As COVID-19, the ensuing economic crisis, and recent calls for racial justice show, the cost of complacency toward matters of equity is reaching an inflection point. We are ready for a sweeping reset, a new paradigm—one where women receive half of all venture capital (VC) funding, represent half of all decision-makers at VC firms, and make up half of all business owners. Entrepreneurship is ready for an infusion of gender equity.
Despite increased awareness, we’re not close to achieving gender equity in entrepreneurship.
The data indicate that we still have a long way to go. In 2019, less than 3% of all VC funds went to women-led companies, more than 90% of all decision-makers at VC firms were men, and despite representing 39% of the nation’s business owners, women accounted for only 4% of all business revenues. When we factor in race and ethnicity, the journey to gender equity becomes even more strenuous. Black women, for instance, represent a meager 0.2% of all venture-backed founders, less than 4% of the VC workforce—virtually none of whom are calling the shots—and just 3.5% of women business owners.
While this is objectively wrong, it’s also bad for business. Gender equity is a massive untapped resource in the entrepreneurial ecosystem. VCs could expand their projected returns to investors by $4.4 trillion by committing to equitable investing practices. What will it take to catalyze the efforts necessary to achieve gender equity in entrepreneurship? Corporate venture capital (CVC) may be able to lead the way.
Amazon, for instance, confirmed that it will buy Zoox, a self-driving car startup from Australia headed by Aicha Evans, a Black woman. VCs and their limited partners should take note. They are losing money by not backing startups led by diverse founders.
What is corporate venture capital?
CVC arms including Accenture Ventures and Intel Capital, differ from traditional VC firms in several ways. CVC operations are a division of a large corporation. They invest on behalf of their parent companies to strategically increase innovation and up the game with a new level of competitiveness. CVC achieves these aims by investing in promising startups that can either “build on their strengths,” such as expanding competitive holds on specific market segments, or “fix their weakness” by improving areas of the business with deteriorating performance.
In contrast to traditional VC, CVC is not driven purely by financial return. A full 80% of CVC investors say they primarily consider strategic alignment when looking to invest in a startup. Given that viewpoint, a valuable exit opportunity for CVC could take the form of an acquisition, a new OEM partner, or product integration.
How corporate venture capital can close the gender gap
Wide and stubborn entrepreneurial gender gaps will stay open if we let them. By now, the data have confirmed the financial upside of gender equity not only for companies and investors but for the economy at large. We know that over a five-year period, companies founded or cofounded by women generate 10% more cumulative revenue than male-founded companies. And on a dollar-per-dollar basis, companies founded by women generate 78 cents per dollar invested, whereas companies founded by men generate 31 cents for every dollar invested.
Black women started 42% of net new women-owned businesses between 2014 and 2019. That’s three times their share of the female population (14%). Despite rapid growth, Black women receive a disproportionately small share of VC funding. A growing number of VCs, such as Backstage Capital, see this disparity as the biggest opportunity in investment and are specifically focused on helping Black female founders and other underserved communities gain access to funding and resources.
As history demonstrates, financial incentives and good intentions are not enough to close these gaps. We need a revolution to shake up the world of funding and entrepreneurship, and CVC should catalyze these efforts. Here are five reasons:
- In the past five years, CVC deals have increased threefold, and in 2018 they represented 23% of all VC deals. Currently, 75% of Fortune 100 companies are active in CVC.
- CVCs are able to make independent decisions quickly, and they hold a robust portfolio of startups—facilitating a strong network effect for ideas/best practices to socialize.
- CVC has smaller gender gaps among their leadership teams compared to traditional VC: 15.9% of partners and executives in CVC are women versus 9.65% among all VC. Due to the interdependent relationship between gender representation among VC partners and who gets funding, CVC is already positioned to lead the way in closing gender funding gaps as well as gender gaps among VC leadership.
- CVC focuses on corporate strategic investments or investing in startups with the goal of creating value for the business that is separate from capital appreciation.
- CVC has access to large-scale corporate social responsibility (CSR) initiatives, which in turn allow enterprises to financially contribute to underrepresented founders, especially Black women.
For the sake of the future of innovation, the future of work, and our future generations, the time is now for a VC revolution. In the words of Tiffani Ashley Bell on Twitter, CVC should “make the hire, send the wire.”
By committing to equitable representation among decision-makers and diverse allocation of funds, CVC can have a significant impact on closing gender and racial gaps in the entrepreneurial ecosystem.
CORRECTION: An earlier version of this article cited Google Ventures (GV) as a CVC. GV is actually a financially-driven, non-strategic venture arm that spun out of Google in 2009. All of the investments made in the original citation were made after it began operating as an independent fund with Alphabet as its sole limited partner.