that after a decade, more women in VC have built a track record and many of their funds are in the top decile of financial performance, she added.
At Columbia University, where she is faculty director of the Eugene Lang Entrepreneurship Center, Lee has seen an eightfold increase in the number of students taking her venture course – from 60 five years ago to 400 today – with a rising percentage of women in those courses.
Many attendees in both her Glaring Gap course and in her boot camp courses ask Lee about whether to pursue an MBA or not. But “a good percentage of the Embarc audience is past the age that most people get their MBA,” she said. “One of the things that’s so exciting about the world today is you can learn a completely new career path at the age of 60,” and there are many more options available to do so.
“At 37 Angels, our audience is women who want a second act, women who were a very successful businesswoman or a successful real estate attorney, whatever it is,” she added. “The average angel investor is 55 when they start. For most, it’s a second act. Partly it’s because financially you have to have the means to be an angel investor. And also it’s a fun way to stay engaged as a second or third career.”
Embarc Collective’s 2022 Glaring Gap Summit runs from November 9 through November 11 in Tampa Bay.