My Book Excerpt

The following is an excerpt from the book WTF Is Happening: Women Tech Founders on the Rise by Nisa Amoils.

In late 2018, I visited the offices of one of the largest blockchain/cryptocurrency venture capital firms. During the course of a great discussion exchanging company information, I asked one of the managing partners if they had any female-founded companies in their portfolio.

“I don’t think that exists in this sector,” he replied. Between my associations with Women in Blockchain, Women on the Block, and my general network, I could produce a long list of female-led blockchain companies off the top of my head. I said, “Yes, it does exist — they just don’t know how to find you, and you don’t know how to find them.”

That’s exactly the moment I knew I had to write this book. After reading Emily Chang’s Breaking up Brotopia, about the male-dominated technology industry in Silicon Valley, I knew someone needed to pick up where she left off with these newer, emerging technologies. Since they are newer, the cycle needs to be broken now, before the culture is ingrained, and women need to play a major role in shaping them.

The Gender Funding Discrepancy

Throughout my career as a technology investor, I have watched female tech entrepreneurs struggle for venture capital (VC) funding as the money flows elsewhere. In 2018, female founders still received only 2 percent of VC funding (when there is no male cofounder — that number goes up to around 13 percent when there is a male cofounder).

There have been many studies that show that women entrepreneurs outperform. To take one frequently cited example, First Round Capital did a thorough review of their own portfolio in 2015 and discovered that companies with at least one female founder did a better job creating value for investors. A much better job, in fact: those women-founded companies outperformed companies started by all-male teams by 63 percent. A 2013 study commissioned by the Small Business Administration came to the conclusion that venture capital firms that invested in women-led businesses (WLBs) saw an improvement in their firm’s performance.

The paper was unequivocal in its conclusions both that the potential of women-owned companies is being held back by the lack of investment, and that those very companies are excellent investment opportunities: “WLBs may hold untapped potential for innovation, job creation, and other economic contributions that may be limited only by access to VC funding…investments in WLBs are successful, leading to a positive return on the VC firm investments.”

Calvert Impact Capital, a nonprofit that invests in companies with environmental, social, and governance goals (ESG), recently released a study, which included eleven years of data on 160 global companies that it holds in its portfolio and represent $23 billion in assets, called “Just Good Investing: Why Gender Matters to Your Portfolio and What You Can Do about It.” Commenting on the study, Leigh Moran, director of Calvert’s strategy team, said, “People think of investing through a gender lens as a niche, part of impact investing, but it’s just a part of good investing. This study says if you want to maximize returns, seek out companies with gender diversity.”

The study found:

• The top quartile for gender diversity in management had a return on sales of 18.1 percent and a return on assets of 3.9 percent; the bottom quartile had a return on sales -1.9 percent and a return on assets 0.3 percent. The return on equity was 8.6 percent versus 4.4 percent.
• Companies where women were more than 57 percent of senior management teams were in the top quartile; those with 20 percent or less were in the bottom quartile.
• Once women represent 33 percent of leadership, increase in financial performance is more significant; it’s not just the numbers of women, but the ratio of women to men that matters.

With all this data showing that female founders outperform, why does this funding discrepancy persist? There are many cited reasons. One of the most frequently cited is the lack of female investors to whom the deals are sourced. In 2018, women made up 8 percent of investing partners at US VC firms. A whopping 74 percent of US VC firms have no women. The industry is staggeringly homogeneous and operates on pattern matching.

Under pressure from the press and industry associations, there have been efforts in recent years to place token female investors at large firms, and many more launches of “gender lens”-focused micro (smaller asset) VCs and handful over $100 million AUM, more angel investors, crowdfunding, and other sources of capital for female founders.

We now have a Billion Dollar Fund, which is a consortium of VCs geared toward this goal. However, this level of investment represents a disproportionately small fraction of available institutional and retail capital. According to a 2017 study by the Knight Foundation, only 1.1 percent of the total assets under management is with firms owned by women. The problem goes beyond VC up the capital stack. As companies scale into growth and private equity, the problem of unequal funding persists and so does the low percentage of female investors. This is where the pensions, foundations, endowments, sovereign wealth funds, and other entities that fund the funds need to enact macro reallocation of capital. I am on the Advisory Board of Girls Who Invest and also part of a lobbying group of VCs who are working to change the structural barriers there.

As of early 2019, according to All Raise, a nonprofit trying to diversify the VC industry (of which I am also part), the number of women in check-writing roles has seen a bump, but it’s not much. American VC firms have added thirty new female senior investing partners in the last ten months, according to All Raise, which analyzed publicly shared hiring news. Firms hired more women in the second quarter of 2018 than any quarter in at least the previous five years. That has felt like a lot to observers. But during the same time, the industry added sixty-eight male partners. So the percentage of women in leadership roles only rose to 9.5 percent from 8.9 percent.

About three-quarters of US venture capital firms still have zero women partners. Among the 153 firms that do boast a woman partner, it’s often singular — not plural: three-quarters of these firms only have one woman in a senior leadership position. Those are roughly the same figures as ten months earlier, according to All Raise. The core of the problem: VC firms typically recruit from the C-suites of big tech companies (mostly men), from the entrepreneurs whom they’ve previously backed (mostly men), or from other venture capital firms (mostly men). So recruiting more women often means changing the way firms recruit, another barrier.

Even if there were many more female investors, that is no silver-bullet solution, as bias against female founders would not automatically disappear, and female founders should not be restricted to working only with female investors. A Harvard Business Review study from 2017 analyzed video transcriptions of pitch sessions and found that male and female entrepreneurs are asked different questions by VCs, which affects how much funding they get. For instance, VCs tended to ask men promotion questions about hopes, achievements, advancement, and ideals. With women, they focused on prevention questions about safety, responsibility, security, and vigilance. The companies with promotional questions raised more capital.

Another reason the funding gap persists is that for many investors, it may require more work to find female founders. They generally seek companies to fund from their own networks, companies that tend to be founded by people similar to themselves. Pattern matching is mistaken for opportunistic investing. This approach will continue to be challenged by clear demographic shifts in the US and globally. According to Harvard Business Review’s study this summer, “Finally, Evidence that Diversity Improves Financial Performance,” homogeneity imposes financial costs as decision making suffers.

The good news is we are on the way, even though change is slow. Fortunately, according to a report from Veris Wealth Partners, over the past year (2018), investments to benefit women surged to $2.4 billion from $100 million four years earlier, a twenty-four-fold increase. Female founders who have taken their companies public are helping to re-create the funding ecosystem by setting up funds or investing in others.

Wouldn’t it be great to accelerate the pace of change? With all the cutting-edge technology accelerating now, it is important that women take part in shaping the future. The often-cited excuses, that women don’t have enough mentors and role models and are operating from the mentality of scarcity and so are not supporting each other, are fading with the new, bold generations. These women are on the cutting edge — they need to have the light shone on them, so that other women can follow.

A Future the Jetsons Would Recognize

Women are involved in amazing things happening in technology right now. Here are some examples:

• We are closer to autonomous flight than most people comprehend. Vertical Takeoff and Landing (VTOL) technology is in rapid development, leading the way to autonomous air taxis (you might be riding in a driverless aerial cab in a decade).
• Drones are rapidly expanding their roles in society: conducting security checks, working in agricultural fields, going into mines, delivering packages — anything dirty, dull, or dangerous. Some drones are using LIDAR and sensors to fly autonomously.
• The intersection of robotics with artificial intelligence (AI) is transforming manufacturing and some consumer tasks. Social robots, which help care for the elderly and the ill by keeping them company, managing their medicines, and watching out for them, are finding a growing number of uses, particularly in countries that embrace them, such as Japan.
• In the virtual and augmented reality (VR/AR) world, innovations can be used to teach history in an immersive, visceral, and deeply memorably way. In business, VR/AR can bring together constituents on complex construction projects to experience designs before they are built.

There were so many female candidates to include in this book that I had a hard time narrowing it down, so I focused on areas in my own investing background: virtual and augmented reality, drones and robotics, artificial intelligence and machine learning, blockchain, and cryptocurrency (often called “frontier tech” or “hard tech”). I intentionally wanted to show women in these fields as these areas have fewer female founders than fashion, beauty, and ecommerce companies, which are often stereotyped as women’s companies. While there are great founders in those and other areas, it is important that women are seen as mastering these hard tech areas and shaping the future.

By no means is this book a complete representation of the full scope of diversity among female founders. Rather, it’s a snapshot of a few of the many impressive women I know of. (And frankly, there is so much innovation happening in blockchain, cryptocurrency, and digitization of assets that I could have filled these pages solely with those founders — so you’ll find a lot of them here.) I only focused on gender and left other kinds of diversity, such as race, out of this book — that could be another book entirely.

In the following pages, you will find a dozen Q&A interviews with inspiring female entrepreneurs. I asked each of them to share their experiences in their own words. This book is not a promotion for the companies included here. Nor is it a rundown of my investments — I am not an investor in any of the firms represented, and this should not be construed as offering investment advice. Finally, you will not find many hard numbers about returns, because it is simply too early for these founders to say how things are working out. The women I profiled are in the thick of building their companies, with exits somewhere down the line. Their technologies are young, their industries are young, but they are on the right path. I am confident that these women, and women like them, will outperform for their investors.

Your Next Big Investment

Where will alpha returns come from in the future? Aside from the well-published social benefits to society and moral imperative arguments, there are real investment opportunities here. These women-led companies are often undershopped and undervalued. Investors who understand this have the opportunity to make a higher return by investing (it’s classic arbitrage). Investors who aren’t looking hard are leaving money on the table and, eventually, will be left behind.

This book is really an invitation. It’s an invitation to young women who may not have thought about working in STEM fields (Science, Technology, Engineering, and Math, sometimes also called STEAM, with Arts), or starting their own tech companies. It’s an invitation to female entrepreneurs and investors to start more companies. Most importantly, this book is an invitation to investors who are seeking alpha returns and outperforming companies, inviting them to see the amazing world female technologists are creating. I invite you to join in…

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To keep reading, pick up your copy of WTF Is Happening: Women Tech Founders on the Rise by Nisa Amoils