I read an article recently that really set me off. The article, Women venture capitalists underperform men, say Harvard academics, reported on a study entitled “Gender Effects in Venture Capital.”
The researchers’ conclusion was this, and I quote from the article that ran on Reuters, “We find that female venture capitalists significantly underperform their male colleagues,” wrote Paul Gompers, Vladimir Mukharlyamov and Yuhai Xuan of Harvard and Emily Weisburt of the University of Texas at Austin in their study.
[contextly_sidebar id=”SeAGU2VtK2fUmBOhyLaFRdndCijmaRRi”]Ok, I thought to myself, if this assertion that men are better investors than women is true, let’s see the data, big or small. Here’s what I found: first of all, the data from the article is so old, most of us would not find it useful as predictive in today’s world. Data were culled from investments made 1975 to 2003.
But lamer yet, the article notes, “the authors counted as successful the investments that led to an initial public offering of the company, or 4,622 IPOs.”
In other words, they left out all companies that exited through merger and acquisition. If you know anything about venture capital, you know the vast majority of companies don’t go public. They exit through M&A. So including only those public companies, which are a fraction of the candidates for measure, skews the data ridiculously.
This is particularly true since there were and remain so few female venture capitalists. About 4 to 5 percent of partners at venture firms are women and it has been hovering in that pathetic range for a very long time. It was probably even lower back in the 1970s and 1980s when much of this data was collected.
On top of that, most venture capitalists have few IPOs in their portfolio since most of their companies exit through M&A. As a result, the number of results being measured per firm partner hardly constitutes a trend, particularly if women haven’t been partners long enough to have many exits.
Also worth pointing out, taking a company public is no proof of value creation for shareholders. IPOs should be considered financing events, not exits. VCs rarely get to exit at the IPO and must wait at least six months, and often much longer, to sell their positions. Sometimes the IPO value six months after the opening ain’t so hot.
For example, out of 187 IPOs in 2014, 66 are underwater today (meaning their current price is less than the price on the day they went public); of these, 31 have lost more than 20 percent of their value. Of the IPOs that are up in value since opening day, 26 are up less than 10 percent, so nothing to write home about. Nearly a quarter of the 217 IPOs that went out in 2013 were underwater at the end of that year and of the balance, 26 had moved up less than 10 percent over their original offering price.
In contrast, as of June 2014 there had already been 16,775 mergers and acquisitions worldwide. The total value of M&A deals to date in 2014 is 44 percent greater than in 2013 even though the number of announced worldwide transactions year to date 2014 is actually down 3.5 percent from 2013.
Yes, some of you will say, but VCs can make money even on failed IPOs since they invested at such low entry prices. And to you I will say, “yes, that is true, but do you really consider it a success if the fund makes money and the company is a failure for its broader shareholder base?” That is exactly the kind of stuff that gives VCs a bad rap.
But here’s my favorite part of the story: the researchers in this weird study blamed the performance difference, in part, on a lack of mentoring by male colleagues.
First, how patronizing. I’m sure the women who reported their success was due to a male mentor meant they were lucky to have a good mentor, who happened to be male. Second, the article notes, “women out-performers often credit a male colleague who took them under his wing.” Well duh. There were almost no women to take other women under their wings, so anyone who served a mentoring role was going to be male. If every firm has, on average, one or fewer females, who else would be there to train them?
Not for nothing, there is a wealth of research out there demonstrating that women make better investors than men. You can look HERE for a good example of some of the contrary research out there, and it is not even mentioned in the report.
Let’s get to the real point: who gives a damn? Some people are great investors and some people are bad investors. Some venture firms make money for their investors and some firms don’t. Controlling for any one variable, whether it is gender or age or whether one drives a red car or owns a dachshund hardly seems to matter. I don’t know what the point is of this endless quest to “prove” one gender is a better investor than the other. Why can’t we all just get along?
Lisa Suennen is Managing Partner at advisory firm Venture Valkyrie. Follow her on Twitter @VentureValkyrie.
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