VC: What You See Isn't What You Get

Cutting edge, thrusting, visionary, one step into the future. That's the image of themselves that venture capitalists love to promote. They think, in short, that they're pretty cool. Which is odd when you think that they fund only about one percent of new businesses. And odder still when you consider that they've pretty comprehensively missed out on the biggest trend today: the rise of women-owned businesses.

Women now own nearly 50 percent of private companies in the U.S. They're responsible for more payroll than the Fortune 500 combined. They're starting new businesses at twice the rate of men -- and those businesses are more likely to stay in business and are more profitable than the average. And yet, over in VC world, the picture is wondrously anachronistic: fewer than 10 percent of VC partners are women, women get less than nine percent of VC investment -- and even those numbers have been going down steadily since the peak of 2000. Needless to say, the VC track record with minorities isn't any more lustrous.

What keeps these dinosaurs stuck in their own mud? The problem doesn't lie with the women, their ambition or their track record. It lies with stereotypes. Female entrepreneurs don't look like geeks. They don't behave like Mark Cuban. They don't dress like Sergey Brin -- thank god. So VCs don't think they have the right stuff. The Kauffman Foundation calls this pattern recognition: "Over the years, venture capitalists develop a pattern of what has been successful for them and if they have never invested in women over five, 10 or 15 years, they won't."

I've known women, seeking investment, to be told that their company may receive venture funding -- if they're prepared to step aside for a male CEO. And there's always the great story of Janet Kraus's and Kathy Sherbrooke's search for investment for their eCircles business. After their presentation, a potential investor pointed out that Janet was not married but Kathy was. What, Janet was asked, would she would do if Kathy became pregnant? Janet didn't miss a beat; she replied, "I don't know. Throw a baby shower?"

The result of this? Bad news for VCs who've missed out on thousands of great businesses. Great news for women who end up owning them outright. But if the VC world is really serious about innovation, they need to worry less about disruptive technology and start thinking about disrupting their own psychology: Innovation doesn't just lie in what you do -- but how you do it. And who you do it with.