VWV Volumes #11: Design Queen Kia Uusitalo '23 on Women’s position (or the lack of it) in VC from a sociological perspective
As of now out of all U.S based VC partners only 4.9% are women, with only 33% of them being women of color (Women in VC). From an investment perspective 2.2% -- $2.2 billion -- of all U.S VC investments made in 2018 were invested in all female teams and 11.5% -- $17.2 billion -- of investments were made in mixed-gendered teams (Techcrunch). To put this into perspective, Quibi -- a streaming platform -- raised $2 billion in invested capital in 2019; only to shut down after 6 months after launch. How is it that an app can raise about the same amount of capital as all female founded teams combined? Afterall, women make up 85% of all purchasing decisions so one should assume that they have the knowledge and skills to contribute to the industry (Kleberandassociates.com).
One of the main reasons for this gender disparity and lack of representation can be explained using organizational network theories. Networks can be defined from a social and mathematical perspective, but to put it simply they are structures that consist of “nodes” and “ties”, or relationships among nodes. They can be used in a variety of ways ranging from individual to intra-organizational levels. It is often the ties found between nodes in a network that are the most useful as they can often lead to opportunities such as market transactions and promotions.
By drawing from Granovetter’s embeddedness theories we can explain why 95% of investors are men. According to this theory, impersonal economic exchanges are actually “embedded” in social relationships and social sentiments. Trust is built off of ongoing and open-ended relationships where reciprocity is valued. By valuing close relationships, investors easily create a sense of commonality and security. Due to the tight knit groups in VC many investors do not seek to diversify their professional network and as a consequence aren’t exposed to different perspectives. They prefer to surround themselves with people from similar backgrounds as that is what they have grown to consider safe and comfortable. According to a Morgan Stanley Research on 101 investors, they found that nearly 60 percent of investors believe women and minority-owned businesses receive “about the right amount of capital” while 20 percent believe they receive “more capital than they deserve.” (Girlboss). This is simply not true as we have seen from the numbers I have mentioned. This way of thinking is due to the fact that -- again -- investors are not exposed to these groups and thus do not have an accurate understanding of the scope of potential opportunities.
Though this way of thinking can be changed using Ronald Burt’s structural holes theory. According to the theory it is better to have someone -- a node -- connect two groups of people in order to gain access to a wide variety of advantages and information. If this were done in the industry over a longer period of time, women would begin having more opportunities and become more embedded in the network. This would increase investments in female founded startups and make access to capital much easier as female funders are 2X more likely to invest in startups with one female founder, and more than 3X more likely to invest in a female CEO. (All Raise)
By changing VC’s network topology, which is the impact of structural configurations on the network as a whole, I believe that it is somewhat possible to get more representation. Though, even if women were to get more representation they still have to work around a multitude of prejudices. For example, Rebecca Huang -- a 34-year old managing partner at Rivet Venture -- has to deal with people assuming she holds a lower-level position or question her whether or not she is planning to start a family any time soon (Forbes). So even if women were to gain access to the industry they still would have to work extremely hard to get a rewarding position within a network.
Have any thoughts or want to converse on these topics? Feel free to get in touch with us at vwv@brown.edu. And, if you’re building anything, let us know! We’d love to chat.