By Jenna Nicholas, VP of One Planet VC
I’ve been a startup investor and entrepreneur for more than 10 years, and there have been several times I’ve walked into a room to lead a meeting, only to be mistaken for the assistant to my male colleague. This casual bias has penetrated and negatively impacted venture capitalists’ decisions on where and to whom to invest.
The COVID-19 pandemic closures and restrictions put a significant strain on businesses of all sizes and stages of growth, but female founders, in particular, lost out on critical funds to run their businesses.Only 5 percent of self-reported female-owned companies received PPP money.
Access to venture capital also plummeted for women and people of color-run businesses in 2020.Crunchbasereported that in 2020, the more than 800 female-founded startups globally received a total of $4.9 billion in venture funding - a 27 percent decrease over the same period the previous year.
The investing ecosystem reveals that investors (a majority are white men) tend to gravitate toward entrepreneurs who look like them, who have the same network, or who attended the same university.
This feels like a huge opportunity that is just being left on the table.
What Investors Are Missing
Research shows more diverse teams lead to better businesses. Particularly in different segments of the market, women have a better understanding of certain consumer behaviors and trends that allow for growth opportunities. For example, the RealReal founded by Julie Wainwright is an online marketplace where women are the main consumers. Wainwright and her team were able to build a business that understands that particular customer segment, bringing perspectives and needs from both career women, career mothers, and stay-at-home moms. We also notice women’s leadership having a greater impact in the healthcare and education industries because they bring to the table a different experience with female health and childcare.This would seem like an obvious strength, but women founders and people of color founders are at a disadvantage receiving investment backing.
A BCG study found that even though women-owned businesses earn twice as much revenue per dollar invested as male-owned businesses, investors often still shun them. Black women founders receivedless than 0.3 percent in VC funding in 2018 and 2019.
The Bubble Problem
The first issue is a lack of diversity within the investor pool. White men make up a majority of investors and not only do they gravitate towards founders within their own networks, but they present different types of questions to founders who pitch them.
For instance, male entrepreneurs are more often asked upside-oriented questions, such as how much projected growth they forecast. Women and people of color founders, however, will often be asked downside-oriented questions: hypothetical problems and how they would deal with them.
During a pitch event in 2017, I was one of several investors listening to nearly 40 startup founders. I, unfortunately, witnessed many male investors look down at the table or their phones when a woman entrepreneur would take the stage. In the case of male/female co-founder teams, investors would largely direct all technical questions to the man, despite the woman being either the CEO or CTO.
It was incredibly awkward to watch the male co-founder reply several times to investors that “This question is better suited for the CEO.”
Additionally, investors need to understand the importance of context in how an entrepreneur will respond to questions if the answers may be based on previous experiences or interactions in their lives. Particularly with people of color, it’s reported that these entrepreneurs have a tendency to be more conservative in their answers. An investor needs to dig deeper and invest the time in understanding the context.
One Planet’s Experience Investing in Women and People Of Color-run Companies
At One Planet VC (www.oneplanetvc.com), a division of One Planet Group, our goal is to invest at least 60 percent of our portfolio into women and people of color-run businesses. In fact, the majority of the investments that we made in 2020 were into either female or people of color-founded companies. We have found that this investment strategy has led to great performance within our portfolio.One Planet’s founder and CEO Payam Zamani invests his personal income into women and people of color-run businesses.
There are five investments we would like to spotlight:
We provided additional financing to our previous investment in Gro Intelligence (www.gro-intelligence.com) to be part of their $85 million Series B funding round. This was the largest Series B ever raised by a Black woman entrepreneur (Sara Menker) and the largest round in deep tech. Gro Intelligence is the first data platform designed for the agriculture industry. It uses artificial intelligence to forecast supply, demand, and pricing.
From One Planet VC’s first virtual, live broadcast pitch event in May 2020, Kanthaka (www.kanthaka.com), led by Sylvia Kampshoff, received seed funding from One Planet VC. Kanthaka connects users with experienced personal trainers for in-person and virtual fitness training and yoga practice.
LiftEd (www.theliftedapp.com), co-founded by Dr. Joanne Hill Powell, provides high-quality special education programs run in school and online for students with special needs. With the shift to remote learning in 2020, the need for LiftEd’s work is greater than ever.
Memorywell (www.memorywell.com), founded by Jay Newton-Small,is an AI data platform that promotes person-centered care through life storytelling.
Seed & Spark (www.seedandspark.com), founded by Emily Best, enables creators and audiences to work together to tell stories that celebrate diverse voices and foster vibrant conversation.
One Planet VC has also invested in amazing male entrepreneurs, but our recent investments in women-led companies reflect not only great ideas and great business models but make sense considering the world population is nearly 50 percent women.
Where Do Investors Go From Here
I think it’s essential for investors to really be able to recognize the bias they bring with them to startup pitch meetings and how it influences their decisions.We need to realize how endemic it is and that it is structural not just personal. It exists because the workplace plays a role in fostering it.
Team building is not uniquely a feminine quality, but research has shown that women leaders better recognize and encourage individuals’ strengths. Diversity is important in order to draw insight to engage with different customers and feel authentic to their experiences. There is no one way to lead or be successful, so investors need to be open to working with entrepreneurs who challenge archaic business models and operations.
Community is important - both women and men can play a role in mentorship and sponsorship to help give the right perspective, elevate, and develop the next generation of entrepreneurs and investors.
As we look to our investments in 2021 and onwards, One Planet VC is excited to continue to invest in and help to build and grow incredible businesses run by entrepreneurs of all different backgrounds, including women and people of color. We have a number of other investments in businesses that have female founders or co-founders that we will be announcing shortly. Our investments so far have been an incredible blend of both high-performing businesses, alongside having a deep societal impact and contributing toward the betterment of the world. We are excited to continue on this path.