Brotopia

by Emily Chang

  “One of the things that really mattered to Jess was knowing she wasn’t hired because she was a woman,” said Sequoia partner Roelof Botha. Botha, who co-leads Sequoia’s U.S. operations, told me that he personally works very hard on finding new partners and that over the last three years he has interviewed more than 150 people, including a few dozen women. Sequoia has typically hired its partners from its portfolio companies. (Remember Botha came from PayPal, which Sequoia backed.) In order to find women and other exceptional candidates, Botha is now looking beyond the obvious suspects and casting a wider net, which is how he discovered Lee.

  “The industry and Sequoia need to do more, and we’re taking action to help move the needle. We still have a long way to go,” Botha said.

  In 2016, Sequoia launched a mentorship program called Ascent that pairs women in technical roles with senior women across the industry (though one female founder who was asked to join the program as a mentor said she felt as if Sequoia was asking her to do free work, while the firm took all the credit). Botha has also been working to add more women to Sequoia’s super-secretive “scout” program, a large group of mostly entrepreneurs who unofficially refer deals back to the firm, then get a cut. It’s an ingenious way to get deal flow, but once again male dominated. When the Wall Street Journal compiled a long list of known Sequoia scouts in 2015, only 5 out of 78, or about 6 percent, were women. By September 2017, the number of female scouts had jumped to 25 percent.

  Still, women have a long way to go before they can have even close to an equal voice at the venture capital table. Though many firms now claim they are working hard at gender diversity in hiring, Hoffman believes that not all the firms are as serious as they would like observers to believe. “I’ve seen more explicit sexism [in Silicon Valley] than I’ve seen explicit racism,” he says, noting that he’s spotted one reliable clue that a firm may be a boys’ clubhouse: “super-attractive receptionists.” It’s “bullshit,” Hoffman says. The attractiveness of the assistants out front, he insists, is a direct indicator of which firms have problems in the way they treat women. “Literally, from the offices I’ve gone to, it’s a one-for-one match.”

  HOW MALE VCS DEAL WITH FEMALE FOUNDERS

  In Silicon Valley, the power of the top-ranked venture capitalists cannot be overestimated, because while all money is good, all money is not created equal. From a start-up’s point of view, the best money comes from the top firms, because their initial investment ends up delivering a lot of other benefits. For example, a business funded by Sequoia or Andreessen Horowitz during the initial Series A round will likely have little trouble finding follow-on investors for its Series B. But money isn’t the only advantage that flows from having a top firm on your team. The right VC can also open doors to key power players within both the Silicon Valley ecosystem and the larger business community. Marc Andreessen’s personal relationship with Mark Zuckerberg might, for example, be critical to an entrepreneur launching a company in any area where Facebook does business. VC firms also help with hiring, because they know the best talent in the Valley. And if the time comes for an IPO or sale, they can connect you to the best bankers and law firms around. If entrepreneurs are the princes of Silicon Valley, a few dozen VC partners at a handful of firms are the kingmakers. Every founder wants the top VCs’ helping hands up to the throne, but each investor makes only one or two investments a year, so the competition is crushing.

  Most venture capitalists are men, and they most often back male entrepreneurs. In fact, men run 92 percent of VC-backed companies nationwide. What may be more surprising—and discouraging—is that even firms with female partners back the same (small) number of female founders as all-male firms do, according to one Bloomberg report. Some believe this is because female VCs worry about being accused of bias in favor of female entrepreneurs and also do deeper due diligence to avoid making mistakes, feeling as if they have more to prove. Either way, female founders lose. In 2016, VCs invested a little over $58 billion in companies with male founders, while female founders received just $1.46 billion. The average size of an investment in a company led by a man was about $10.9 million, up from $9.7 million the year before. Women-led companies received $4.5 million on average, actually decreasing from $6.1 million over the same period.

  Female entrepreneurs, including Katrina Lake, the founder of Stitch Fix, an online personal shopper that went on to become one of the most promising start-ups in the Valley and went public in 2017, often lament the challenges of raising money from mostly male investors who may not connect with them easily or appreciate business ideas that cater mostly to women. (And some of the businesses they do fund benefit from sexist behavior. Think trolling on Reddit and Twitter.)

  Lake is a no-bullshit, straight-talking CEO who grew up in Minneapolis and San Francisco, the daughter of a public-school teacher and a doctor. She was always surrounded by strong women, Lake tells me at Stitch Fix’s buzzy San Francisco headquarters, including a grandmother who fled an arranged marriage in Japan and encouraged her granddaughter to march to her own beat. As such, Lake had her own iconoclastic sense of style. In high school, you might have found a teenage Lake wearing green cargo pants or baggy jeans and neon raver boots. “Surprisingly, it didn’t stop me from making friends,” Lake jokes.

  When she arrived for her freshman year at Stanford, Lake thought she wanted to be a doctor. She enrolled in premed classes and scored highly on the MCAT. This was just as Facebook was starting to take off with its soon-to-be-iconic founder. “Mark Zuckerberg . . . had quit Harvard and would go to parties at Stanford,” Lake recalls. “That was what I thought of as an entrepreneur. Someone who coded in their basement.”

  At school, she gravitated toward economics and abandoned medical school for management consulting. After graduation, she joined the Parthenon Group, where she focused on retail and restaurants and realized that many retail businesses either don’t have or don’t effectively use customer data. She then became an associate at a small venture capital firm, in hopes of finding a retail start-up she might like to work for. After meeting hundreds of entrepreneurs, she didn’t find a single company appealing as an employer, but she also realized that not all founders actually look like Mark Zuckerberg.

  “That was inspiration,” Lake says. Finally realizing that she could simply create her own dream company, Lake went to Harvard Business School, which is where she hatched the initial idea. She’d read about an online service that connected men to personal shoppers, and she decided to take a crack at something similar for women. She teamed up with the wife of a Stanford classmate, Erin Morrison Flynn, who had worked as a direct merchant at J.Crew, and the pair began by asking classmates, friends, and friends of friends to fill out style profiles to indicate what kind of clothing they liked and needed. Then they bought a bunch of pieces at retail, on their credit cards, and started delivering boxes of clothes to their first “customers,” who reimbursed them for the clothes they liked, leaving them to return the rest. They didn’t make any money but did get a feel for how the business could work: they could style customers to their satisfaction, even if they didn’t know them personally and even if the customers didn’t recognize the brands they were receiving. Eventually, they started sending five items per box, which Lake refers to as their “fix,” because people who like the service get addicted. Hence the company name, Stitch Fix.

  Stitch Fix started to take off thanks to an initial investment from her mentor and fellow entrepreneur Sukhinder Singh Cassidy (whom Lake had met during an internship at Polyvore). Lake and Flynn later parted ways. “We had a good partnership . . . the company was scaling and we were going in different directions,” Lake tells me. Forbes reports there was an ownership dispute, a lawsuit, and a settlement and ultimately Flynn left the company. Though Stitch Fix had successfully raised a Series A, the next round of fundraising proved much more difficult.

  In the fall of 2012, Stitch Fix was running out of money. Custome
rs kept coming back, suggesting that an online personal styling service could be something big. The company needed to scale, which meant it needed cash. But even though Stitch Fix’s revenue growth was promising, some fifty VCs passed on investing. Those who gave an explanation suggested they just didn’t want to invest in a women-focused business or simply didn’t understand the opportunity. “One investor literally in the first minute said, ‘I don’t know why anyone would ever want to receive something like this,’” Lake says. “In a lot of cases, men aren’t going to see the same thing [that women see].”

  Investors generally do see women’s businesses differently than their founders do. One VC told me, “I’d love to fund more women, but I just don’t want to fund another e-commerce company!” This comment points to the same issue that some VCs have complained to me about privately: that too many women choose to start companies in sectors where growth is expected to be lower, such as e-commerce and parenting, rather than in areas with huge growth potential, such as artificial intelligence. A lot of low-growth businesses are viable; they just don’t have the kind of enormous upside that excites investors who are successful enough to pick and choose. In 2011, Mashable reporter Jolie O’Dell tweeted, “Women: Stop making startups about fashion, shopping, & babies. . . . You’re embarrassing me.” Her comment triggered the typical social-media uproar, but there is some truth to it.

  In a comprehensive survey in 2017, TechCrunch found that 31 percent of start-ups with a female founder focused on e-commerce. Other sectors popular among women were education, health care, and media and entertainment. But the vast majority of venture capital in 2016 went into fintech (meaning financial tech, such as apps that disrupt banking and retirement planning), security, genetics, augmented and virtual reality, and artificial intelligence, in addition to an outsize amount in transportation (dominated by funding of Uber, Lyft, and other ride-hailing services). These numbers indicate a big mismatch between ideas that attract mostly male VCs and ideas that attract female entrepreneurs.

  Is this a true gender gap? Maybe, but not necessarily. There is evidence to suggest that women choose lower-cost-of-entry, lower-growth sectors simply because they have fewer resources available to them. Not only are women less likely to receive venture capital than men, but they are also less likely to have business loan and credit applications approved. That said, the data also shows that women ask for smaller amounts of credit and hesitate to take on more debt. The author Sharon Hadary, who has closely studied entrepreneurship, says men tend to set bigger goals for growth while women focus instead on making their business sustainable. Hadary believes the problem is twofold: “First, you have women’s own self-limiting views of themselves, their businesses and the opportunities available to them. But equally problematic are the stereotypes, perceptions and expectations of business . . . leaders.”

  Supporting Hadary’s view is evidence that venture capitalists talk about male and female entrepreneurs differently. In one study of a group of investors (including five men and two women) discussing future funding decisions in Sweden, male founders were more likely to be described as “young and promising,” while young women were described as “inexperienced.” Being cautious was viewed as positive for men and negative for women. Ultimately, women were denied funding more often than men, and when they did receive it, they got 25 percent of the money they requested, whereas men received 52 percent.

  The data clearly also shows that when a woman walks into a pitch meeting, she is already at a disadvantage. In one study in which women and men voiced the same slide presentations word for word without ever showing themselves, investors funded male-voiced ventures 60 percent more often than female-voiced ventures. When entrepreneurs presented in person, attractive men were particularly persuasive, whereas good looks didn’t give a woman an extra edge, even if she said the same thing as the man who came before her. Sarah Thébaud, a sociology professor at the University of California, Santa Barbara, has found that both male and female investors tend to have lower expectations of women entrepreneurs and systematically perceive them as less competent and skilled.

  Thébaud writes in Newsweek, “On an aggregate level, this dynamic suggests countless ideas that could have blossomed into successful businesses and benefited the economy never did, simply because the individuals who pitched them weren’t the ‘right’ gender . . . This finding suggests that when a man proposes a business idea, he can typically expect others to respond on the basis of a simple risk-benefit calculation, the kind any venture capitalist might make when deciding whether to help finance a project. But when a woman proposes the same idea, she can expect others to simultaneously be looking for cues that she in fact possesses the types of skills and traits needed to make a venture a success—abilities she’s often assumed to lack because of her gender.” In essence, investors are prone to selling women entrepreneurs short.

  “There is not a single woman that I can think of in this industry that is publicly labeled as a ‘visionary’ or a ‘genius,’” Rent the Runway CEO Jennifer Hyman told me. “There are dozens and dozens of men in the country where those adjectives are used. Because we label men as geniuses and visionaries, we give them a lot more chances, we allow them to fail a lot more times, and we make excuses for things that we wouldn’t make excuses for, for women . . . Unless we change the public vernacular of how we lift up and recognize women and how we all give women the same sorts of chances . . . we are not going to see that change.”

  VCs will argue that many female entrepreneurs are guilty of underselling themselves. Investors have told me that women often focus on pitching their skills, data, and metrics rather than selling a big vision, something men are more comfortable doing. That vision may be grandiose and nearly impossible to achieve, but it sure sounds good. Investors want to fund outsize successes, and telling a good story is critical. That’s why you will often hear investors say they fund people instead of ideas. VCs want to believe in an entrepreneur’s idea, but they want to believe even more in that entrepreneur’s willingness to think big and drive to succeed at any cost. That said, if investors are already predisposed to doubt that women have what it takes to deliver a big return, would they believe a woman who said she could? VCs want to hear a visionary pitch, the story of a billion-dollar opportunity that will justify the financial risk required to make it happen. But if a woman does make a visionary pitch, VCs are prone to doubt that she will be able to bring that vision to life. With men, they are more willing to believe that the sky’s the limit.

  On top of this, VCs generally spend years working closely with the handful of founders they’ve chosen to fund, helping them make the dream a reality. Given that level of commitment, it’s no surprise they want to bet on companies they are truly passionate about. But here’s the catch-22: because most venture capitalists are men, they are likely to be more passionate about ideas that appeal to, well, men. When Lake was raising her seed round, she noticed that a fair number of little league coaching apps were getting funded. “I’m like, how big of a business is that? Seriously, a T-ball league? But your target audience is these VCs who manage their sons’ T-ball league,” Lake says. “There’s bias that gets introduced in terms of what people’s passions are, what people’s interests are . . . what industries people understand, and what they personally feel an affinity toward. I do think there ends up being a bias against where women are the primary opportunity.”

  When VCs do fund women, however, they often do right by them. Julia Hartz co-founded Eventbrite with her husband, Kevin, the early PayPal board member. Sequoia backed Eventbrite and Roelof Botha joined the board. When Kevin stepped down as Eventbrite’s CEO in 2016, Julia became one of the few female chief executives in Silicon Valley. “You start to think, okay, there are a million different ways I could fail here,” Hartz says. “So you look for signs of people who are going to support you or people who are going to judge you.” Sequoia definitely fell into the first category, Hartz says.
She visits the firm’s offices monthly to discuss strategy with Botha. “I get the sense that I’m not a sideshow [for them],” she says. “I’m not somebody that they are even trying to exploit. I’m like any other CEO, and they are there to help.” As for Moritz’s comment that hiring women would involve lowering the firm’s standards, Hartz says, “It certainly runs counter to what I’m experiencing.”

  Adi Tatarko, CEO of the home design company Houzz, says her Sequoia investors have been very understanding of her working-mom issues—for example, when she has to schedule around her sons’ birthdays and basketball games. “I’m not trying to protect Mike [Moritz] or anyone else there or being diplomatic here,” Tatarko says. “I have had lots of discussions with them, and they are truly looking for more, to do more, to invest more, to support more, and bring more relevant women forward.”

  Ultimately, Katrina Lake secured Series B funding for Stitch Fix from Benchmark, and one of its general partners, the acclaimed investor Bill Gurley, joined her board. Gurley discovered Stitch Fix via his assistant who was spending an inordinate portion of her income on a personal styling service. As soon as he met Lake, he was impressed. She is “nutty smart,” Gurley told me in May 2016. Fifteen minutes into her presentation, he asked for more details on the start-up’s cash flow. “She opened up her laptop and said ‘Let’s look,’ and she had a three-year-forward financial model, balance statement, income statement, and cash flow statement. I’ve never seen an entrepreneur do that in twenty years,” Gurley said.