Venture Capital/Opinion/

VC is still a boys’ club. Here’s how to end it

Relationships in startup-land can be a lot like dating — which is one reason why the industry has a diversity problem.

Johannes Lenhard

By Johannes Lenhard

“You bitch — stop texting my HUSBAND.” 

A senior female VC — let’s call her Margot — tells me over coffee between panels at a conference in Berlin that she got this message from an older VC’s WhatsApp account a while ago. Likely, this VC’s wife saw her picture on the app and assumed the worst. 

Other female investors tell similar stories about founders messaging them a little too late at night for comfort and limited partners (LPs) putting their hands on their knees at “pitch meetings” in bars. One female general partner (GP) in the UK says she’s had to stay calm when investors comment on her “surprising beauty”. 

Ambiguity about sexual attraction and tension is omnipresent in the world of startup founders and funders. This is an ecosystem based on relationships. It’s no wonder that the line between professional and personal is often blurred when those relationships are forged over drinks or in intense periods of close collaboration.

It would be fair to say that this is one of the factors silently contributing to VC’s persistent lack of diversity, especially at the senior ranks. And it’s a symptom of how “unprofessionalised” the industry still is. Gut feelings, excitement and FOMO play a huge part in investment decisions for VCs and LPs alike, often harnessed in informal meetings. 

Gut feelings, excitement and FOMO

Let’s step back for a second. 

The process from a VC’s first meeting with a founder to wiring over several million dollars often goes through iterations that resemble dating life — you meet in different locations, from a conference or an office to cafes, restaurants and bars; you get to know each other by spending time together, often over months.

The eventual decision is based on experientially built instincts and affects — good vibes — as much or even more than rational calculation of “data”. Many would say that the first moment, the first meeting, is decisive — just like love at first sight? In fact, the relationship between founders and investors is often compared to a marriage — long term, reliable, trust-based, intimate. Also a bit creepy, no? 

Margot is adamant that VC’s focus on relationships is key — she does want to be available to founders whenever they have a problem and be a trusted source of advice. 

“Most interactions are obviously fine,” she says. “But one out of 100 times the relationship goes wrong.” 

It’s those situations that the industry needs to more directly acknowledge, she says. 

And indeed, despite the many personal experiences that women in VC have shared with me, there’s little data about sexual harassment. A 2019 piece from the Kennedy School claims “across four industry surveys, at least 50% of female VCs and entrepreneurs (vs. less than 10% of men) report personally experiencing sexual harassment.”

VC and tech in the age of MeToo

The MeToo movement has helped bring these issues to the fore, though more so in the US than in Europe. 

In her book Brotopia, Bloomberg journalist Emily Chang describes VCs throwing wild sex parties involving investors, founders and others. Backlash has come, highlighting prominent harassment cases over recent years including at heavyweights such as Kleiner Perkins and most recently involving a senior Sequoia partner. Unfortunately, many called out for bad behaviour later return to the industry. 

But at the same time, “cancel culture” complicates more light being shed on sexual harassment and discrimination. And it actually makes it easier for investors or founders to avoid engaging in certain kinds of diversity — and hence conversations and change. 

The fear of “being cancelled” might make VCs and LPs alike weary of entering certain investment relationships with somebody they might be sexually attracted to. Avoiding situations of possible “misconduct” leads to a continuation of the “boy’s club” in which the FOMO-led, gut-based decisionmaking can continue. 

(Heterosexual) men mostly invest in other (heterosexual) men, and many women quit (or don’t even start) after bad experiences. The cycle continues. 

A female GP admitted in conversation with me explicitly: “You totally get why male investors hang out with male founders mostly — how are they going to tell their wives otherwise? It’s easier to just keep it between men.”

Some drivers of change

What needs to be done is not trivial — but it’s crucial to finally improve diversity in VC and startup finance. In short, VC processes need to professionalise. The industry needs to grow up, and investing mustn’t look or feel like dating. Here are three ideas to start this development. 

  1. Use more data: VCs often claim they are relying on data in their processes but so far, very few VCs (EQT and Signal Fire are among the most prominent ones) have sophisticated, robust data-driven deal sourcing capabilities (quantitative, qualitative and AI-processed). While some efforts are being made to use data to de-bias VC decision making, given the amount of biased data decision-making AI would be trained on, this is a more complicated task. 
  2. Normalise applications: in order to avoid raising VC funding feel like dating, every fund should have an open application process. Dutch firm CapitalT has an explicit process for that including an initial “funding readiness judgment” based on GP Eva de Mol’s research. Del Johnson has been outspoken about banning warm introductions altogether. Given the impact of personal biases (often gendered) and also explicitly sexual arousal (see Ariely’s research), ditching the pitch is another way of opening the gates.
  3. Require substantial due diligence and documentation: contrary to the Tiger-pushed trend of “no/fast DD”, requiring multi-stakeholder diligence with strong documentation of the team’s thinking would make for more transparency and better accountability of how VC decision-making is done. Nobody would exactly write “found her attractive” in an investment memo, would they? 

All of this is to say: VC needs to become an industry that relies less on the power of relationships, including those ambiguous ones. We need to create an environment where not only decision-making processes are transparent, accountable and traceable.

Given how important relationships are in VC currently, this is nothing short of demanding a revolution. But until the industry makes this shift, cries for “more diversity” will fall on deaf ears.

Dr Johannes Lenhard is a research associate and centre coordinator at the Max Planck Cambridge Centre for Ethics, Economy and Social Change. He is writing a book about the ethics of venture capital and is also the coauthor of Better Venture. He tweets at @JFLenhard.

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