Closing The Gap

Why these 6 Twitter powerhouses want diversity of company ownership made public

The founding partners of #Angels (L to R): Chloe Sladden, April Underwood, Jessica Verrilli, Katie Stanton, Jana Messerschmidt and Vijaya Gadde
Jillian West for Angels

Follow the money and you'll find the power, as the saying goes. That's why a group of six women, all current and former Twitter senior managers, are starting a movement to make information about who's making serious money in Silicon Valley transparent.

This collective of women investors, who call themselves #Angels, published a call to action on Medium in late February, asking that the leaders of private companies make public the diversity in their businesses' ownership structures.

Each of the #Angels gained the financial resources and experience to be investors working at Twitter when the company went public in November 2013.

The women — Chloe Sladden, Jessica Verrilli, Katie Jacobs Stanton, Vijaya Gadde, Jana Messerschmidt and April Underwood — want Silicon Valley companies to disclose the diversity of their capitalization tables, a document that lays out the ownership structure of a business.

When a company either is sold or goes public, the so-called "cap table" breaks down who owns what percentage and therefore who will make how much money. It's essentially a ledger for who is going to become wealthy if a company is successful.

The #Angels want the information to call attention to the lack of diversity among those getting wealthy in Silicon Valley so it can begin to change. Increasing diversity among those who control the purse strings will also change the power dynamic, the #Angels say.

This week is the 3 year anniversary of #ANGELS. Our mission is to get more women on the cap tables of successful startups. Here's why we think diversity of the cap table is an important topic we should be measuring, discussing & improving. #TheGapTable

"If women and underrepresented minorities aren't in those roles in the company, or they are not represented in the cap table, they don't participate as meaningfully in the wealth creation of our industry," Verrilli, who was most recently vice president of corporate development and strategy at Twitter, tells CNBC Make It.

Currently, the #Angel investment collective does not publish the diversity of the cap tables of the companies in which its members invest. The #Angels say they believe industry-wide collaboration could make it possible, even standard, to release the diversity breakdowns of cap tables.

Because it's no secret that Silicon Valley has a diversity problem.

The venture capital industry, a primary pipeline of money for the start-up and entrepreneurship community that defines the enclave, is overwhelmingly men funding men. Women represent 11 percent of decision makers, investment partners or equivalent on venture investment teams, in the venture capital industry, according to a the most recent 2016 report from the National Venture Capital Association (NVCA) and Deloitte. Also, on Wednesday, Axios published the results of an analysis it did of U.S.-based venture capital firms that had raised at least one fund of at least $100 million between 2013 and 2017 and found even more limited diversity: Just 9 percent of decision makers are women, according to Axios. That's 91 of 1,015 decision-makers at 232 venture capital firms, Axios found using PitchBook data.

Further, just 12 percent of venture capital dollars go to founding teams with at least one female member, according to data provided by PitchBook to CNBC Make It. Pitchbook measures private market data, including venture capital, private equity and mergers and acquisition transactions.

Neither the National Venture Capital Association nor Pitchbook sort deal flow by race.

In 2014, Facebook, which is headquartered in the heart of Silicon Valley and has 25,105 employees as of December 31, began publishing diversity reports. As of August 2017, Facebook's staff was 35 percent women, 5 percent Hispanic and 3 percent black.

Google also started releasing diversity reports in 2014. The tech behemoth is 31 percent female, 4 percent Hispanic, 2 percent black and less than 1 percent Native American, as of January 2017.

Reporting on the diversity of employees is a solid first step, according to the #Angel collective.

"Technology companies now (largely) publicly report the gender and racial makeup of their workforce. This was a watershed moment," reads the #Angel collective post on Medium.

"It quantified and illuminated the under-representation of women of all races and Black, Latinx and Native Americans people of all genders (URMs) in the industry. Reporting these data has now become an industry standard. And it's given companies a yardstick to measure progress, and made clear where companies are falling short," the post says.

But reporting on employee diversity is not the same as disclosing the diversity of the cap table, the #Angel collective says.

"We think it is time to go one level deeper on the measurement and discussion of representation, because women may be 30 percent of a workforce of a successful startup, but if they are not in the founding roles, if they are not in the early employee roles, if they are not in the executive roles or in investor roles, women won't own the 30 percent of that company. They will own much, much, much less," Verrilli tells CNBC Make It.

"In Silicon Valley the way the majority of wealth is made is through shares and ownership of companies not through salaries, not through bonuses," Sladden, former vice president of media at Twitter, who now advises start-ups, tells CNBC Make It.

The equity in a company a person owns "will be an order of magnitude more money than your salary if that company is successful," says Sladden. "I mean, it blows it out of the water."

Therefore, it is the individuals on the cap table who end up with sufficient levels of wealth to make a difference in future generations of companies, the #Angels team says.

"The people in those roles have a much easier time building all of the downstream institutions that shape our industry — venture capital firms, angel investing, bootstrapping and starting a company, funding political campaigns — and so we think it is really important to begin to discuss and measure this representation in the ownership structure, because we think it is really fundamental to the power dynamics in our industry," says Verrilli.

To do so, private companies could opt to publish the diversity of their cap tables. Alternatively, venture capital firms, law firms and academics could work together to measure the diversity of cap tables across large swaths of the industry and publish aggregated, anonymous data.

"Given how powerful it is to have ownership in companies and how that has a downstream effect on what Silicon Valley looks like tomorrow, next year, five and 10 and 20 years from now," says Sladden, "how do we make sure that the people who get to shape what Silicon Valley looks like is a diverse group? Because it is not a diverse group right now."

See also:

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How this mom turned $775 into a $65 million company in only 5 years

Why this Harvard grad has spent a decade making maxi pads out of banana fibers

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