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.



April 2015 Update:
An analysis by Bloomberg shows that the % of women in senior positions in Private Equity in the US is 10.9% for 2014. So better than VC and the mutual fund industry ... but not by much.