Roundtable: Women make mark in venture capital

• Venture industry is contracting
• Women-led tech firms are growing
• More women are creating their own funds

MENLO PARK, Calif. — The air was thick with optimism.

More than a dozen women investors huddled around a table recently, listening raptly to Facebook COO Sheryl Sandberg, a seminal figure in the tech world.

They had gathered at Facebook's headquarters here to discuss gender issues in venture capital. Sandberg, a major influence among many of them, unexpectedly dropped by to share some inspiring words. Her new book, Lean In: Women, Work, and the Will to Lead, is due in March.

The brief, impromptu speech was off the record, at Sandberg's insistence, but her message underscored the hurdles that women still encounter in the cloistered male-dominated world of venture capital, the risky business of providing significant funding and guidance to start-up firms and small companies that have big growth potential.

"There's energy and excitement at the early-stage investment level for women partners and women entrepreneurs," says Gina Bianchini, CEO of start-up Mightybell, which creates specialized online groups, and an investor in female-led tech start-ups. "All of this is against a backdrop, however, where an increasing amount of venture capital is being consolidated in the hands of roughly six firms, three of which have zero women partners and no real movement to recruit them."

Money raised by VC firms has deteriorated from $104.4 billion (from 651 funds) during the dot-com boom year of 2000, to $36.1 billion (251) in 2007, to $18.6 billion (182) in 2011, according to Thomson Reuters and the National Venture Capital Association (NVCA).

Add to that the reality that cracking the VC world has been as elusive for women as joining familiar old-boy domains such as private golf courses, cigar lounges and corporate board rooms.

Though women make up half the U.S. population and represent 46% of the workforce, they are woefully underrepresented in the investment community. Just 11% are partners at venture capital firms, and 15% are angel investors, according to online magazine The Next Women.

The percentage of women partners is down from 14% in 2008, according to the NVCA and Dow Jones VentureSource's survey of the U.S. venture capital industry.

"The statistics haven't caught up with the times," laments Amy Millman, president of Springboard, which helps women-led businesses get venture funding. "I was hoping it would have 10 years ago."

Lesa Mitchell, vice president of advance innovation at the Ewing Marion Kauffman Foundation, recently looked for women VC partners in life science firms in New York. She found none.

Then there is the languid status of women as partners at the nation's top 71 venture-capital firms. It's less than 10%, according to research from tech news site Betabeat.

Several top female partners, meanwhile, have transitioned to angel investing, in which the investor is using her own money and investing far fewer dollars in companies that are just trying to get their ideas off the ground. "A worrying trend," says Laurie Yoler, managing director of GrowthPoint Technology Partners, an investment bank in Silicon Valley.

Women's rights icon Gloria Steinem, speaking at a Silicon Valley event last month, summed up the situation for women VCs: "The truth will set you free, but first, it will piss you off," she said.

Never has that been more apt anywhere in tech than in the area of venture capital. The last thing the industry needed were sexual-discrimination lawsuits by women this year against Silicon Valley firms Kleiner Perkins Caufield & Byers and Pantheon Ventures.

Defenders rose in support of Kleiner Perkins, the storied firm behind Google and Amazon.com that has more female partners than the average VC firm. But the still-pending lawsuit renewed focus on an industry in which few women are partners.

For years, women were "never a consideration" at venture firms, says William Draper, who helped start Silicon Valley's first venture capital firm, Draper Gaither & Anderson, in 1958. "A small number of people are in charge of a lot of money for each fund," he says, and "It is difficult (for some) to reach out and bring a woman onto the team."

Things are changing slowly, says Draper, who has set up a foundation for social entrepreneurs that is run by four women. "Women, as a group, give a whole new slant to one's approach to VC and entrepreneurs," he says.

Ginger More has seen the change firsthand. She joined Oak Investment Partners in 1978 as an associate and, two years later, became a partner. She retired in 2002.

"There weren't a lot of options back then, so I stayed" (at Oak), More says. "It is a fraternity, and it is hard to crack into any fraternity," More says. But now, "if you make a profit, gender doesn't matter."

Some encouraging numbers

Millman and others, however, have taken solace in the successes of the technology industry, where women increasingly are fronting early-stage start-ups and being funded by women -- and men. Many are leveraging their expertise in fashion, e-commerce and health care to carve out niches. They're also benefiting from a lower financial barrier to entry.

Stacey Bishop, managing director of Scale Venture Partners, says lower start-up costs have made it easier for early-stage start-ups to get funding because less money is needed. Tech companies receiving funding for the first time, on average, collected $8.46 million in 2000. Today, it's $3.64 million, according to the NVCA.

"Tech is it," Bishop says. "It's the most encouraging time in 20 years for women -- a harmonic convergence of expertise and access."

Recent reports spell out the progress:

-- Venture-backed companies with females as founders or executives are more likely to go public, turn a profit or be sold at a steep price, based on a Dow Jones VentureSource Women at the Wheel report.

-- The report also concluded that at successful companies, on average, 7% of executives were female, compared with 3% for unsuccessful companies, based on its study of more than 20,000 U.S. firms between 1997 and 2011.

"I like diversity of all kinds -- opinion, age, gender, background," Bishop says. "Companies with women on executive teams and boards do better."

New venture funds are forming to meet the investment demand, including those led by women such as Ann Miura-Ko of Floodgate, Christine Tsai of 500 Startups and Kathy Chan of 137 Ventures.

"You have to wait for someone to die to move up at a (traditional) VC firm," says Chan, in explaining the impetus for 137 Ventures, in which she is a partner.

There were few early-stage investors in 2008. But the influx of social-media and consumer-heavy products from the likes of ModCloth and TaskRabbit changed all that, says Miura-Ko.

As more consumers reach for their smartphones and tablets to shop and communicate, there is a pressing need for commerce sites that cater to women, who control and/or influence 85% of discretionary household spending in the USA, says Lisa Stone, CEO of BlogHer, a digital-media company.

"Most VC firms are looking to bring in women because of the great consumer cycle (in tech)," says Aileen Lee, a partner at Kleiner Perkins and founder of a new seed-stage fund. As the first female partner at KPCB 13 years ago, she is considered a pioneer in the field.

Firms want insights from the female perspective, Lee says, in large part because women will influence the purchase of $15 trillion in goods by 2014, according to Boston Consulting Group.

"The time it used to take (a website) to get to 10 million users is much shorter," Lee says.

An evolving ecosystem takes time

But overall, progress has been glacial, and barriers remain. Among them: a lack of women in the science and math fields; the dearth of female partners, which makes it harder for others to break into the field; and the reluctance of some to promote themselves, says Merav Bloch, Square Peg Ventures.

"Venture capital is one of (those) areas where frat brothers hire their buddies," says Yoler. While partnership issues also exist at law firms, at least in the legal world, women can earn promotions based on measurable criteria such as billable hours and business brought in, she says. "VC funds can take 10 years before the results are fully known," she says.

While women have made inroads in early-stage and seed investing, "It's been a tough decade to generate returns," says Patricia Nakache, general partner at Trinity Ventures.

Venture-capital investments declined 11%, to $6.5 billion, in the third quarter of this year, from the same period a year ago. The number of deals slid 5%, to 890, according to Venture Capital association and PricewaterhouseCoopers.

There have been encouraging signs.

"The tech-entrepreneurial-investment community is symbiotic," says Theresia Gouw Ranzetta, a partner at Accel Partners. "Angel investors are people who had success, and invest in areas in which they are experts. Successful entrepreneurs begat successful investors, which result in more start-ups. It just takes time."

One-third of her 70 to 80 Accel-funded companies have women founders, compared with 10% a few years ago, she says.

"This is a 20- to 30-year process," says Tracy Isacke, director investments and business development at Telefonica Digital.

Heidi Roizen, a partner at Draper Fisher Jurvetson, agrees. "It takes the right farm teams of people coming through education, enterprise, entrepreneurship and sometimes, financial industry roles," Roizen says. "I see a lot to indicate improvement, but it takes time."

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Some statistics about female venture capitalists:

— Among start-ups, 8% of the founders are women.

— In 2009, 17 of 19 high-tech IPOs had at least one female officer.

— Women make up 9.1% of board members in Silicon Valley companies, compared with 16% of S&P 500 companies.

— In 2011, there were more than 8.1 million women-owned businesses generating almost $1.3 trillion in revenue and employing about 7.7 million people.

— In 2009, 21% of female entrepreneurs sought angel capital, but only 9.4% of those women succeeded in getting that angel investment.

Source Pemo Theodore, 'The Next Women Business Magazine,' July 2012