A New Kind of Gender Pay Gap in Venture Capital

Women are awarded a pathetic 2 percent of the billions of dollars invested by venture capitalists every year.

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Venture capital is a place where the gender money gap is far wider than the 20 percent overall—and much more for women of color—usually cited in the employment statistics. (QuoteInspector.com / Flickr)

When most people hear the term “gender pay gap,” they automatically think of the difference in pay between women and men doing the same or similar jobs, whether in low wage service work or upper reaches of management. 

But there’s another kind of gender pay gap few even know about—the venture capital gap. Venture capital (VC to insiders) means money wealthy people put up to help promising businesses to make it to the top. Think of VC funds as organized “clubs” where the members (called partners) are high net worth individuals. There’s a hierarchy of partners. Only those at the top level are the “deciders” when it comes to which companies actually get the dough. They can go by a variety of titles; for simplicity’s sake we’ll call them principal partners.

A 2020 report by Women in VC—the world’s largest community for female investors—found that only 5.6 percent of U.S. venture funds had at least one female principal partner. Jessica Peltz-Zatulove, co-founder of Women in VC, estimates that there are fewer than 1,000 women in the entire world who have reached that level.

So lack of female partners who are decision makers is problem number one, which leads to problem number two—the very small percentage of female headed companies chosen for funding.

Just like men, female entrepreneurs looking to grow their businesses by taking the companies public very often need a cash infusion to do it. That’s where VC funds come in. VCs back companies with strong management and revenue with potential for extreme growth over time (think Facebook).

But VC is a place where the gender money gap is far wider than the 20 percent overall (much more for women of color) usually cited in the employment statistics. Of the more than 2,000 U.S. companies going public between 2013 and 2020, only 18 were female-led. Women are awarded a pathetic 2 percent of the billions of dollars invested by venture capitalists every year. There are no reliable statistics by race/ethnicity, but those in the know put Black women at less than one in a hundred of that 2 percent, and Hispanic women even lower.

There could be a variety of reasons—outright sexism resulting in distrust of women as business owners comes to mind—but a big factor is that minuscule number of females in the ranks of principal partners who control a fund’s investment decisions.

If this whole setup conjures up images of white guys in gray suits, that reflects reality. The SEC recently reported that less than 1 percent of $70 trillion in global financial assets are managed by minority-owned or women-owned firms.

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Less than 1 percent of $70 trillion in global financial assets are managed by minority-owned or women-owned firms. (Ken Teegardin / Flickr)

What can be done? Women are attacking the problem on both fronts.

Women in VC reports that over the last five years, the number of women-led funds has nearly quadrupled, and there is evidence this rise is accelerating. That means more women will be deciding where the money goes. Hint: to women-owned businesses.

On the receiving end, Leslie Feinzaig is the creator & CEO of the Female Founders Alliance (FFA), a grassroots network of female high-growth startup business founders dedicated to helping one another succeed. What started as a small online group a year ago now brings together hundreds of female founders from across North America.

FFA recently completed its first accelerator (a mentoring program to help businesses become stable and  self-sufficient) called Ready Set Raise. Eight female-led companies were chosen from hundreds of applicants for an intensive five week program that culminated in an investor pitch day.  The group is filling the pipeline with well prepared, savvy women to get a fair piece of the investment pie.

But why does it matter if a few elite women get the money to make them future gazillonaire? What efffect could it have on the lives of ordinary working women?

Feinzaig accurately points out that the portion of the economy literally picking the wealth of tomorrow needs to change. Women who found and run businesses are much more likely to focus not only on building financial value, but on building better workplaces for women.

“Most women starting businesses are in their child-bearing years,” she said, “and that means paying attention to sustainable policies like family leave, child care and equal pay as their businesses scale up.”

Both Peltz-Zatulove and Feinzaig are concentrating on women helping other women succeed at the highest levels. That next Facebook success story? It just may have a female face.

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Martha Burk is Money editor at Ms.