Female venture capitalists, 11% of the industry, add tremendous value to the business, their firms and to the overall success of female entrepreneurs. The investment industry is still very much a male dominated field. Whether you work on Wall Street, or in a venture capital firm focusing on startups, the ability to be agile to market changes, make courageous or quick intuitive decisions is necessary. This personal experience of becoming a successful investor, though not easy, impacts the way women connect and relate to other individuals and companies for which they choose to invest.
According to the University of New Hampshire Center for Venture Research in 2015 women angels represented 25.3% of the angel market, a slight decrease from 26.1% in 2014. After reviewing the data of the top 100 venture capital companies, TechCrunch stated that 7% of partners in venture capital firms are women, or 54 of 755 individuals. 38% of the top 100 venture firms have at least one woman.
With still relatively surprising low numbers in this field the question remains, what unique qualities do women bring that not only adds value, but makes them truly an asset and a “must-have” on a male-dominated venture capital team or as founder of their own VC startup? As a diverse female entrepreneur, this question consistently intrigues me. Below we will explore the top 5 traits that make women effective investors.
1. Women See Beyond the Obvious. Women founders tend to invest more in industries like retail, food, or even education and fashion. Women investors see beyond the obvious of looking at a typical tech startup and are looking for businesses that are solving real problems and can produce high returns. If a woman investor sees an entrepreneur that has a great start up, but has strong family commitments, for example, a female investor is more willing to see beyond the obvious of thinking that individual won't have the time, or availability, to invest consistently into the project. Though biases are not always deliberate, Saikat Chaudhuri, executive director of University of Pennsylvania Wharton’s Mack Institute of Innovation Management states, “Despite growing numbers of men who report work/life balance as a concern, they often don’t face the same scrutiny.”
2. Women Take More Calculated Risks. Though the common vernacular is that women need to take more risks, biologically women are wired to take less risks than men and there are innate strengths to that. Carol Dweck, a Stanford psychology professor and author of Mindset: The New Psychology of Success, has shown that at childhood girls start to make less risky decisions than boys. Girls don't like to be wrong and are taught at a young age that being wrong carries lot of risk. Boys, on the other hand, if they are wrong about something, they simply "let it go" and try again. Both mindsets, and behaviors, playout in the workplace as adults.
Female hedge fund managers are more likely to take careful evaluation of investments because for them is it more personal and they are more consciously aware of negative ripple effects for themselves, their business partners, the people they are serving, their family, and all who are impacted by that decision. This is a great asset a female investor brings to a male dominated venture capital team.
3. Women Invest More in Other Women and Minorities. Women investors are more likely to invest in women entrepreneurs and entrepreneurs from diverse communities than all male VCs. A Harvard Business Review study showed that females seeking funding from an all-male venture capital firm will most likely have less probability of a successful exit or will be acquired. More women in venture capital firms increase the chances for successful exit for female-led startups by 25%. The same could be said for diverse female led venture capital firms. Women take the time to connect and are more willing to listen and support ideas from these communities even if they don't personally invest.
4. Women Investors are More Collaborative. In a study with almost 30,000 employees, LeanIn.org and McKinsey & Company found that though women’s networks may not be as wide or as influential as men, women do a better job at more meaningful relationship building. Biologically speaking, according to the Wellcome Trust Centre for Neuroimaging at the University College London, the less testosterone a person has, the more likely the person is interested in collaborating to solve a problem. As a result, women investors are more likely to invest in businesses that help solve a real problem for other women.
5. Women Know the Long-Term Goal. Women investors want to make an impact in an industry, individual lives of entrepreneurs and/or see more equity among genders when it comes to the investment of resources for women and diverse entrepreneurs. Women want to impart their values and coaching for lasting impact. When women enter the investment or venture capital field, they are generally doing so for a multitude of reasons, one of which includes positive business returns. Jennifer Ratay, Executive Director at Silicon Valley Social Venture Fund stated, "As head of a social venture fund in Silicon Valley, I have more female peers than in the traditional venture world. In fact, both SV2's founder and current Board Chair are women, and our staff team is 100% female. At SV2 and in much of the broader social venture community, return on investment is measured in social rather than financial impact and lives positively changed is a bottom line that is gender neutral."
Elizabeth Kraus of MergeLane, said she, “spent a lot of time convincing smart people that investing for social or environmental impact is not ‘feel good’ investing.” Women look at ways to impact the community as well as a business or industry. More commonly, women are unapologetically intrigued by successful business results that can benefit society. There has been a call on businesses over the last 5 years via Corporate Social Responsibility (CSR) initiatives and larger global demands like the United Nations Sustainable Development Goals to make societal impact through business. This is one reason for the growth of social enterprises over the last ten years. U.S. data on social enterprises show they employs nearly 10 million people and gross $500B in revenue. UK data from the State of Social Enterprise 2015 shows women make up 40% of social enterprises and minorities make up 11% which is higher than traditional start up numbers or SME data which is 18% and 7% respectively. Women are more in tune to these concerns and are willing to invest in ideas that best bridge the gap between both good financial returns and societal or environmental impact.
In my life, I have come to believe there are inherent biological differences in men and women that allow each to thrive in their own way. Increasing the number of female investors isn’t just about equality. We need more female investors who have the desire and self-belief to make an impact in this industry. We also need more men who see the inherent value that women bring in terms of collaboration, their ability to analyze a business and evaluate risk, create lasting impact, and contribute to the overall success of both male and female entrepreneurs.
Jessica Robinson, CEO of PurePoint International, is a cyber security consultant and writes at the intersection of entrepreneurship, women in tech and diversity in tech. You can reach her at firstname.lastname@example.org.