05 Aug 2014
A Diversified PortfolioPair pursues an investment strategy
that fills the gender gap in
traditional venture fund thinkingby Constantine von HoffmanTopics:
Don't let its name fool you: the Women's Venture Capital Fund is about profitability, and not social activism. Monica Dodi (MBA 1984) and
Edith Pripas Dorsen (MBA/MPA 1985) launched the fund because they saw a real business opportunity to invest in companies with high-growth potential and at least one woman in a leadership role that were being overlooked by the traditional VC community.
Sometimes, in order to see an opportunity, you have to be in that space. Dodi realized this when she was at a meeting of angel investors in early 2009 and noticed, "I was the only woman in the room." She also observed that the companies under review had all-male leadership teams.
She knew that the level of gender discrepancy among investors likely meant a similar discrepancy among which companies ultimately were funded. Dodi doesn't think VCs do this intentionally, "It's just that people invest in what they know and in who they are most comfortable with. When it's a choice between one team and another, they'll tend to fund people that are more like them."
Dodi has a long record as a successful entrepreneur in and out of the tech sector. She was cofounder of MTV Europe; CEO in charge of launching AOL's Entertainment Asylum; and entrepreneur-in-residence for Softbank Technology Ventures. Being a female entrepreneur herself, she figured there must be a robust number of promising start-ups with women in leadership positions that no one was looking at.
Hunches aren't proof, however, so Dodi enlisted Dorsen, a former section mate and good friend, to figure out if this opportunity was real. Dorsen brought critical insights to the partnership having come from a very different professional background. Her extensive strategic and financial experience included consulting at McKinsey, investment banking at Salomon Brothers, and leading business development at several Internet and media companies.
The pair started investigating and found a lot of tech start-ups with women founders and cofounders who were having a hard time getting funded. In fact, only 1 percent of venture capital money was invested in companies run by female CEOs in 2010, the most recent year available according to Dow Jones VentureOne.
Not only did Dorsen and Dodi see companies in need of money, but they also saw companies with what they believed had a better than average chance of succeeding because there were women and men working together in leadership roles. This belief has since been substantiated by numerous studies showing that companies with diversity in the C-suite consistently outperform their competitors on a range of metrics, including their overall returns on sales and investment capital.
But knowing all this didn't guarantee investors would be interested in their fund. To find that out, Dodi and Dorsen scheduled a roundtable discussion at their 25th HBS reunion. To get the rigorous discussion they wanted, the pair invited 15 successful HBS alumnae, many of whom had strong investment experience.
Dorsen remembers thinking that an 8:30 a.m. slot on a rainy Saturday morning, after late-night section parties, may not result in the best turnout. "However, lo and behold, there were 23 women in the room," says Dorsen, "including several of whom had not even been formally invited."
While there was a lot of interest in the idea, the principal concern among the group was whether there were enough good companies in the pipeline to generate quality deal flow. More research showed the answer was definitely yes and, according to Dorsen, that has become even more so in recent years.
In doing their research, the pair also found that the capital needs of start-ups had evolved but the VC community had not kept up. There is now a good deal of money available at the seed/angel stage. However, the exploding numbers of capital-efficient companies today face challenges in raising that next round of capital.
"Today entrepreneurs have more access to their first couple of million dollars than they have had before," says Dorsen. "The challenge is that venture funds have grown so large that, with $300 million or $500 million in capital, they're simply not interested in funding companies that need $10 million or less to develop real market traction."
According to Dodi, the growing number of companies with women in leadership positions is the result of 25 years of women climbing the ladder at the largest tech companies. The result is a critical number of experienced, well-connected women capable of launching high-growth companies. And there will be more where they came from. Last year, women filled 60 percent of the jobs created in the nation's tech sector, the first time they have outnumbered men.
When the pair shared their further research with the women who had attended the HBS roundtable, this time they found the go-ahead they were looking for to launch the fund. As Dodi recalls, "They weren't just giving us advice. A number of these women wrote checks, which was our litmus test to really go forth."
The Women's Venture Capital Fund successfully completed its capital raise at the end of 2013 and currently has four companies in its portfolio.
"NVoice Pay, whose CEO and cofounder is Karla Friede (MBA 1989), exemplifies the fund's investment strategy," says Dorsen. "The company has demonstrated its unique value proposition in the large electronic b-to-b payments space with significant market traction and consistent year-over-year growth. Organizations across many industries are using NVoicePay to significantly reduce AP costs and migrate from paper-based payments."
In March, Professor Janice Hammond, the Jesse Philips Professor of Manufacturing at HBS, was named to the fund's advisory board. "The Women's Venture Capital Fund was referred to me by two highly regarded HBS professors, and it was that referral—together with the impressive quality and caliber of the managing directors—that made it an easy decision for me to join the fund," says Hammond. "I know from my teaching and consulting experience that diversity leads to higher performance and better financial results."
Almost half of the fund's limited partners today are HBS alums—both women and men. "We started out with predominantly HBS women investors," says Dorsen. "Increasingly, over time, we've brought aboard investors across the country—as we should—who are simply interested in a smart venture capital strategy with the potential to earn high returns."
Class of MBA 1984, Section E
Class of MBA 1984, Section E
Class of MBA 1989, Section E