The Silicon Valley boys club confronts a powerful and well-connected network trying to debunk the male-founder myth

  • Women make up only 9 percent of venture capital firm investment decision-makers.
  • Melinda Gates' Pivotal Ventures and other venture firms and founder organizations, like All Raise and Founders for Change, are focused on investing in female-run companies and taking a greater share of billion-dollar ideas from male-dominated VCs.
  • Recent female-led IPOs EventBrite and Stitch Fix, and a recent large fundraise of $100 million for female-founded start-up Zola, also are giving women entrepreneurs more confidence.

Anna Palmer has her "horror story," and the CEO and co-founder of multiple start-up companies didn't have to wait long.

"At my very first venture-funding meeting, I sat across the table from an investor who looked at my resume, saw Harvard Law but no MBA or background in finance, and said, 'What are you, just pretty to look at?'"

Jill Layfield, CEO of high-end women's shoe brand Tamara Mellon, one of 21 companies on the 2018 CNBC Upstart 100 list with either a female founder or CEO, recalled a moment during the company's recent $24 million Series B fundraising when she could "see the disconnect" happening on the faces of the men sitting across the table from her. "They said, 'Maybe we will bring in a female fashion consultant to help us understand, or I will ask my wife tonight at dinner."

Palmer, too, remembers "pitching the wife or assistant on a conference call because the person across the table just didn't get it," and neither she nor Layfield were about to wait for the "wife's" analysis before walking away from the VC.

They are among the female founders focusing more on the gender gap in venture capital. And they aren't the only ones. Female founders and CEOs, female venture capitalists, and powerful figures such as Melinda Gates are banding together to raise more money for female-run companies, raise it through more diverse venture firms, build what they believe will be a new crop of billion-dollar businesses across a set of sectors from consumer to robotics and medicine, and hold on to more of the start-up equity that is currently being banked by the rich boys network of Silicon Valley.

In the past decade female founders received 5 percent of venture dollars

The high-level numbers illustrating the industry's gender gap are motivation enough. Only 9 percent of decision-makers in the venture capital world are women; 74 percent of venture firms had no female investment partners as of 2017, though that's changing as the largest firms quickly move to add at least one female partner; only 15 percent of investing dollars in 2017 went to start-ups with a female founder.

"We need to have more women on the other side of the table," said Palmer, who is now one of the investment partners at X Factor Ventures, a Boston-based VC firm where decisions to provide early-stage funding for start-ups with at least one female founder are made by women who have their own experience starting companies, 11 companies in all that have raised $150 million.

Renata Quintini left the Stanford University endowment fund to become the first female partner at Lux Capital in 2017. She also is a member of the All Raise organization, which is trying to raise awareness about diversity as part of the fundraising equation for female-founded start-ups. "The world is colorful in thought, but the boardroom is not, and we are going to change that and get more women excited at the top end of the funnel working with younger women," Quintini said.

She thinks diversity of thought, not just when it comes to women but other underrepresented groups in the start-up and VC world, will reap big returns for investors. "The job of a venture firm is to have a strong point of view and not have a lot of investors agree with you at the beginning," Quintini said. "If everyone already agrees, the returns get muted. You need to be right and ahead of everyone else. We want people a little later on to agree with us."

Women control 85 percent of spending decisions

Women venture capitalists and founders sense a big opportunity that Silicon Valley's old guard are either neglecting or unable to understand. And they think it will cost them. Melinda Gates started Pivotal Ventures based on this premise. "If they're not seeing the latest innovative, disruptive technology because they don't understand it or they don't understand some things that women are spending money on, I think they're not making great investments," Gates has said.

Susan Lyne, who was president of entertainment at ABC, CEO of Martha Stewart Living Omnimedia and CEO Gilt.com before starting BBG Ventures (the BBG stands for Built by Girls), said it became clear to her that New York City was becoming more of a tech ecosystem that could support a lot of start-ups, and at a time when there were "a ton" of women coming out of business school, consulting and other start-up companies who all had the same stories about raising money.

"They would walk into a room filled with guys and had to explain how women thought about X or Y before they could even pitch their company," Lyne said. "The more I heard, the more I thought there was a huge opportunity here. Women are the dominant consumer. If you back founders that intuitively understand that end user, the people buying or who are the most active on social media, the influencers, there is probably a competitive advantage, especially since the majority of VCs just aren't getting it."

Two BBG portfolio companies, Modsy and Finery, are on the 2018 CNBC Upstart 100 list. It also is an investor in wedding registry business Zola, whose recent $100 million fundraising has been cited by many female founders as the kind of deal that is needed to help more female-led businesses access later stage VC capital.

"There is a new level of awareness [among male-dominated VCs] that maybe 'we' are missing out, maybe 'we' are missing the next generation of unicorns because we don't have networks that include a lot of female founders." -Susan Lyne, president of BBG Ventures

"There is a new level of awareness [among male-dominated VCs] that maybe 'we' are missing out, maybe 'we' are missing the next generation of unicorns because we don't have networks that include a lot of female founders," Lyne said. "That's one of the reasons you see a dozen top firms adding a female partner this year. Some is to avoid obvious criticisms, but they also are starting to realize they need to have a partner who does have a different viewpoint."

All Raise had 1,500 female founders apply for 500 mentorships, and Quintini recalled that a common question centered on investors not understanding pitches involving products for female consumers, which made founders worried they needed to change the business. "Understand you are talking to the wrong person," Quintini said.

"These VC firms have to get past this idea that consumer companies are 'nice little businesses,'" Lyne said. "I think we will see an increasing number of unicorns in the consumer space over the next five years and I do believe it will change the way VCs think about sourcing deals more than anything. A number of companies that are a little bit behind Stitch Fix and Eventbrite but are on the IPO track and once you get a half dozen, and then a dozen, with female founders ... that will change the ball game."

This dynamic also is starting to reach the level of the retail store experience. A Tamara Mellon store is among the brands that opened last month at Palisades Village in Pacific Palisades, California, a retail village developed by Caruso with the goal of having female-led brands featured. Bulletin, a New York City-based Upstart 100 company that allows individual female-led brands to access physical store space that Bulletin leases and operates, now has 170 brands featured in its New York City locations.

"It's going to be what the future of retail looks like," Layfield said.

There is no reason women can't build big businesses

Nancy Yu, co-founder and CEO of RDMD, a CNBC Upstart 100 company that aggregates de-identified patient data for use in disease research and development, worked as an investment banker on Wall Street earlier in her career, but it was not until she joined genetics analysis company 23andMe, run by Anne Wojcicki, that she learned to speak up. "In many ways I felt my confidence really took off during my years at 23andMe. Risk-taking and being outspoken would have been unacceptable as a rank-and-file investment banker. Almost half the team at 23andMe is seriously smart, strong-willed women."

Jill Hagenkord, 23andMe's former chief medical officer — and a "badass," according to Yu — "showed me it was OK to speak my mind, even if it was edgy or even inappropriate. ... In my wedding vows, my husband said, 'When I met you, you were a timid but smart banker, and now that's completely changed.' It was really through 23andMe," Yu said.

Nancy Yu, co-founder of disease research start-up RDMD along with Onno Faber, said powerful women she worked for at 23andMe were among the leaders who showed her that it was 'OK to speak my mind, even if it was edgy or even inappropriate.'
Nancy Yu, co-founder of disease research start-up RDMD along with Onno Faber, said powerful women she worked for at 23andMe were among the leaders who showed her that it was 'OK to speak my mind, even if it was edgy or even inappropriate.'

"Women have to feel comfortable building really big businesses," said Alana Branston, co-founder and CEO of Bulletin.

Branston said she hears a lot about the average investment round size being lower for female founders, and about the overall funding level being lower, and the data can be "pretty depressing." But it is just another hurdle to overcome and ultimately there is only one way to overcome it. "More women building big businesses is most effective way to change the dynamic," she said. "So much of it is having confidence to know you can go and build something really big. Lots of female founders I know think of their model in terms of being a smaller idea while male founders feel more comfortable making grandiose statements. Building the next Airbnb or Uber would be hard, but female founders are capable of doing it."

Bulletin is planning to expand next year to five more cities around the U.S., including Los Angeles, San Francisco, Austin and Boston.

"I would never say women need to act more like men, but for many different reasons women are not as aggressive or assertive about how big a company can be and how fast; they don't go into the pitch room with bravado," Layfield said. "That goes against what VCs want. .. Being pragmatic makes us better entrepreneurs but can work against us in fundraising."

The effort reaches into the engineering department

For female founders fortunate enough to have avoided bad experiences with VCs and, to this day, have male investment partners and mentors instrumental to their success — and there are many of them, including many of the Upstart 100 companies interviewed for this article — the magnitude of the challenge and the avenues for progress can come outside the pitch meeting and after having already had much success.

Shirley Chen, the founder and CEO of Narrativ, an Upstart 100 advertising technology company that works with publishers of review sites to drive online consumer sales, had everything go right for her: Early childhood in Beijing, where math and science were part of a rigorous core curriculum that all girls and boys went through; attending the Thomas Jefferson High School for Science and Technology in Alexandria, Virginia, a top 10 high school in the U.S. with a STEM focus; and a job at McKinsey where she never had to think twice about speaking up in the room with a senior partner or senior public company executive.

Her realization came when her success at Narrativ led to a dinner invitation for top adtech executives: Chen was one of only two women at the exclusive industry dinner. She went back to work and had an intern compile a spreadsheet on the 50 largest adtech start-ups. Across the firms, which had raised closed to $4 billion in venture, not one had a female CEO.

"I never knew what the stats were and the results were even more dramatic than I imagined," Chen said. "Just because I didn't experience it doesn't mean it isn't true."

Now building her team at Narrativ, Chen also sees the issue arise when female engineers don't negotiate over salary, and when seeing a pipeline of engineers that is only about 20 percent women. Chen said she has a better understanding now and Narrativ has made a commitment to keep its team gender-balanced and interviewing female engineers for senior roles. "When you're under the gun to deliver on revenue it is so much easier to hire a senior engineer who is a guy than take a risk on a younger engineer who is a woman. But start-ups need to be cognizant of the tradeoffs they are making to ship a product next month." She added, "Even though Narrativ is a small company with 30 employees, that can have a larger impact as you grow."

Clara Vu, co-founder of Upstart 100 company Veo Robotics and a former iRobot engineer, said being a woman in engineering for two decades has often means figuring it out for yourself and feeling your way through the dark. Being the only woman in math classes or the only woman on an engineering team was the default. Many young female engineers, instead of moving up the leadership ladder, get sidelines into product liaison roles, "soft skills" positions, and that has led to a pipeline problem, not enough young women engineers encouraged to seek leadership.

Veo Robotics co-founder and v.p. of engineering Clara Vu with her co-founders Scott Denenberg (left) and Patrick Sobalvarro (right). Vu says she has worked to raise the number of women on the engineering team to one-quarter, which is well above average for the industry.
Veo Robotics co-founder and v.p. of engineering Clara Vu with her co-founders Scott Denenberg (left) and Patrick Sobalvarro (right). Vu says she has worked to raise the number of women on the engineering team to one-quarter, which is well above average for the industry.

Veo chooses its VC based on the ones that can best support its growth rather than on the makeup of the VC firm, but the firm and Vu are attuned to having a management team that is half women and Vu specifically, have one-quarter of the engineering team be female, which she said is well above average. "We are all used to being the only person in the bathroom," she said.

Vu said she does not have a quantitative goal for the engineering team, especially as start-up trying to find the one person with the skill set you need and when you need them, and given the engineering population is majority male and specialized. "It would be hard to have a 50-percent female team, but I do think that I can definitely make an effort to get more diverse candidates in the door in the hiring process, reach out to women and other underrepresented people." And she added that these candidates are often well above average, "because below average ones wouldn't have made it that far."

If you can't measure it, you can't fix it

Having more women on the team can help to address one of the the biggest statistical gaps for women in the start-up community: male domination when it comes to the cap table, or in other words, who holds all the equity in firms.

A report released in late September by equity management software platform Carta showed who really has the wealth in Silicon Valley: Women only hold 9 percent of employee and founder equity.

"We're not the ones that are going to be getting rich when these companies do well," said Sara Mauskopf, a former Google employee and co-founder and CEO of parenting information platform Winnie. "Every way you look at it, women are not getting the wealth created in these companies, in a really disproportionate way," she said. "All the advances made, getting women to work in tech and more female founders are not represented in terms of the wealth."

The situation led Mauskopf to publish Winnie's cap table, a move she said is unheard of in the industry. "Most companies would look bad if they published this information," she said. Winnie's cap table is over 70 percent female, split between employees, founders and VCs, and that is unusual and it was an intentional decision. "We wanted women to get wealthy, and we believe we are going to make a lot of money and we want that money going to women," Mauskopf said.

The Winne CEO said in the same way most public companies now report on diversity measurements, she is hopeful that cap tables will become more public, and it is an agenda she will try to promote through larger organizations like All Raise and Founders for Change, though it will be a much slower change that broader diversity measures since start-ups and VCs "can't just go and hire a bunch of women and minorities and see changes in the cap table."

Many female founders stress that their most critical goal isn't diversity, or worrying, but building their current venture to a successful exit. "I work my ass off, that's the best thing I can do," said Tamara Mellon CEO Layfield. "Building a big business will pave the way for it to be easier for the next female who asks for money."

X Factor Ventures' Palmer said the biggest takeaway for her VC firm one year after its launch was the realization of just how many women there are building interesting, venture-scale companies. "We knew there was a culture of women building start-ups but weren't quite sure how large it was. The number of companies we've seen through partners or through email introductions is a little over a thousand," she said. "The sheer volume was eye-opening. And we want to arm as many women as we can with checkbooks."

Lyne said when BBG Ventures was launched four years ago, many peers in the VC community said it was a "nice goal" to start a fund that will invest in female founders, but they added, "There just aren't enough of them to really sustain a fund for a long period of time."

"We have seen over 4,000 companies in four years with female founders," Lyne said.

Disclosure: CNBC parent Comcast is an investor in Modsy.