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Women and people of color fight for a piece of the tech gold rush

Financing for startups disproportionately flows to companies owned by white men, studies find

In “The other Silicon Valley,” Al Jazeera takes a look at how California’s tech boom affects the working class. This is part two of a seven-part series.

SAN FRANCISCO — Some legal battles resolve big questions; others merely dramatize them.

The Ellen Pao trial fell into the latter camp, putting a harsh spotlight on the venture capital industry in Silicon Valley. While Pao lost her gender discrimination lawsuit against the VC firm Kleiner Perkins last month, scores of women have said Pao’s allegations resonate with their own experiences of gender discrimination.

“Ellen Pao is a Rosa Parks,” Shirley Hines, a longtime public affairs professional in the industry, told Al Jazeera shortly after the trial’s end. “She is the one who basically said, ‘No, enough.’ To her credit, she’s very brave. I admire her for just taking it on, and saying ‘no.’”

Pao’s lawsuit, and most of the conversation around it, concerned interpersonal acts of sexism — what New York Magazine’s Annie Lowrey describes as “soft discrimination.” Micro-aggressions and subtle acts of sexism are, by their very nature, difficult to quantify. But there are metrics that can signal, however imperfectly, discrimination. And the statistics regarding venture capital investment reveal an undeniable truth: Venture capital overwhelmingly passes from men to other men. 

Of all U.S. companies to receive venture capital funding between 2011 and 2013, 85 percent had not a single woman on their executive team, according to a study put out last year by Babson College. The same study found that fewer than 3 percent of those companies had a woman as CEO. That’s not because woman-led businesses are particularly hard to find, either; 36 percent of all businesses nationwide have majority owners who are women, according to the U.S. Small Business Administration.

Heather Hiles, founder and CEO of the education technology startup Pathbrite, explained that the composition of the venture capital world contributes to the lack of venture capital funding for woman-led startups. (As of 2014, just 6 percent of the partners in venture capital firms are women, according to Babson College.) Even by the standards of the Bay Area’s tech industry, she said, venture capital suffers from a stunning lack of diversity.

“When you go into one of the VC firms in the valley, typically the women are administrative folks, and they’re white for the most part,” Hiles told Al Jazeera. “And the partners and a lot of the associates tend to be white men. It’s a very homogeneous feeling scene."

She attributed that homogeneity in large part to the network of personal connections that keep the venture capital engine running. Firms hire disproportionately out of Stanford Business School and other elite institutions, who in turn are more likely to invest in companies led by people who they have preexisting relationships with. Which is why, when it came time for Hiles, an African-American lesbian, to raise enough money to launch Pathbrite, she says she didn’t even bother approaching those firms.

“I’d be like a Martian,” said Hiles. “I thought, if I can even get meetings, I’m not going to get funded."

To circumvent the traditional VC network, women and people of color in Silicon Valley have begun constructing their own funding mechanisms. Venture capital firms run by women have tapped into a network of female entrepreneurs to find potential investments, and a handful of nonprofits in the Bay Area have sprung up to provide financing to otherwise underserved start-up proprietors. Astia — a nonprofit founded in 1999 that now has offices in San Francisco, New York and London — provides counseling and networking support to start-ups with women in their leadership. Code2040, which aims to increase Black and Latino representation in the tech sector, recently launched an Entrepreneur in Residence (EIR) program that provides funding and other forms of support to tech entrepreneurs of color.

So far, none of those entrepreneurs are in San Francisco. For the launch of the EIR program, Code2040 selected candidates from Austin, Texas; Chicago; and Durham, North Carolina. Jason Towns, Code2040’s director of entrepreneurship programs, told Al Jazeera that part of the goal is to make the emerging tech ecosystems in those cities "more inclusive."

Towns said he hopes that making the tech sector less geographically centralized will make it easier for people from non-privileged backgrounds to gain a foothold. If moving to San Francisco is a near-prerequisite for launching a successful startup, the city’s exploding housing prices and overall cost of living could present another barrier to would-be entrepreneurs. To that end, the EIR program flies its residents out to Silicon Valley and tries to help them forge connections within the industry, but also selects for people who they hope will foster stronger tech communities in their own cities.

“The thought process we’re testing here is, if we can be a part of a city that’s really still defining itself as an entrepreneurial hub, can we do a better job of building in more inclusivity as that city builds?” said Towns.

Advocates of diversifying start-up investments argue that doing so will correct what Hiles called “an inefficiency of capital”: Because the vast majority of VC money goes to companies owned by rich white men, Silicon Valley tends to produce software designed for rich white men, missing out on other markets.

“I do honestly think that the majority of stakeholders, of investors out here in the Bay, are now coming to understand that if we are going to exist and compete in the economy moving forward, we do have reach out to and access founders, creative talent and technical talent that exist outside of our traditional networks,” said Towns. “And if we don’t do that, then we’re not going to tap into the genius that exists outside of these networks."

Some larger firms have gestured at fostering greater diversity within both tech start-ups and the world of venture capital. Code2040’s EIR program, for example, was made possible by financial backing from Google. The National Venture Capital Association (NVCA), a VC trade organization, announced in December that it was creating a "Diversity Task Force” to address concerns over representation in the field. The task force was subsequently criticized for being largely white and male; NCVA did not respond to a request for comment from Al Jazeera.

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