When Linnea Roberts retired in 2016 from Goldman Sachs, where she'd been a managing director, she didn't intend to become a startup investor. At a dinner the next summer, she met Bertha González Nieves, co-founder of tequila company Casa Dragones, and was surprised to learn González Nieves had no female backers. Roberts promised to find her 10 great female investors. "I started reaching out, and the level of consternation and doubt on the part of the women I spoke to was incredible," says Roberts. "The next day, my husband had dinner with a bunch of his buddies, and in a night raised five times what I was trying to raise."
Some of her husband's success may have had to do with the fact he is George Roberts, the R in private equity firm KKR. But Linnea was incensed, nonetheless, and determined to start focusing on investing in women. By the end of the year, she had set up a $50 million venture fund, named GingerBread Capital, from her family office. She wants to see her founders making investments in other women, and the earlier the better. "I tell my founders, 'My goal for you is simple,' " Linnea says. " 'I want you to get rich, and I want you to put it back into the system.' "
That system is severely broken. Of the more than $100 billion invested by venture capitalists each year, all-male teams get about 83 percent. All-female teams get 2 to 3 percent. Gender-diverse teams--which might include just one woman on a founding team of five or six--get the rest. These numbers haven't appreciably budged in years. This is despite the fact that women-led companies that do get funding tend to be more capital-efficient and have higher revenue than comparable companies led by men. And, according to First Round Capital, gender-diverse leadership teams show valuation growth 63 percent higher than all-male teams'.
Roberts is part of a growing wave of women who've decided that the best way to get more money to women entrepreneurs is for other women to get out there and raise funds on their behalf. In 2005, Golden Seeds was the first angel network to invest solely in women entrepreneurs. It took about five more years for that money to start finding its way into venture funds. Now, Inc. has identified about 70 venture funds around the world that collectively have raised around $2 billion to support fast-growth companies led by women. You can find them online in a searchable database called the Fundery, the only publicly available tool of its kind. Entrepreneurs can search by geography, industry, and stage to find funds most likely to invest in their companies.
Almost all these funds were started by women. (Harlem Capital and Reinventure Capital are two exceptions.) They're mostly early- and seed-stage funds, and, as they mostly come from first-time managers, small. Five million dollars is more than respectable for a first-time fund.
These new fund managers are tackling several problems at once. They want to support women entrepreneurs and nurture more role models who will go on to become investors. They want to help innovations developed by women, for women, have a better shot at success. And they want to lead by example: to show that a fund can drive superior returns by investing outside of young, white men. Says Megan Bent, who started Boulder, Colorado-based Harbinger Ventures, "Many investors spend their careers looking for meaningful inefficiencies that will drive returns, and this one is right in front of us."
Why don't venture capitalists--about 90 percent of whom in decision-making roles are male--invest in more women? There's sexism and bias, of course, which look increasingly pernicious--and obvious--in the era of #MeToo. It's also that the deals investors make often depend on who's in their networks. Men tend to have other men in their networks; women, other women.
Marie Rocha, an independent software developer, saw this firsthand when a man in her social circle raised $2 million for a light-up toilet. Meanwhile, she knew plenty of women--many of them her clients--who couldn't get capital to grow their businesses. "He had a network who believed in him and was very well connected," says Rocha. "That was the catalyst for us." She teamed with a partner to raise $5 million for Realist Ventures, which invests in underrepresented founders.
Other women say they've experienced a different hurdle pitching men: Male VCs have a hard time getting excited about businesses that appeal primarily to women. In 2013, when Mariah Chase was trying to raise money as the CEO of Eloquii, a fashion brand for plus-size women that had been shut down by the Limited, she knew it would be hard. Still, the mostly male investors' reluctance surprised her: No one wanted to bet on Eloquii until it had traction, even though the team was essentially relaunching a known brand.
Chase says the men couldn't quite step outside themselves to learn about something new. She repeatedly heard the comment women entrepreneurs dread: "Let me ask my wife."
"I laugh," Chase says. "With love. Sure, ask your wife, but if she's a thin white woman, we might not be working with the right data set." Eventually, Eloquii got two big angel checks that allowed the company to take off--one from a woman, and another from a family office where a woman championed the investment. Chase went on to raise $42 million, and sold Eloquii to Walmart in 2018 for $100 million.
Perhaps nowhere is the disconnect between market need and VC interest more frustrating than in women's health care products and services. Antoinette von dem Hagen, who's a limited partner in nearly a dozen private equity and venture capital firms, says she forwarded information to one of them about Joylux, maker of a medical device to improve vaginal health. "They passed it on to a lad right out of business school who had no idea how big the women's sexual wellness industry is, but he told me it couldn't be very big," she says. "What an untutored, uninformed ... " Von dem Hagen can't find the right word. "There's just an attitude." After the incident, von dem Hagen learned about a new fund, Avestria, that focuses exclusively on innovations in women's health care. And, yes, she plans to be a part of the fund's second close.
In 2014, Anu Duggal closed one of the first funds to invest only in women: It took 700 meetings over 18 months to get 70 people to contribute $5.8 million to her New York City-based Female Founders Fund. And Duggal was a successful entrepreneur herself, with Silicon Valley connections. In 2013, as she was raising her fund, only one woman-led company in New York raised a Series A round: Zola, helmed by Shan-Lyn Ma.
Four years later, Duggal raised $27 million for a second fund with much less hassle. She says she saw a surge in the level of interest in backing underrepresented founders. Plus, more women were landing follow-on funding: In 2018, 19 women in New York had raised Series A rounds, including Scentbird, Maisonette, and Kindur. Says Duggal, "There has been a monumental shift."
Driving part of that shift are LPs--limited partners--in new funds who made their money in big corporations, finance, or law. They're new to early-stage investing, and they've given rise to a new type of fund, sometimes called a learning-by-doing fund.
In these funds, such as Portfolia and Next Wave, LPs can watch and ask questions as entrepreneurs pitch the portfolio managers. They participate in due diligence and leverage their networks on behalf of the founders. The goal is to train these LPs--often women--to become more active investors. "We see the real value of our funds as putting together thousands of women who know the innovations they want to see in the market," says Trish Costello, founder of Portfolia.
The recent flood of startup IPOs will doubtless contribute another wave of investors, although fund managers don't expect to see their impact anytime soon. The top level of startup execs--overwhelmingly male--tends to reap the most gains. And, then, says Karen Appleton Page, a general partner at investment firm B Capital Group, investment decisions will largely be driven by networks, with the guys investing in companies led by men, and women seeing pitches from other women. Over time, she says, she expects these new angels to invest more in women than their predecessors did. But it won't happen by accident--these networks need to start to blend. "In the long term, we can't have women-backed venture funds investing in just women-owned companies," she says. "But today, we don't have the opportunity to just ignore gender. Not if we want to change things."