Monday, February 2, 2015

It's not just VC - the proportion of women mutual fund managers has fallen too

It's not just VC - the proportion of women mutual fund managers has fallen too

  • The proportion of women partners at US VC firms has declined for over a decade
  • Studies, posts and task forces keep reinforcing the facts but suggest change will be hard
  • And it's not just VC: the proportion of women mutual fund managers in the US has fallen too, and to near identical levels
  • Perhaps both are "mirrorocracies", not the meritocracies many insiders think they are?
  • The more we talk about this sort of groupthink - the more chance we have of getting out of it

One long running source of concern voiced by many in the US Venture Capital (VC) ecosystem, especially female founders, has been the near homogenous gender make up of VC partnerships. The recent Babson study "Women Entrepreneurs in 2014: bridging the Gap in Venture Capital" concluded that the percentage of women partners in US VC firms had fallen from 10% to just 6% over the 15 years 1999-2014. ie gender diversity has got progressively worse.

Dan Primark at Fortune reinforced this message with a recent piece that asserted "Women are not making progress in the male dominated VC world data shows". His research shows women decision makers in VC number, in fact, slightly less that 6%.

Acknowledging the importance of the issue last December the National Venture Capital Association (NVCA) announced the formation of a task force to help VC firms increase opportunities for women and minorities too. (Important to note that diversity in VC is not just a gender problem.) As Vivek Wadwha wrote in the Washington Post "...this is a step in the right direction ..." Especially so since the NVCA's own VC-CEO Brand Gap survey, conducted by DeSantis Breindel, surfaced the fact that most VCs don't think that what their partnership "looks like" matters to entrepreneurs. Specifically when asked the question "does the gender make up of a VC's partner base matter to CEOs" 9 of 10 VCs said No ... but 4 of 10 CEOs said it did matter, and 2 of 3 women CEOs said it mattered! So, regardless of what outsiders think, this actually is a concern for VCs investee side clients. (And of course the fact that VC's don't realize that have a problem ... is a big part of the problem.)

Beating up on VC in this context is pretty easy given the data. And with only 10% or so of all VC investment professionals being women the "pipeline" for future advancement is not substantial so change is likely to be slow. A word of caution when anyone starts talking about building the VC talent pipeline as they surely will: Catalyst, in a much broader context, wrote in 2010 of Pipeline's Broken Promise. They summarized the pipeline argument as: "Just give it time. Not yet but soon. When women get the right education, the right training, and the right aspirations - to succeed at the highest levels of business - then we'll see parity." But they concluded ... "If only that were true." The point being that in other contexts the pipeline argument, focusing on lover level talent development and waiting for it to work through the system, simply hasn't translated into real change. Which is why, in the case of women on corporate Boards for example, more assertive tactics have been deployed. These include the fine work of Helena Morrissey's 30% Club through to legislated quota solutions. Deloitte has a great country by country survey of this.

In a bizarre, or maybe not, coincidence the number of women mutual fund managers in the US has fallen every year for the last six years. So I think it is important for those who want to call out VC (which is well justified in my view) to appreciate VC is not uniquely "challenged" when it comes to gender diversity. The Financial Times has just reported on "Female Fund Managers in Decline" noting that the proportion of women mutual fund managers has fallen from just over 10% to to under 7% ... so mirroring VC not just directionally but even in terms of proportionate representation.

Ann Richards, CIO of publicly listed Aberdeen Asset Management speculates that the decline in her industry could in in part be due to the erosion trust in large financial services firms generally as a result of the financial crisis. That may well be the case, although the same would not apply to VC. The opposite in my view in fact. As a result of the expansion of high tech entrepreneurship and some high profile successes (so Aileen Lee's Unicorn outcomes) it seems to me that VC's public standing and appeal has substantially increased. On the flip side arguments that some make in the VC context about the consequences of the decline (since 1983) of the proportion of computer science Majors who are women (the high in 83/84 was 37%, now it is less than 20%) do bear on gender representation in VC. But they clearly don't apply to mutual fund land. (The proportion of women MBAs is rising. For example the Harvard Business School Class of 2016 is 41% women - 10 years ago the figure was around 35%.) So when it comes to factors at work here it is important to understand that "it's complicated".

What do VC and mutual funds have in common that drives declining gender diversity - are they both mirrorocracies? For a start the fact that VC and mutual funds are in a similar place does suggest that there is more going on here than narrow industry specific factors. One explanation could be that both are "mirrorocracies" as opposed to "meritocracies".  Meaning the majority of current leaders and indeed the top tiers of the industry more broadly genuinely believe they pick the best of the best for their  teams but in reality are all captive to multiple cognitive biases. Not least related to pattern recognition. As start founder Stephanie Quilao put in response to a Steve Blank post on women entrepreneurs:

The notion that SV is a meritocracy is false. It’s really a mirrorocracy. The VCs are funding and paying attention to mirror images of themselves. Just pull up the Team page or Portfolio page of any VC firm, or the speaker list page of any tech related conference here and what is the profile of the people you see? Besides gender, the mirror also applies to race, age, and educational background. Until the view in the mirror changes, the system will stay the same.

In each case, VC and mutual funds, has leadership"groupthink" created a self reinforcing negative feedback loop when it comes to industry demographics? I think so. Which suggests that, in each case, finding ways forward requires breaking those loops - and that only can happen when you realize you have a problem, and talk about it ... a lot. Which is why the NVCA task force is so important for VC. And why it is encouraging when Vivek Wadhwa and others speak out. And why it is especially encouraging when influential insiders like Dave McClure at 500 StartUps and Paul Graham and the Y Combinator team lead by example and turn words into $$ actions with their investees.

Friday, January 9, 2015

12 Points on #Startup Advisory Boards - 2015 Edition

12 Point Advice on #StartUp Advisory Boards - 2015 Edition

What more is there to say on #startup Advisory Boards? Seems like a lot since it is a very frequent topic of conversation with founders I meet.
I wrote about this in 2013. Here is an updated version - the 12 points seem just as relevant today:

The Big Picture

1. Advisory Boards can give start ups great advice and access as well as being a resource that is always "there for you". But, in the vein of "take advice, don't follow advice", a Founder/CEO needs to balance the input they get from their Advisory Board with their own expertise and the confidence they have in their own and their team's abilities. Bottom line you don't want to be (or be seen to be) too reliant on your Advisory Board.
Advisory Board Basics

2. You can have an Advisory Board at any stage.
They can add value for the smallest start up through to large public companies.

3. The Board part of the title can be a misnomer. This is because many Advisory Boards rarely meet ... as a collective entity. Rather they mostly amount to one on one bilateral relationships with the CEO. Communications tend to be ad hoc with perhaps monthly preset check-in calls but with a verbal understanding at the very early stage transitioning to written expectations of time commitments (say frequency of meetings, hours per month) at a later stage. However in my experience the startups that get the most benefit from the Advisory Boards do try and get them together 2-3 times a year in person. That helps keep all the members on the same page, allows you to benefit from them sparking ideas off each other and importantly (assuming you have a cool group) makes for an enjoyable/stimulating experience for them that helps keep them engaged.

Structure and Benefits

4. Vanity Advisory Boards are a very bad idea. By this I mean having lots of names of "important" people on your website ... but where the reality is these folks do very little for you. Needless to say if investors (or actual/potential customers in a B2B context) ask to talk to your Advisory Board members as part of their due diligence, and it becomes clear they have no meaningful role, that sends a pretty bad signal. This is especially the case if you put those names in a pitch you deliver to investors. By represented them as being part of your team ... if fact they aren't ... well, let's just say you were being "economical with the truth". So have an Advisory Board that really does work for you, or don't have one at all.

5. A CEO/company that who establishes a strong functioning Advisory Board has multiple wins.
First and most obviously you get advice from folks who are consistently involved and add value in areas that are key to the CEO and the business. But this also sends positive signals to potential investors (and customers) to the effect that, in addition to that valuable advice: a) You can identify and engage with experienced individuals relevant to your business (so says something about your people skills and judgement) b) The fact that those people are willing to commit time to support you and your business is a form of social validation of itself.

6. A well constructed Advisory Board is composed of people with diverse skills/experience that are relevant to the CEO/founding team. Meaning they can support the company's progress in clearly defined areas. e.g. finance, customer acquisition, marketing, scaling, technology etc etc. or who have broader experience e.g. a former CEO in the space who has scaling experience. How do you find these wonderful people? In my view that is a key question ... meaning don't start with the easy wins of people you know. Rather define what attributes you want on your advisory team, then draw up an aspirational list of people that fits those attributes, who you likely don't know but can find a way to get to ... and try and hunt them down.

7. Better to have 3-6 strong engaged players than 7+ not very engaged people. Start Ups are ultra time starved so work with a small number of committed partners who can give you time and add value. Avoid everyone else! And by having too many members a CEO will make declining engagement a self fulfilling prophecy, simply because she/he will not have the time to interact with all the Advisors at a meaningful level. (See 4. above.)

8. Whatever role they fill Advisory Board members should expect, and be used, for their full network. Use each Advisory Board member to the full. So the person who has a clear role as your financial expert say could well have valuable connections to the media, to other domain experts or whatever. One thing to be wary of - having a known active investors as an advisor but who is not him/herself an investor in your company. That can send a bad signal too for obvious reasons, although not in my view where that individual's personal investing is clearly focused on another area of domain knowledge or expertise.
Formal vs Informal

9. At the early seed stage, so at and shortly after friends and family financing, these Boards are usually pretty informal. This means Advisor relationships are based on a verbal understanding of time commitment and responsibilities. I see no issue with this - avoid red tape at all costs!

10. Heading to the A stage and beyond they become more formal. This make sense too in my view. As the business develops having written Advisory Board contracts is the way to go. (Law firms can provide standard versions so this is not a big deal.) The contracts should have specified time commitments (at a minimum), include legal language on confidentiality and can include written details of what each Advisory Board member is expected to contribute.


11. Advisory Board positions are typically not compensated at the very early stage. This speaks to the informality mentioned above. These are willing supporters who do it for one reason - they have faith in and want to support the founding team.

12. At the Advisory Board contract stage ... compensation starts to make sense. As the business expands you up the level of professionalism in all areas and this should include Advisors. Advisory Board compensation is a matter of agreement but I start from the position that early stage full Board members (who are not founders/VCs) typically get 1% of equity through options vesting over 3-4 years. An Advisory Board member will have less time commitment and no fiduciary responsibility. So, logically, should be paid less. How much less? A minimum of 0.10%/year seems fair. Maybe more, even much more, depending on contribution. Again this is a matter of agreement and also the magnitude of the expected benefit to the company. Note that this is not a fee for "showing up" or answering the email/phone from time to time. Optimally this compensation should be tied to specific deliverables and with the options being granted on appointment but not vesting until a later date. (One year out say.) And typically, no cash component ... other that for reasonable expense reimbursement. Advisory Board members are best remunerated through direct connection to the value creation process.

Tuesday, December 23, 2014

The Pitchdeck Interview #39

The Pitchdeck Interview #39

Really enjoyed my interview for The Pitch Deck podcast with Gavin McCulley - now out on iTunes. Makes me Episode 39 of a series Gavin is doing for entrepreneurs where he talks with angel and VC investors as well as entrepreneurs themselves. 

You can listen to the interview HERE.

Gavin talks about The Pitchdeck in the video below. Subscribe on iTunes!

Happy Holidays and all he best for 2015!

Sunday, December 7, 2014

JFDI - Julia Shapiro and Jules Miller of Hire an Esquire

Six Habits of Highly Successful Founders

#6. JFDI - Julia Shapiro and Jules Miller of Hire an Esquire

One of the core values that the Hire and Esquire (HaE) co-founders Julia Shapiro (CEO) and Jules Miller (COO) have instilled at their company Hire and Esquire is proactivity. That is easy to say … but what does it mean in startup practice? 

At HaE it means “JFDI” (Just f-ing do it!”). In daily routine when you or I (definitely I) might say "we should schedule a meeting for x" or "we should email y" Julia and Jules pause and just do it at that very moment. So a procrastination embargo.

A specific example of how this works beyond the day to day of office life came about when they talked "legal tech collaboration" with another legal tech entrepreneur at a happy hour. In that dialog they and came up with the idea of a legal tech demo day to bring customers to HaE. What next? JFDI! So over the next few weeks they planned it and made it happen starting with EvolveLaw Demo Day at WeWork with 25 people. Next iteration working with Stanford CodeX to host an event with 150+ people. 

Julia and Jules believe that they have successfully instilled the JFDI approach in (most - it’s a never ending education process) of their team. And they are delighted to see how much team members get done when the co-founders aren’t bottlenecks! But for JFDI to work a) they have to trust your team and crucially b) they need to make sure that their team members have a clear sense of the company’s priorities to frame their independent decisions.

Lesson: JFDI - it’s as simple as that!

For a full list of the Six Habits - click HERE

Win the game of “whack a mole” - Kelsey Recht of Venuebook

Six Habits of Highly Successful Founders

#5. Win the game of “whack a mole” - Kelsey Recht of Venuebook

A startup up is a highly iterative journey. First working to product market fit then moving forwards to optimize your product/service and delivery to customers - so testing and learning to identify what works and does not work. Then you quickly fix things that are not working. 

As you scale you always encounter new obstacles. Kelsey Recht CEO of Venuebook noted that one of her board members calls it "whack a mole". ie you fix one bottleneck and another one is created someplace else. 

What I know Kelsey does very well is having an open dialogue where team members feel they can bring up growth pain points and then address them very quickly. Kelsey’s motto is “don't tell me who caused the problem, just tell me how to fix it.”  

Besides being a smart way to iterate, embedded in this approach is a strong message about the culture of the firm she is building - problems/issues happen all the time so surface them don’t hide them. The whole team benefits when things are more transparent and the focus is on solutions and ceaselessly improving the product and customer experience.

Lesson: There is always a new mole. Whacking it and moving on is a team sport.

For a full list of the Six Habits - click HERE