Gender and Culture in Venture Capital

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Besides being a moral issue, gender equality in venture is a huge business opportunity that most venture capital firms are ignoring. But unconscious bias and other factors can lead venture capitalists to leave a lot of money and (female) talent on the table.

Fortunately, behavioral science offers us a proven roadmap to sustainable, systemic improvement on gender diversity.

We were joined by Anisha Asundi and Siri Chilazi, both Research Fellows at Harvard’s John F Kennedy School as part of their Women and Public Policy Program. Their research has identified the drivers of gender gaps in the VC investor base as well as in VC funding decisions, and offers several behavioral design interventions for firms to overcome the effects of systematic bias and improve gender diversity in this industry.

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Besides being a moral issue, gender equality in venture is a huge business opportunity that most venture capital firms are ignoring. But unconscious bias and other factors can lead venture capitalists to leave a lot of money and (female) talent on the table.

Fortunately, behavioral science offers us a proven roadmap to sustainable, systemic improvement on gender diversity.

We were joined by Anisha Asundi and Siri Chilazi, both Research Fellows at Harvard’s John F Kennedy School as part of their Women and Public Policy Program. Their research has identified the drivers of gender gaps in the VC investor base as well as in VC funding decisions, and offers several behavioral design interventions for firms to overcome the effects of systematic bias and improve gender diversity in this industry.



[Starting at ~2:30 after Women 2.0 introduction]

Women 2.0: I’m sure everyone here knows the stats about how much – or how little – women get funded. The 2017 stats for women-only founded companies were around 2%, worse so for women of color who are founders. Unfortunately those stats didn’t get much better in 2018. Luckily what we’ve seen is that there’s been a great influx of capital that’s being offered now, funds being built that are women funding women – and excellent trend.

But still, in the traditional funding space, there’s simply way too much money on the table to ignore some of the biases that are happening when cheques get written out, and that whole space is moving pretty slowly.

This is a two-sided market place. If women founders are going to advance, we’ve got to have money get in their hands, and that’s the nugget that our researchers and guests are trying to tackle.

We’ve got two Research Fellows out of Harvard’s John F Kennedy School’s Women and Public Policy Program – Anisha Ashundi and Siri Chilazi. I’d love to have them introduce themselves and then we’re going to dive into discussion.

Anisha: Thank you Kate and Women 2.0 for having us, we’re so excited to share some of our findings with the audience. As Kate mentioned, I’m a research fellow here at the Women and Public Policy Program at the Harvard Kennedy School. WAPP is a research center that aims to close gender gaps in the field of economic opportunity, politics, health and education, and we do this through research translational, outreach and education and training of students here on campus.

My work here focuses on our gender action portal, which is our online collection of experimental research that aims to close gender gaps. As I mentioned, a big part of our research translation work, we’re trying to understand the implications of research, and get findings into the hands of policy makers. That’s also related to our work on gender and technology, which has two main research goals. One research goal is to look at the issues are across the employee life cycle of women in technology, in the tech sector specifically. The second part of our work is looking at some of the tools that the tech sector has provided to leverage behavioral insights and bring them to scale across sector. We can dive into behavioral insights later in terms of what that means.

Siri: Thank you everyone for joining us. I’m Siri Chilazi, also a Research Fellow here at the Harvard Kennedy School. I spend a lot of time conducting research on how organizations can more effectively support women in the workplace and level the playing field for women. And I spend the other half of my time bringing those insights to practitioners on the front line and actually do something with that research. That’s the research translation work that Anishi was talking about.

For the last couple of years, a lot of my research has focused on the tech sector as well as the media sector.

Women 2.0: You dove into this a little bit in your introduction, but was there a particular reason that you dove into this topic? Were there any holes or trends that you were seeing, or did anything pop out? How did you narrow in on taking a look at this problem?

Anisha: We all know there’s a gender and diversity problem in venture capital more broadly. I’m going to start with one of the quotes we got from one of our interviews from a junior woman: “I definitely feel like diversity in venture is a huge problem. The statistics don’t lie.” I think we all know there’s a problem in the industry past just the statistics we know of, so we have been looking at this problem and realized that there’s less attention being paid to actual solutions and figuring out what works to decrease this gender gap and leveling the playing field in venture capital.

In terms of the study, looking at the gender dynamics in VC more broadly, but also looking at specific interventions that can change the status quo. So what are the very real problems that women face in VC, and what are the ways we can overcome them.

Women 2.0: Before we dive into the findings, can you briefly tell us what the methodology was for this research?

Anisha: There were three main methodologies that we used for this research in our study design. First, Siri created a really great literature review to set the context and frame our study, and see what’s out there in terms of current thinking around VC.

Siri: We’ll be delighted to share it with you all soon when it’s published! <laugh>

Anisha: The second part of our work was we conducted 21 1:1: interviews with venture capitalists in the Greater Boston area, and we partnered with a really great organization here in Boston – the Venture Capital Association – who helped facilitate those introductions. We don’t have all the connections to VCs in the space.

The third part of our work, we worked with Culture Intel in New York City to mine online conversations, basically a data scrape about what everyone on the internet has been saying about VCs and entrepreneurs about gender diversity. So looking at what are the conversations out there on venture more broadly, and how can that amplify the results that we’ve seen in our interviews.

Women 2.0: Let’s jump right into some of your initial findings. Would love to hear some of the expected findings and also anything you may not have been expecting when you were doing this work.

Siri: We framed this in two parts. On one hand we wanted to document very comprehensively all the barriers that exist at all levels to achieve full gender equality in VC. On the other hand we wanted to map solutions to those specific problems – what do we actually do.

The thing that didn’t surprise us by and large is what were the barriers. These are all of the things that are in the media all the time and have already been documented through a variety of academic studies in the last 10 or 20 years. I’d be happy to dive deeper into those if you want to talk about what those barriers are.

What surprised us is all the conversations around solutions have been very much focused on the individual level. So far what’s been put forth have been things like more male venture capitals should expand their networks and take more meetings with women founders and seek to mentor women coming up through VC. And the few women investors out there making it should be more active in bringing up others and acting as a role model.

It’s not that these aren’t good ideas, it’s that they haven’t really worked to change the status quo in the last 10 or 20 years. The other problem is that they put the burden on individuals to remember to do all of these activities, and to take the initiative to follow through and do all of that mentoring, all the role modeling etc.

What we know from behavioral science research is that people can have all of these good intentions to do things – go to the gym more often, save for retirement, eat healthier – but often times we still don’t. So even when we have the knowledge to make good decisions, and we have the intentions, sometimes we just don’t make good decisions and do what we’re supposed to do.

Behavioral science has shown us is that focusing on structures around us is a way to tackle this. Instead of changing people’s minds, could we think about redesigning processes and systems and environments in a way that allows us to make better decisions instead.

That’s the hope with our research is to shift the conversation around solutions for venture capital from the individual level to the systemic level.

Women 2.0: You mentioned the barriers that you did find, but for the sake of our audience, could you clip through some of those that you did find?

Siri: We looked at this in terms of four buckets. If you think about it as a pyramid, the most fundamental thing is the pervasive nature of venture capital and entrepreneurial industry. It’s an industry that has historically been heavily male-dominated, the pipeline of new talent is male-dominated, the existing networks are dominated my men, and the industry overall overwhelmingly has men in it. That has resulted in a lack of role models for most people who are not white men. Because of the industry is so informal, it’s based as apprenticeship, if you don’t see people who look like you being successful, it’s hard to find someone to invest in your success, or people who are willing to act as your mentor or sponsor to bring you up. This is the underlying cultural level that’s really industry-wide.

Then there’s a barrier at the level of the organization, individual firm level. Because the firms are super small, things are moving at a super fast pace, there’s no systematic HR function, and there’s no real focus on diversity and inclusion. Because there are so many fires to put out, this is not the most urgent fire, something else takes precedence. As a result of the lack of an HR function and a lack of a focus on diversity and inclusion, we don’t have structured talent management practices. We don’t have structured ways of evaluating people, of giving feedback, making sure that work and opportunities to shine are equally distributed. Whenever this happens, we know this equates to unconscious bias opportunities.

Now we looked at the interpersonal level – we have individuals interacting with each other. We have a whole host of unconscious biases that have been well-documented in the literature for decades. We have people naturally gravitating to people who look like them. They feel more comfortable taking meetings with them, investing in them. Areas in fields like entrepreneurship, leadership are heavily male-dominated in our society. So anyone who doesn’t fit that stereotype, someone who’s countertypical, has a higher hill to climb to given the presumption of credibility and competence and seen as someone as equally worthy of investment or time.

And of course we have other interpersonal activities that disproportionately affect women, things like sexual harassment, that make it more difficult to succeed in this industry.

Lastly, we looked at the individual level. How do individual venture capitalists and entrepreneurs look at their own work, and what are the individual level biases that they bring into their work. We found three interesting things.

First is a persistent belief in the meritocratical nature of the venture system. This idea that those that make it to the top get there because they really deserve it. And by extension, those that don’t make it to the top aren’t there because they don’t deserve it. So there’s a lack of recognition of those first three barriers we talked about – the cultural, the firm and the interpersonal – that fundamentally slants the level of the playing field to begin with.

Some of the interesting things we found was the traditionalist attitudes about the work and roles of women in society. Part of this connects to the fact that many of the VCs who’ve been successful in the past have lived very traditional life arrangements in their lives. They tend to have stay-at-home spouses who tend to take care of the children and the home, and that’s the world they come from.

Lastly, there was a lot of shifting the blame. There was a recognition that, even though there’s a problem, it was because the institutions need to do a better job of educating people with the right background, and there’s simply no pipeline, and our firms doing the best that we can but there are all these other forces out there, so we can only do so much. We saw a lot of people saying, “You know what, I can’t set out and tackle this problem.”

Women 2.0: That last point is interesting because it counters the meritocracy argument in some ways, saying that “we do see that there are some issues” – the pipeline for instance, and it really negates the reason to sit back and analyze the meritocracy argument. The people at the top have significantly fewer barriers. So it’s an interesting acknowledgement – or lack of acknowledgement – of both sides of that argument.

Before we dive into the actual recommendations you have, you’ve mentioned a few times the idea of behavioral design, could you briefly explain that from a general standpoint for those of our audience who may not be familiar with it?

Anisha: I’ll use one example to explain it. We all know it’s really hard to debias people’s minds and hearts, and it’s really easy to create environments and structures that are debiased so that people can get it right. That’s how our minds work, given all the research we know on psychology.

One example that we like to mention is that years ago the symphony orchestra here in Boston realized they had a gender gap in the number of musicians they had that were women. They were trying to figure ways to debias their audition process. One way they did this was to institute a curtain so the people who were evaluating couldn’t actually see what they looked like, they could only hear the quality of their music. That increased the number of women in the orchestra by about 40%, which is a huge impact and really decreased their gender gap.

The curtain is an example of behavioral design. We can apply this to things like resumes. Another example that took influence from the curtain example is examining resumes. Removing any indicators of gender from resumes, so you’re removing unconscious bias, you’re just looking at their skills and qualifications.

Women 2.0: Something we’ve come across with many of our clients and is often cited in D&I work is that it’s very rare you’re going to get your entire employee base on board. One often-cited solution to that is to tie some of the more hesitant people, tie their behaviors to “this is part of our culture, this is part of what it means to be a “good” team member.” So while philosophically you may not be able to change their brains or their hearts, you’re saying “this is the way we do things here, it’s part of the structure of this company, and we do need you on board.” Would that be an example of behavioral design.

Siri: You’re hitting on something really important in behavioral design, which is that we’ve seen that we can change people’s behaviors without changing their underlying attitudes. This liberates us from the need to convince absolutely every last person and get them on board. At the end of the day, I care about the experiences that people are having and how they’re being treated. So I care more about behaviors than thoughts that people are having inside their brains. So if we can get people to behave better, we’re winning.

Anisha: You’re also hitting on the “setting norms” example in behavioral design. When we’re setting norms inside an organization, and we’re saying things like we won’t tolerate racism, and we’re actually setting that up, that actually changes the fabric of your organization. It doesn’t change individual people or everyone’s perspective, but the norms that the organization will uphold.

Women 2.0: Great, so things like Codes of Conduct, these are the types of things that the VC industry, being so informal, have for ages not had, whether it’s internally or with portfolio companies.

Let’s move to areas of improvement. Given what you’ve seen in terms of gaps, what can the industry do or think about?

All of the interventions we’re going to talk about are these organizational interventions that will look at structures within VC firms and more broadly what the levers for change are.

First, we looked at hiring and we found that overall there isn’t enough standardization and rigor. So the first recommendation would be to institute more structure into the hiring process. That includes formalizing job descriptions and standardizing hiring criteria that focuses on skills and deprioritizes things like what school you came from. Unstructured interviews are a huge breeding ground for bias. Making sure we’re focusing on skills around the job, and not whether they’re a good “fit” or not.

There are also work sample tests. This is a little trickier in VC, but using work sample tests are the best predictor of job performance. So if there was a way that you could ask candidates questions similar to what they’d be doing on the job, that would actually be a great predictor of job performance and judgment of the candidates skills moving forward.

Another thing is centralizing the process for hiring and using bundled hiring. That looks at when you evaluate people in bundles instead of individually, it decreases the amount of bias because you’re not looking at the individual as opposed to the ideal candidate.

Women 2.0: Could you go over that concept of bundled hiring, using a literal example?

Anisha: Let’s say a VC firm this year is looking to hire three people, one in March, June and the October. That’s separate hiring.

What the research shows is if we instead look at all of those positions at the same time, that would help decrease the amount of bias that our minds bring into the process. We’re now looking at these candidates against each other, instead of the prototypical reference points that we have in our heads. Usually those reference points are whoever has been successful at the role in the past. So if I’m just hiring for one position, I look at the company hierarchy and I see who’s been at the firm already and who’s been successful in this role and risen up the ranks. They tend to be not the people we’re looking at to more forward in the future.

Women 2.0: It almost makes the process of filling positions, you almost force people to look at complimentary skill sets as a group.

Anisha: When we were taking to VCs they also mention there were no standardized review processes. So creating guidelines for VCs to give more consistent, standardized and gender-neutral feedback.

Also looking at work allocation. We all know that there are certain people who get more projects, making sure you’re tracking and changing up who presents work, making sure VCs are acting on everyone in portfolio companies, making sure people are presenting in rotation, instead of always having the same people on projects or presenting.

And then looking at the investment process itself and standardizing that funding process. That means standardizing evaluation criteria, explaining why there was a decision to not fund a women or minority founder and making sure those reasons are justified, and that the reason that people of color aren’t funded are because of actionable and tangible outcomes you’ve seen. And providing specific and actionable feedback to founders as well.

And bring up women, even if you can’t bring them on as partners. As an associate or advisor.

Looking at golden metrics as well. Some of the firms we were talking to don’t have a formal tracking of who they’re investing in, talking to or networking with. So setting gender diversity goals for thee areas and tracking it. That could be looking at who you’re hiring, or founder meetings, pitches and your investments.

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