In this follow-up to a previous VC Views article, V-Bio Ventures takes a look at several questions that were generated by readers. The VC firm carried out a study of the gender composition of investment teams and the impact of these ratios on investment decisions, reflecting on some strategies that might help women with executive ambitions reach their goals.
This VC Views article was guest authored by Christina Takke from V-Bio Ventures.
In our March VC Views article, we turned the spotlight on the gender gap in biotech funding. Management teams of venture-backed start-up companies are often predominantly male, despite evidence that companies with mixed management teams consistently outperform those with men-only C-level suites, and we wanted to know why.
We concluded our article by looking at the gender ratios of the venture capital firms (VCs) that evaluate the pitches from the entrepreneurs, examining the link between the gender of the investment managers and investment in male-led companies.
To our surprise, this article generated a lot feedback and follow-up questions. A couple of readers had a hypothetical query: if women were to dominate investment groups, would this lead to an overrepresentation of portfolio companies with female-fronted management teams?
These reactions indicate a general interest in the impact of gender diversity in the investment sector. As the Biotech Venture space is the most familiar to us, we took these questions and dug a bit deeper.
A male majority
To get a better grip on this topic, we decided to analyse some real-life data from the European Investments Fund (EIF). Our analysis is based on 28 of the most recent EU Biotech/Life Sciences VC funds financed by the EIF, from 2008 to 2018, where there was public information available on the composition of the management teams.
For the purpose of our analyses, we defined the senior investment professionals as those carrying the titles of either managing partner, general partner or investment partner. Later, we decided to include also investment professionals at the level of principal. In the first analysis, using only partners, 13% of the cohorts were female. When we added the principals, the proportion increased to 18% female investment professionals.
The 13% average was driven up by a handful of funds where the female partner ratio was over 40%. These outliers masked the majority of funds (57%) without a single female senior partner in their investment team.
It bears mentioning that the 13% average was driven up by a handful of funds where the female partner ratio was over 40%. These outliers masked the majority of funds (57%) without a single female senior partner in their investment team. Even if including the principal level, the percentage of funds without any women in senior positions was still 39%.
The gender proportions weren’t quite as extreme when we examined the few EU corporate VC funds in the healthcare sector. In this group, the proportion of female senior partners reached 27%, even reaching a high of 38% when the principle level was added. The skew towards men was still present though.
Why are there more women in corporate funds?
The investment teams of corporate funds seemed better able (or at least, more willing) to attract and promote female talent than the teams of purely financial VC firms. We wondered why this might be?
There were a few reasons we identified as potential contributors to a more even gender balance in corporate funds. Firstly, large corporate organisations have implemented gender equality policies in their personnel search strategies, which trickles down to their venture organisations. Searches deliberately targeting both genders tend to result in more diverse teams.
Secondly, young, ambitious women may be receiving more opportunities to develop their talent within a larger and more structured organisation, where there are clear career paths and development programs. Once the first few career steps have been taken within these large corporations, the jump to a more entrepreneurial Venture organisation might appear less challenging. Many partners in corporate VC firms are recruited from either within the parent organisation itself, or from their competitors. Previous achievements within a larger organization works to build trust in a job candidate, increasing their chances of recruitment.
Young, ambitious women may be receiving more opportunities to develop their talent within a larger and more structured organisation, where there are clear career paths and development programs.
A third factor may be that there is a higher senior staff turnover at corporate VC funds, as senior partners are less bound by golden handcuffs. The result is that new talents, including women, are allowed to climb up the ladder faster. Senior partnerships in classical VC funds, by comparison, tend to remain steady over multiple funds, limiting positions for newcomers and prolonging the rectification of the historic male bias.
If men fund men, do women prefer to fund women?
We established that investment teams tend to have more male than female members. But does the gender balance of these teams really have an impact on investment decisions and portfolio composition?
To answer this second question, we went back to our analysis above and examined the gender composition of the C-level suites of the active portfolio companies from the funds with the highest percentages of female investment partners. Many studies have found that male-fronted companies are more likely to obtain funding than equivalent female-fronted companies. We wanted to know if investment teams with a higher proportion of women were more likely to invest in companies with women in their executive management.
It could be that there is an implicit bias against female-fronted start-ups by both female and male investors, with both preferentially investing in start-ups with male teams.
We didn’t find any bias in our analysis, in the sense that a higher proportion of female investment professionals did not appear to be linked to an increased number of investments in companies with women in their executive teams. However, women were still in the minority on these investment teams, and we were simply using the presence or absence of women in the C-level suites for our measurements. From these results we cannot really draw any conclusions about the bias of female investors. Even if our results did hold up in a more rigorous study, it could be that there is an implicit bias against female-fronted start-ups by both female and male investors, with both preferentially investing in start-ups with male teams.
Admittedly, our analysis also had some shortcomings. We were dependent on the online information that the companies have made publicly available. When performing the analysis, we only included individuals with ‘Chief’ in their title. When delving deeper, we realized that many of the second and third individuals named and pictured on the companies’ websites are in fact women, but only a very limited number of these women have been given a title including the word ‘Chief’. We assume these individuals are mentioned on the websites because they are important to the success of their companies, so why are the C-titles predominantly reserved for men?
Closing the funding gap
Is the gender gap in funding influenced by the lack of women on investment teams? Likely, yes. Our analysis did not support the idea that investment groups with more women would disproportionately invest in companies with female-fronted management teams. However, this just raises further questions as to what the underlying causes of the gender gap in funding might be.
Both men and women need to examine their own biases and strive for equal opportunity for everyone.
One thing is clear: climbing the corporate ladder is challenging for women both in investment and life sciences companies. In order to achieve a better gender balance in both industries, we need more structured career paths and professional support. Opportunities for young talent in the Venture Capital industry would also be helpful. Perhaps most importantly though, both men and women need to examine their own biases and strive for equal opportunity for everyone. Change is slow to come, but with a concerted effort we can close this gap.