Michael Moritz

The Real Obstacle To Becoming A VC Is Financial, Not Gender, Inequality

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Start your own venture firm. That’s the advice that one of the industry’s first female VCs, Kathryn Gould, gave to other women, and it came to mind yesterday as I watched an interview given to journalist Emily Chang this week by longtime Sequoia Capital investor Michael Moritz.

Chang asked Moritz about Sequoia’s responsibility to hire women, as Sequoia has no female investment partners on its U.S. investment team.

Adjusting his collar uncomfortably, Moritz said he’d like to think that the firm is “blind to somebody’s sex, to their religion, to their background.” He added that there is, in his view, a pipeline problem to explain the dearth of women at Sequoia. “I think the issue begins in our high schools, and where women particularly in America and also in Europe, tend to elect not to study the sciences when they’re 11 or 12. So suddenly the hiring pool is much smaller.”

Asked if Sequoia might not be looking hard enough, Moritz said that Sequoia “looks very hard . . . We just hired a young woman from Stanford who is every bit as good as her peers and if there are more like her, we’ll hire them. What we’re not prepared to do is to lower our standards.”

Numerous outlets have since suggested that Moritz put his foot in his mouth by associating women with low standards. Facebook commenters were no more generous, with some smartly pointing out that Moritz himself was a history major.

I’m not going to defend Moritz. But focusing anger at him, or at Andreessen Horowitz, or at Benchmark, or Accel Partners (none of which employ any female general partners, save for Accel’s Sonali De Rycker in London), is somewhat misguided. Top-performing, male-dominated venture firms aren’t going to start hiring female GPs because the press thinks they should. Venture teams are usually precarious unions to begin with, and when teams do work well together, there’s little incentive for them to bring in someone who doesn’t feel like a very natural fit.

Should we be dismayed by this? During a different period in time, the answer would certainly be yes. But more women who want to be venture capitalists can and are starting their own firms. Aileen Lee of Cowboy Ventures, Kirsten Green of Forerunner Ventures, Cindy Padnos of Illuminate Ventures, and Jennifer Fonstad and Theresia Gouw of Aspect Ventures are among a small group of people who’ve already struck out on their own. My guess is that five to ten years from now, we’ll have many more female-led venture firms created by those who’ve enjoyed some degree of success in their careers and begin funding startups on a full-time basis.

Thanks to the democratization of startup funding, there’s nothing to stop them other than having the financial resources to get started, and that’s not as big an obstacle for women as it once was. Consider: Women are now the equal, if not the main, breadwinner in four out of ten families, according to Pew Research. More women are now getting bachelors and advanced degrees than men. More are enrolling in competitive computer science courses than ever in history, too.

Though women (maddeningly) continue to earn on average 79 cents for every dollar earned by men, that gender wage gap is also closing, particularly for recent college graduates. According to economists at the Federal Reserve Bank of New York, female graduates with certain degrees are now earning more than males with the same majors.

Indeed, if there’s a major obstacle to becoming a venture capitalist in coming years, it will undoubtedly center on financial inequality, which has been a roadblock for many since the industry’s start. It’s a dirty secret that most entrepreneurs benefit from some kind of financial support; it’s no different in VC where, because outside investors want to know a VC has “skin in the game,” a VC typically has to make up roughly 3 percent of his or her fund with a personal check.

That’s expensive. Consider that one or two partners trying trying to raise a $50 million debut fund have to come up with $1.5 million themselves. They’ll collect management fees off that capital — the standard is two percent annually for the fund’s investment period — but they have to use that $1 million per year to pay for everyone’s salaries, along with rent, auditing, legal costs and back-office administration fees. That doesn’t leave much, which is why having something to start with helps.

Does it matter that most VCs already have money from either a successful exit or some other source of financial support? Are they better at picking startups because of it? No one really knows, but it’d be nice if we could get to that answer somehow. (New crowdfunding rules are great, but they aren’t likely to help those who want to become professional investors.)

In the meantime, I wouldn’t worry too much about women specifically. I expect to see more of them with the degrees, the networks, and the resources to become VCs no matter what traditional firms like Sequoia do in terms of hiring.

Gould, who cofounded the venture firm Foundation Capital 20 years ago and who passed away last week, thought the same. “I think the problem [of women in venture] will go away,” she said. It won’t be “through those firms hiring women, but because other firms like [Lee’s firm] Cowboy Ventures will grow up around them.”

Correction: The original version of this story stated that VCs collect 2 percent in management fees over the life of a fund; they collect 2 percent of the fund’s total amount on an annual basis over its investment period to cover their costs.