Melinda Gates: What #MeToo Meant For Venture Capitalists

Several months before the first allegations against Harvey Weinstein hit the news and the #MeToo movement, started by Tarana Burke, went global, the venture capital industry was forced to begin confronting its own culture of sexual misconduct. I guess you could say VC’s moment of reckoning came early — but it would be more accurate to say it was overdue.

It’s no secret that VC has long been a boys’ club. In 2017, which was a representative year, only 2% of VC funding went to companies led by women, and about half of the top venture capital firms had exactly zero female partners.

The previously untold part of the story was that a significant number of women founders were being victimized by VC’s pervasive culture of sexual assault and harassment. Many of these women say they felt forced into silence, understandably fearing retaliation against themselves or their companies by the very people whose backing they needed most. Bad actors were able to exploit this inherently unequal power dynamic to operate with impunity.

But in June 2017, things began to shift. An explosive article detailing allegations of sexual harassment against Binary Capital’s Justin Caldbeck empowered other female founders to break their silence and speak out about the predatory behavior they’d faced. Voices across VC made clear that they were no longer willing to accept the unacceptable.

If there’s a silver lining in these painful revelations, it was that the VC industry — like so many others — has been forced to begin to address its deep-seated gender issues. Already, we’ve seen a small but significant increase in the number of women being hired and promoted by some of the most powerful VC firms. What’s more, women investors have begun to organize, creating groups like All Raise and Founders For Change that provide female investors and entrepreneurs access to networks and support. The doors to the old boys’ club haven’t exactly swung open — but there are a lot of people throwing their weight against them.

We need to keep pushing.

I asked six investors to give their perspectives on the progress VC has seen over the past year and where our efforts should focus going forward. We agree that progress will require continued action — by Limited Partners (LPs), General Partners (GPs), founders, CEOs, and all of us. I’m eager to be part of that progress, which is why I’ve begun investing in funds that over-index on companies led by women and people of color.

There are other key steps venture capital can take to transform itself from the inside, including hiring and promoting more people of color — and more women of color especially. The men who have historically held the positions of power in this industry have an opportunity to take an active role in driving these changes. I hope they seize it. It’s the right thing to do, and it’s going to yield returns.

As we reflect on the status of women in the technology community, we see both progress and continued challenges. The ranks of great women entrepreneurs continue to swell and those bright lights play a crucial role in serving as role models for future entrepreneurs. Women like Julia Hartz from Eventbrite and Katrina Lake from Stitch Fix, whose companies are now traded publicly, as well as others like Julie Wainwright of the Real Real illustrate to the next generation what is possible.

And the ranks of women entrepreneurs is growing. For Aspect’s first fund, though we are gender-neutral in evaluating opportunities, 40% of our companies had a woman founder. As we invest our second fund, that number is 43% and growing. Industry-wide, we are seeing the number of women founders reaching 17-20% of startups (depending on which data set you consider) and on an absolute basis, the number of companies with a female founder grew five times. Yet the total amount of dollars going to women is more challenging with only $1.9 billion of a total of $85 billion in 2017.

What does this mean? For us, it means more opportunity – more women and non-traditional entrepreneurs are seeing what is possible and next-generation firms like ours are investing. It means that traditional funds don’t want to miss out on good deals and work with Aspect and other diverse funds as well as expanding their ranks. It means that smart LPs, like Melinda Gates and others, are getting access to new deals. While change takes time and dollars continue to follow old models, the smart money is on this new breed of entrepreneurs, women who are building great companies, creating jobs for the economy, and serving as a bright light for the next generation.

While the numbers are still too small, the future is bright.

For too long, the VC community has not reflected the diverse and colorful world around us. But we’re hopeful; this year, we have seen more voices speaking up to the injustices that have riddled Silicon Valley, as well as the growing recognition of more humane, diverse, and inclusive values.

Key initiatives like All Raise, the female-founded nonprofit dedicated to diversity in funders and founders; Built by Girls, which specifically aims to equip young women to be leaders in tech; to the Reboot Representation Tech Coalition, which has pledged more than $12 million to double the number of women of color graduating with computing degrees by 2025, have all started moving the needle in quantifiable ways on much needed work. At All Raise alone, our efforts have reached female founders delivering 550 hours of one-on-one mentoring, our jobs newsletter and networking efforts have reached over 800 interested and diverse parties, and a collective of 900+ founders who value diversity within their teams, boards, and VCs have publicly taken the Founders for Change pledge.

There is potential for greatness, and we must all work together to course correct an industry that is so innovative, yet oftentimes operates in the past. We hope the progress that’s been made this year inspires a growing pool of founders, allies, and a new wave of companies to advocate for talented women and minorities as we continue demanding a space of inclusion and acceptance. This is the positive action this industry, our world, desperately needs.

2018 has been a year of change for Americans, and the beginning of conversations that I can only hope will move us into a stronger place for women, particularly from our vantage point in the tech and venture capital eco-system.

This year, we’ve seen the VC industry evolve in several important ways, with a universal movement towards improving the dynamic of funds with no female representation. Adding new female partners is a step in the right direction, but we also need to see these funds have more definitive standards and legal protections against harassment and discrimination both at their own firms, as well as for portfolio companies.

On the funding spectrum, 2018 has seen a very healthy rise in funding going towards companies with female leaders. In one day in July alone, we saw four female-founded companies with female leaders raise over $500M (23andMe, TheRealReal, ClassPass, and Guild Education). According to Pitchbook, in the third quarter of 2018, female founders in the U.S. have brought in a higher percentage of venture capital funding than any quarter in recent history.

From a limited partner perspective, we have started to hear more about limited partners digging deeper into accountability for their portfolio managers behavior as part of due diligence with new clauses that cover history of sexual harassment. We hope that these investors will continue to push for more diversity and inclusion in their fund managers.

Finally, we have seen a recognition of the importance of having both investors, as well as founders, more clearly reflect diversity in all different facets. Most traditional Silicon Valley venture capital funds have little if no diverse representation within both their firms and their portfolio company CEOs, and this needs to change.

Ultimately, we need to see more dollars flowing toward diverse fund managers and diverse founders to move the needle. It’s only when these leaders have access to capital that we will start to see the returns that will change the industry.

At Plexo Capital, we built our model for achieving returns based off at insight from GV (Google Ventures). That insight was that women and people of color in venture capital have unique networks and a different lens for evaluating deals, which leads to uncovering interesting opportunities that mainstream VCs might miss. This is especially true at the early stage in the absence of an abundance of data.

More and more, I believe that we are going to see both venture investors and entrepreneurs better represent the demographics of our society. Of course, this is not happening nearly as fast many would like it, but it is moving in the right direction. The potential for returns is too great to underestimate where the best ideas can originate and who discovers them.

Over this past year, we have seen the rise of a new generation of investors whose portfolios better represent our society at large. In fact, the portfolios of the VCs we have invested into at Plexo Capital have 35% to 45% of their companies founded or led by women and people of color compared to 1% to 2% of the average U.S. VC. We are bullish that these trends will have a positive impact on the venture ecosystem by delivering superior returns and developing a new generation of VCs and entrepreneurs.