In venture capital, we know there is a problem with gender diversity. According to Crunchbase, just 2.8% of funding went to women-led startups in 2019 before falling to 2.3% in 2020. And that 2.8% figure was an all-time high.
Some back of the napkin math shines a light on what this really looks like.
According to PitchBook and the National Venture Capital Association, venture investors put $156.2 billion into U.S.-based startups last year, or about $428 million per day. Women-led startups got just $3.5 billion of that.
There are a lot of reasons for this gap — the fact that most decision makers at VC funds are men, the industry’s reliance on referral networks that reinforce the status quo, etc — and there are a lot of solutions being tossed around to address the shortfall in funding, from women-focused funds to quotas across the industry.
But, at iSelect, we see this issue differently. Our investment process is unique, robust and fair, which leads to better return for our investors. It also means that we have more diverse founders and CEOs because we simply look for the best people with the best ideas.
According to our internal findings, of the 57 companies we have invested in since fund inception, 19.3% of them have women CEOs, as do 27.5% of the 40 companies we have added since 2017. Between 2018 and 2020 we invested in 29 companies, 31% of which had women CEOs. We are outperforming both the general market (number of women-led startups was 20% in 2019 according to Crunchbase) as well as the VC funded universe (2.3% women-led startups).
How did we get here? What is iSelect doing differently than its peers? It all comes down to our process.
We don’t focus on founder diversity in our investment process and remain thesis-driven in the companies we choose to invest in. For us, the thesis comes first — our long-term mission to improve health and wellness through better, more nutritious food — and then we seek out the best companies that are working on those solutions. Our process is based on this goal alone, not on other factors.
We are proud that this diversity is a result of our unique, robust, thesis driven approach. By building the right processes, focusing on the right thesis and taking an objective approach to our investments we’ve landed on a solution to venture’s long-running diversity problem that looks very different from some of the answers being tossed around by other funds.
Here’s what we’ve learned:
- Thesis first, thesis only: Of the four stages of the venture investing process (deal sourcing, pitching, due diligence, deal closing), sourcing and pitching are where bias is most likely to come into play. That’s why we don’t operate on the basis of our referral network, instead seeking out the best companies that fit our thesis. It turns out that many of those companies are led by women.
- Objective, structured process: Structured pitch sessions that include standardized questions of founders (only deviating to ask company specific questions) and predetermined evaluation criteria take a lot of the guesswork and potential for bias out of the process. Blind evaluations of pitch decks help too. Taking founders’ demographic information out of the equation can prevent unnecessary gender biases from impacting funding decisions.
- Diversity of opinions: In the absence of structured processes, VC firms make talent management decisions informally, which renders them highly susceptible to biases like pattern-matching (availability bias) and overconfidence. By bringing other voices into the process, funds are better able to sort through these challenges and open up their selection process to more potential opportunities. (SXSW does a nice job of this with its Panel Picker — every year attendees get to vote for which presentations they want to see at the conference, bringing thousands of different voices to the table instead of just focus on the opinion of the internal team.)
When you have a deep process, a broad range of skilled professionals vetting the opportunities, and clearly defined investment criteria you get the most talented founders and operators, and you get the most diversity.