Closing The Gap

A new report highlights Silicon Valley's stunning gender equity gap

Willie B. Thomas | Getty Images

Women in tech don't just earn less than their male counterparts in dollars, but in shares as well. That's according to a study released by software platform Carta, which found that women in Silicon Valley not only earn less than their male counterparts, but are awarded far less equity as well.

Carta analyzed more than 6,000 companies, 180,000 employees and 15,000 founders, and found that overall, men own 91 percent of employee and founder equity in Silicon Valley, leaving women a scant 9 percent.

The average female founder owns just 39 cents in equity for every $1 a male founder owns. Female employees earn just 47 cents of equity for every $1 of equity a male employee earns. Compare that with the wage gap — a women earns 80 cents for every $1 earned by a man, and women of color earn even less — and it becomes clear that the equity gap poses an even bigger challenge.

"You don't need a business degree or have to work in Silicon Valley to understand how important equity is to driving wealth," former Twitter executive Chloe Sladden tells CNBC Make It.

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Sladden, along with five other former Twitter employees, started the female-led investment group #Angels to help increase early female leadership and employment at startups, while also boosting VC investments in women-run companies. In February, the group published a post on Medium, titled #TheGapTable, in which they called out Silicon Valley for its failure to represent women on the cap table, (the document that records a company's ownership stakes.) The post inspired Carta's study.

The founders of #Angels believe that a lack of women owners, senior executives, early-stage employees and investors all contribute to the equity gap. And according to Carta's data, that outlook is backed by statistics. Currently, women represent 29 percent of employees in companies with up to 10 employees. Once a company has over 500 employees, female representation increases to 44 percent.

Jana Messerschmidt, #Angels co-founder, emphasizes that early employees of small private startups tend to get the largest share of employee equity, at the lowest price. Once that company successfully goes public and its value increases, that equity easily turns into a large lump sum of money. If more men than women are hired at these young companies, the wealth created from employee equity is distributed unevenly to one group of people.

Messerschmidt says that early in her career she made the mistake of focusing more on her salary than her slice of a company.

"I started out as an engineer and worked my entire career in tech," she says. "My first job at a startup gave me equity. The offer letter said 'Congratulations we are giving you X salary and X number of shares.' I had no idea about asking what percentage of the company I would own or any of that. But in hindsight, I wish I would have, because that company ended up going public and I could have had a lot of money from owning more shares."

In addition to hiring women early, Carta's study calls on Silicon Valley leaders to help close the equity gap by eliminating discrimination and bias in the investing process.

Research conducted by Harvard Business Review in 2017 found that male and female co-founders are asked different questions by venture capitalists that can alter how much funding they receive. For example, male entrepreneurs are often asked by VCs about their potential for gains. Meanwhile, female entrepreneurs are often asked about the potential for losses. Women receive seven times less funding than men do, making it far more challenging to grow and scale their companies.

You don't need a business degree or have to work in Silicon Valley to understand how important equity is to driving wealth.
Chloe Sladden
#Angels co-founder

Henry Ward, CEO of Carta, admits that data from the study prompted him to reflect on how his own company could be part of the problem.

"These are difficult conversations," he wrote in a blog post. "And CEOs have to be the driver of these conversations. Nobody else will. The true test of our leadership is if we, tech CEOs, restructure our boards to bring more women in top roles."

Ward says that when Carta was founded in 2012, diversity was not the focus — it was "staying alive." When his company went from 20 employees to 400 employees in 48 months, he thought staff diversity would develop on its own, but it didn't. Now it's a problem that needs to be fixed. Ward writes that this year, 48 percent of his company's senior hires have been women. Later this year, he writes, Carta will add its first female independent director to their board.

Additionally, after completing a salary compensation review, Carta increased its payroll by $2 million to make it more equitable for all employees. The company also conducted a similar review for cap table equity and added $8.3 million of additional employee equity.

Sladden applauds Ward for his efforts to improve numbers at his own company. She says she hopes the report encourages other CEOs to do the same because what happens in the tech industry has an affect that goes beyond Silicon Valley.

"The people in Silicon Valley help to create the products that will influence our culture, economics and our way of communicating," says Sladden. "The equity you get from successful startups is your ability to vote and choose what the future looks like. And if only one group of people get to do that then that is not good."

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