WOMEN OF THE VENTURE CAPITAL INDUSTRY: DO THEY MAKE ANY DIFFERENCE?
Myra
Hart, Harvard Business School
Patricia Greene, University of Missouri, Kansas City
Elizabeth Gatewood, Indiana University
Candida G. Brush, Boston University
Principal Topic
Over the past forty years, less than five percent of venture capital investments have made been in women-led businesses, yet, in 2001, women were majority owners in 28% of all U.S. businesses and were significant shareholders in 38% (Center for Women’s Business Research). This paper launches an investigation of why so few women entrepreneurs seek or secure private equity financing. Drawing on institutional and network theories, we hypothesize that changes in the gender composition of the male-dominated venture capital firms would challenge the industry’s norms and open private equity doors to more women entrepreneurs.
Method
To test this hypothesis, we first gathered data on the gender composition of the venture capital industry in 1995 and 2000. We used information published in Pratt’s Guides (1995 and 2000) to identify the population of firms with female professionals. We coded firm name, location(s), age, size of funds, date of last funds raised, and investment preferences by industry and stage as well as the number and gender of senior decision-making employees (partners/directors) and professionals in the pipeline (principals and associates). We tracked female professionals in each year by name and firm. Our analysis of the data set yields industry and firm demographics at two specific points in time and allows us to identify changes at industry, firm, and individual levels from 1995 to 2000. We identified 122 firms in which women held management roles over the five-year period. We are now conducting field interviews with these firms to determine whether having women as decision-makers has made any difference in firm deal flow or decisions to invest in women-led ventures.
Findings and Implications
Both the number of women participating in the industry and the firms employing women managers increased from 1995 to 2000. However, in spite of apparent gains, women did not fare well in the venture industry. Of the 358 women listed in Pratt’s 1995 volume, 65% did not appear in the 2000 Guide. This high attrition rate compares unfavorably with our sample of men in the industry—only 30% of whom exited the industry in the same period. Only 122 of the 270 firms that listed management women in 1995 also listed women in the 2000 Guide. We are now conducting field and survey research with those 122 firms in order to understand the roles women partners, principals, and analysts played in the decision-making process, to determine their influence on the firms’ decision-making rules, and to assess their success in attracting more female-led deals. We will follow this initial investigation with analysis of the venture capital investments actually committed in order to discover whether including more women at the deal table has led to more gender-diversified investment portfolios.
CONTACT: Myra Hart, Harvard Business School, Boston, MA 02163; (T) 617-495-6904; (F) 617- 496-4877; mhart@hbs.edu
2002 Babson College. All Rights Reserved. Last Updated March 2003.