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This article was written by Aron Solomon, Head of Strategy and Chief Legal Analyst for Esquire Digital.
Having wrapped up the increasingly complex jury selection process, the trial of Theranos founder, Elizabeth Holmes, began on Wednesday in United States District Court in San Jose.
For those unaware of the origin of the Theranos name, it’s a hybrid of “therapy” and “diagnosis.” While “theranos” is currently a disgraced term, perhaps it could serve a newfound purpose in the innovation community. From the moment Elizabeth Holmes was discovered to have been peddling technology that simply didn’t work, there has been a chilling effect on female founders in Silicon Valley and around the world.
Harvard business review found that in 2019, 2.8% of funding went to women-led startups; in 2020, that fell to 2.3%. This comes after years of increases. The 2.8% figure, while paltry, was an all-time high.
As if their struggle hadn’t been sufficiently absurd pre-Holmes, that so many successful, high-profile investors (read: “aging white men”) were willing to defy logic to believe in Holmes has created the false narrative of a we-won’t-be-fooled-again mindset in the investment community. Any argument that men have been held to the same standard should result in a laugh so hearty that a steam of Juicero comes out through your nose.
You remember Juicero, right? Described as “the greatest example of Silicon Valley stupidity,” Juicero extracted $400 per customer for an internet-connected juicer that didn’t juice. But that paled in comparison to the $120M it received in venture capital. A lot of big investment names backed Juicero’s (no surprise) white middle-aged male founder, including Google Ventures and Keliner Perkins.
But it’s not just high-profile investment mistakes and founder bad behavior. Ever hear of Airy Labs? Founded by the “Chief Brain” of Airy Labs, Andrew Hsu, who would go on to invent sprayable caffeine (not a joke), this startup had all of the Silicon Valley adulation.
Armed with a freshly-minted Thiel Fellowship, and all of the right young entrepreneur accolades, Airy Labs went from bad to worse. A little more than a year after launch, the EdTech company closed down amid allegations of bad behavior by the founder and his family.
So what female founders have we never heard of because they never got a fair at-bat with venture capitalists because of both historical biases and the Theranos/Holmes effect?
Sara Lundin (a pseudonym, as she’s in-market raising a round right now) spent the better part of a decade working as an equity trader on Wall Street. Her experience, which she generously discussed with me this week, has shown her that gender imbalance and gender bias are two different things.
“I can handle being the only woman in a room, and I think I manage it well. Dealing with bias is harder as it can be subtle and makes it hard to navigate a pathway to your goal — here, raising money for my startup.”
In Sara’s experience, the startup investment space has been a self-fulfilling prophecy because decision-makers are the gatekeepers to capital.
“The decision-makers are actually losing by not funding diverse founders but don’t see it, as most companies that don’t get funded eventually disappear. The data truly doesn’t capture the misses.”
It is only “a miss” if a company is funded by someone else and is successful. As long as the bias is systemic, which it is, investors won’t change because it won’t be clear how much they are losing. They actively pick winners and just try to pick a winner before another investor, but ideally not first. The goal is often to be second.
Sara adds “My lessons so far, having witnessed and lived through Theranos, is that even though I took the playbook of what and how I was supposed to pitch and followed it, for women, the rules change fast.”
Even with a deep background in finance and a truly elite education (think lots of ivy), Sara told me that it took her a while to understand the risk profile of the funds she was pitching.
“I was taking the questioning I received in pitches about risk and continually trying to ‘de-risk’ my projections. Because I’m a woman, the questioning was always more negative than it needed to be. Over the years I have always found it curious that on multiple occasions, investors would turn down an opportunity to invest but wanted access to what our startup builds for their kids to use.”
Sara recalls one of several meetings that were window-dressing at best — a fund’s weak attempt to put any person (usually the wrong one) in front of a female founder:
“A few years ago I sat through a remarkably painful meeting with a very young dude at a capital firm. He spent a lot of the meeting comparing my company, which at the time already had a product in the market and revenue, to a case study assignment he did very well on at school. The really poorly-placed confidence he delivered his remarks and advice with is something I think about often. I have heard rumours that some investment firms now need to report how many female founders they provided an opportunity to pitch to literally anyone at the firm. I get the concept, but don’t waste my time with these junior boys anymore.”
For female founders, there is no set timeline as to when investors will forget about Elizabeth Holmes and what she represented to their personal biases and fears regarding their investment theses. Yet Silicon Valley is not without its silver linings when it comes to progress for female founders in the post-Theranos era. As Sara notes:
“There are good people and investors who have made helpful comments to me at times and I felt they gave me an honest opportunity. Investor pitches, though, are a game of numbers. The good people out there are not out there at scale. But I did have a very positive interaction recently with a fund. I was invited to pitch and I asked how many female led companies they have funded in the past. If it was zero, I was going to pass. While it was a pretty low number, the person walked me through the changes they have made as an organization and how I would notice this in concrete ways in my interaction with their group. So, it’s a start.”
Aron Solomon, JD, is the Head of Strategy and Chief Legal Analyst for Esquire Digital. He has taught entrepreneurship at McGill University and the University of Pennsylvania, and was elected to Fastcase 50, recognizing the top 50 legal innovators in the world. Aron has been featured in CBS News, TechCrunch, The Hill, BuzzFeed, Fortune, Venture Beat, The Independent, Yahoo!, ABA Journal, Law.com, The Boston Globe, and many other leading publications.
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