Posts Tagged ‘Investor’
Let me start off by saying that ‘women’ are the larger demographic ‘purchasers’ globally. Women are constantly making purchase decisions and very involved in making global ‘buy’ decisions. I was recently quite taken with the statistic that the largest percentage of the wealthiest (self made) women in the world are in China, in real estate. Women are highly educated, earn significant incomes and have access to wealth. So, the question is why do women shy away from investing in startups globally? This is a question that I very much want to hear your thoughts on and explore with you.
I am an angel investor in hi-tech startups in the US, Europe, India and hopefully soon in China. For the last 5 years I have joined and currently belong to a number of angel investment consortiums around the world. I also invest individually in startups of various stages. The angel consortiums I am a member of range from 170-270 members in each city/country and my colleagues are active investors who are either still in the tech industry of have recently retired, but very interested in technology. In addition to investment funds, we also bring a large number of highly skilled individuals to help the startup. The number of women in each consortium in no more than 2-3, and I am one of these women. That is a ridiculously low percentage! The question is why? When we do deals, we form due diligence teams and I have not had a woman on a team with me, ever! These numbers are staggeringly low! A few examples of the groups I belong to include Alliance of Angels in Seattle, and the Indian Angel Network, in India.
To overcome the challenge in various cities women have decided to have female only investment groups, such as Golden Seeds and Seraph. Highly talented women who opted out of the larger consortiums to only work with women colleagues. These are great women and bring a lot to the table. I have attended the lovely meetings, however, not sure I see the logic why we should form our own investment groups??? The number of investments are smaller, deals take longer, and frankly why separate something that should be interconnected? I am all for women getting involved and greatly support and admire these orgs, but ask the hard question: what is there to be gained in separating off into splinter groups???
Net-net in almost all deals which I have been involved in, I have been the only female investor (with the exception of 1-2 times). In addition to investment we also sit on advisor boards and board of directors. You already can guess where this is going: I rarely have women colleagues on the advisory boards and to date have not had a single female on any of the boards I serve on. Something that not only greatly distresses me, but a fact we need to be aware of and actively try to change. We need to go to the core of why there are not enough women on boards globally?
At the beginning, there was a period of adjustment and clearly some of my men colleagues had not had a female team member before. Upon working together, there has never been an issue. So, the question is why do women stay away? I need your help in thinking through this. I will propose a few hypotheses to get our discussion going:
- Risk: The nature of angel investing in pure risk. You see an opportunity, early stage and you have to make a decision to take a big risk. Risk taking is not something that is comfortable for many women. It is for this reason that while we have highly talented women in technology, we have very few founder entrepreneurs, as that is ALL about risk.
- Comfort: Not terribly comfortable for women to be with groups of all men, where you are often the only woman. Either during an investment or while on the board of directors. For some women this is not a pleasant environment, but it is reality.
- Intimidation: During the investment period, board meetings and at the time of due diligence for the investment, “things” can become highly intimidating and contentious. Emotions and opinions run high and you need to have the resolve to defend your position, or take a strong position despite the opposition. Specially on boards this is an issue, where you have to stick to your opinion and what is right, even when your fellow board members relentlessly try to convince you otherwise. Tons of good energy and intimidation going on, something women are not super interested in.
- Reassurance: By definition angel investment is pure risk. Risk does not bring with it guarantees and reassurances, instead it brings adrenaline and possibility. Women on average are extremely good at being very thorough and in completing tasks, but not as good with taking open-ended risks with no reassurances.
- This is not personal: As women we tend to take things personally. This is not personal rather it is a high risk, great reward game with tons of unknowns. Emotions run high and it requires that you not take interactions personally. It is about business and not about you (you being the female here). This separation is often a problem for us women. Someone may not like your ‘idea’, it does not mean it is about ‘you’, and frankly none of it matters, it is about the ‘deal’ and it is not ‘personal’.
- Networking: Women are not always comfortable in highly active and broad scale networking, pretty much with men only, which is required to build these new relationships. This may be another contributing factor?!
- Other: There are many others which I would love to hear from you on.
Women are extraordinary multi-taskers along with so many other qualities that it would be many blogs to discuss all the great assets that women have, however, there are clearly reasons that globally women shy away from investment risk, either as angel investors, as VC’s or other. It is not about technical competency, qualifications or experience. It is more about our inclination as women to do what we are comfortable with, and not move out of our comfort zone.
It is exactly the lack of desire to move out of our ‘comfort zone’ which has disabled so many women from taking risks. I am not here to say that being an investor is ‘the’ thing to do, absolutely not. I am simply exploring why there are so few of us around the table. Fact is that today we have very few women investors, few leading women VC’s, very few VC funds founded and run by women, and very few women entrepreneurs (that is the topic of my next post).
And here I will be honest folks. As the very small female minority in these forums, boards, investments, I have not experienced bias from my male fellow investors. Yes, some of them if they are older, may not have worked with a female in my capacity before, however, once they see the drive, energy and active participation, there is never an issue. There is no ‘inclusion’ problem, or any reason that I can justly say, men exclude women. In fact while there are forums that are just for women, men forums are open to women! So perhaps we are excluding men. And if so, why?
The fact remains that if we only work with female investors focused on what is comfortable to us, we are lowering the bar and creating an exclusion zone which serves no purpose, other than some temporary satisfaction on our part that we are doing the right thing. Investment is an aggressive, active and global effort, and if the opportunity is hot, there are many groups fighting to invest, so why not gear up together rather than separate off?
I want to hear your thoughts fellow readers: Why are there not enough women investors and why do we shy away from opportunities? I am listening…
Groupon postponed its IPO. No surprise. The company, once a darling, retreated when investors raised serious questions about its earnings. Now it’s in pre-IPO quiet period again, so it seems to be a good time to discuss this.
We are playing a dangerous game with IPOs today, possibly one more dangerous than the pre-burst gold rush of stock prices in the late 1990s. Here’s why:
1) In the pre-IPO phase, when a company is still privately held, it raises exceedingly large sums of money. Thus its valuation is pumped up to the stratosphere. It is justified? Does revenue support it? When a new investor puts in $1 billion into a startup, the company’s valuation becomes $1 billion plus whatever its value was prior to the investment. It’s not hard to see how a company with no revenues could, after multiple rounds of financing, have a book valuation of $20 billion.
2) In the pre-IPO phase, due to SEC guidelines, the company’s financial data does not have to be released. The hype-balloon can be pumped with hot air, leading the novice investor to believe that the ‘value’ of the company equals the money it’s brought in.
3) The net worth of the founders jumps into the billions, not because of how well the company is doing, but rather the value of the financing. How does that impact their motivation to innovate?
4) The hype grows. Early investors see their investments jump by 1000%. Early investors are selling tiny percents of their equity for massive returns, creating a false market within a pre-IPO company, all the while the company finances are still a mystery. This creates a micro economy where investors are getting rich NOT based on how well a company is doing but because the hype is so overheated that other investors will pay anything to get in on the action.
5) More VCs, angels and banks want in. The fever is out of control.
6) The market perceives the value of the company as high based on…nothing.
So Groupon announces its IPO in the wake of fawning, incredible media coverage. Everybody swoons. Then the SEC starts looking at the numbers and…whoops. Not only were revenues $600M less than expected, but Groupon was counting gross revenues rather than only considering its take after paying the businesses whose coupons it sold. Double whoops.
The market makers assume that the public is unintelligent and greedy, when more often than not it’s the skeptical bloggers and others who blow the whistle on this shell game. I respectfully exclude Facebook, which has done all the right things. Yes, its valuation is off the charts, but it is justified because it is the dominant platform in a booming space. When Facebook goes public, it will almost certainly support its soaring valuation, because its management has not chased the gold rush.
As an entrepreneur and investor, I am all for the free economy and living the dream. However, technology is not about creating hyped-up IPOs. It’s about innovations that change the world. When the sole purpose of building a company is to create a hype cloud that makes a very few rich while screwing thousands, that is the opposite of progress.
- Groupon IPO roadshow begins with one tough question: Can the company turn a profit? (venturebeat.com)
- Groupon’s IPO Valuation Could End Up Being Less Than $6 Billion (techcrunch.com)
- Did big banks turn blind eye to Groupon’s odd accounting? (news.cnet.com)
Venture capitalists, angel investors, and other seekers of opportunity are why we have a healthy culture of investing in innovation and embracing disruption. About 25 years ago, sitting at the San Jose airport, I met a man who turned out to be one of Silicon Valley’s pioneer VCs: Bill Draper. I was impressed with Bill, not because he flaunted how much he was investing (unlike today’s VCs) but because of his undying passion for the entrepreneurs and technologies he was investing in. When he spoke about his investments it did not feel like he was following the money and the herd, but like he was the engineer whose sweat was on the line.
I remember boarding my flight thinking how lucky this man was. Bill and VCs of his generation were not in the infinite cash, money-is-no-object, outrageous valuation betting game, but in the game of making innovation happen. They were active members of the Culture of Disruption. It takes more than money to help a startup company succeed and that is what the earlier generation of VC’s provided. I am happy to say that Bill is going strong and recently invited me to a meeting to discuss innovation. His book, The Startup Game, is a great read.
I yearn for more VCs like Bill today. Instead, we have a large number of VCs pursuing the same deals and building bubbles, spreading hype that defies reality, and investing vast amounts in companies that don’t begin to justify it but might one day…IF they were left alone to mature before being given $100 million!
We don’t need more people playing the numbers. My hedge fund does that. We need investors who truly care about innovation and disruption. Those kinds of people helped nanotechnology become reality, pushed to make biotech the next frontier, and brought about massive game changing technologies. Instead of pursuing game-changing ideas, most VCs are now in the business of placing blind bets. In the VC model, you don’t have to publish your financials. Once you raise the fund and collect the obscene management fees (which are not tied to performance—another obscenity) you can go silent. There is zero accountability.
My VC friends tell me they may invest in 20 things in the hopes of one big hit. That’s not investment; that’s roulette. To make matters worse, India, China and the BRIC nations are massive investors and we have aggressive global angel, super angel and micro VCs all jumping in. This adds up to panic to invest. Desperate to put their billions somewhere, investors dump tens of millions of completely unjustified dollars into companies, artificially inflating their valuations to absurd extremes while crippling their desire to take risks and innovate. It has gotten so bad that some VC’s are putting ‘blind’ money into groups who then identify opportunities. That’s like giving $10,000 to your buddy who’s going to Vegas and trusting him to increase it at the blackjack tables. The house always wins.
I have great respect for the principle of venture capital. But I have no respect for VCs who are all about cashing in and care nothing about real innovation. Investors should be deliberate, thoughtful, major players in the Culture of Disruption. Venture Capital is one of the main influencers of the Culture of Disruption, and we need to see much more deliberate thinking and focus from this group!