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Women Entrepreneurs: VC Rejection Does NOT Equal Sexism

Posted on Wednesday, Nov 12th 2014

I am stating the obvious – or at least what should be obvious – that rejection by a venture capitalist does not automatically equate to sexism. However, of late, the media has started sensationalizing a lot of stories of VC rejection and transposing them as stories of sexism.

These are two different issues, and the cause-effect relationships of the two are ambiguous at best.

In some of these stories, the VCs have exhibited rather stupid behavior, no doubt. However, did they reject the deals because the entrepreneurs were women? I don’t think so. Let’s examine in a bit more detail.

I’d like to quote an earlier article, Funding Rejection Statistics of Key Players, in this context, just to put things in perspective:

You’ve often heard me say that over 99% of the entrepreneurs who seek financing are rejected. This post offers a set of rejection statistics culled from credible sources on some of the key players:

YCombinator: 97.15% –

“YCombinator started as a summer program and the roots still show, with courses running for three months, about the length of an academic summer break. Teams all join at the same time, in batches. Applicants are rigorously screened and the best invited for interview. For the latest batch 74 (including six not-for-profits) were selected from a field of more than 2,600. Those lucky few get paid between $14,000 and $20,000 to attend. In return they have to hand over about 7% of their firm’s equity.” [Source: The Economist]

AngelList: 98.8% –

Most of the startups on AngelList don’t get funded, just as most of the startups anywhere don’t get funded. A recent Economist article quotes some specific numbers on AngelList (as of 2013, I believe):

“Second, thanks to websites such as AngelList, startup financing has become more transparent. Originally a social network for startups and investors, AngelList is now also a funding exchange. As of early December its 24,000 accredited investors (people with a net worth of more than $1m or income of more than $200,000 a year) between them had put $250m into more than 1,000 startups of the total of 85,000 listed on the site.” [Source: From leafy to lofty, The Economist]

Some of these startups, btw, get financed outside of AngelList, and still maintain their profiles on the exchange for PR/visibility reasons, so the actual number of startups that eventually get funded is slightly higher, even if it is not on the exchange itself.

Andreessen Horowitz: 99.3% –

Here’s a quote from Marc Andreessen: “At our venture capital firm we only invest in a sort of Silicon Valley–style tech. We see 3,000 inbound deals a year. And those are inbound and coming through our referral network, so those are sort of prequalified. We can do maybe 15 or 20 investments out of the 3,000 a year. So I like to say our day job is crushing entrepreneurs’ hopes and dreams. Our main skill is saying no, and getting people to not hate us.” Source: Inside the mind of Marc Andreessen – Fortune Management

If you get rejected by Accelerators, Angels or VCs, and they don’t tell you why, you need to understand the objections and the analysis that led them to their decision. Most good investors take the time to explain. Also, there are some fairly standard reasons why entrepreneurs get rejected by investors.

The above is a gender-neutral set of statistics of rejection. The reasons (from Entrepreneurship Does Equal Financing): business are too early, too small, or too slow growth.

One of my favorite stories is a September 2014 piece in Forbes about Rent The Runway, which opens as follows:

Five years ago Jennifer Hyman was a 29-year-old Harvard Business School graduate with no experience in fashion or technology, pitching her startup, Rent the Runway, to a boardroom full of partners at a big-time Boston venture capital firm. The idea then, as now, was to buy designer dresses wholesale and rent them, over the Web, for a night or two for a fraction of the price. When Hyman was about to get to the part where she explained how many inventory turns she could get from a Diane von Furstenberg, one of the men interrupted the presentation, cupped her hand in his and said, “You are just too cute. You get this big closet and get to play with all these dresses and can wear whatever you want. This must be so much fun!”

Hyman now laughs about it, doing an imitation of the guy in a baby-doll octave. But at the time she was floored. Weeks before the patronizing VC trapped her hand in his grip, Hyman had gotten six term sheets from some of the country’s best venture firms, which valued her “big closet” at $50 million. The comment left her more driven than before. “Opposed to screaming and shouting about inherent sexism in this entrepreneurial world, I thought, Let’s work it–let’s build the most kick-ass logistics company in the whole world, and then we’ll reveal what’s under the dress.”

What Jennifer describes about the guy who interrupted her and cupped her hand is actually not one issue, but two: firstly, the guy didn’t get her business.

This happens regularly with VCs. Marc Benioff got rejected by 27 VCs when he shopped Salesforce.com around, back in 1999. Many VCs today claim eBay in their anti-portfolio: a portfolio of companies they rejected, but that eventually went on to become not just big, but gigantic.

The truth is, venture capital is a very difficult business. To see the future as a founder sees it is extremely difficult, especially in domains that one doesn’t have any experience in. This man who rejected Jennifer clearly had no experience of the designer fashion industry. Very few VCs actually do have experience of the fashion business. I recently wrote an article on this topic: Online Fashion: A Venture Scale Opportunity That Silicon Valley Does Not Understand. Well, I should have said ‘Tech VCs’ instead of ‘Silicon Valley’.

In fact, it is a well-known fact in the venture business that if you have a truly good, contrarian idea that will be path breaking, a lot of VCs WILL reject that idea. That’s not necessarily a bad thing. You will not have 35 venture-funded competitors in the market.

Jennifer, clearly, had an excellent idea, and some VCs saw it as such. The one who didn’t, whom she describes in the Forbes story, did not get the idea. That, in itself, is not sexism.

How he chose to communicate it to her was sexism. It was, in fact, utterly stupid.

And the distinction is very important for us to consider.

I have read many other stories of women entrepreneurs getting rejected by VCs who report the rejections as instances of sexism. In many of those cases, I went and looked at the businesses of those entrepreneurs. Often, I concluded, that I too would have rejected to invest in those businesses. I do not want to call out specific scenarios to illustrate this out of respect for the entrepreneurs who are working on those ideas.

My advice to them, however, is not to use sexism as an excuse and hide behind it. Instead, it would serve them well to be intellectually honest about the flaws in their business logic, and address those.

In many of these reported cases, also, there are instances of utterly stupid behavior on the part of a VC that DOES reflect sexism. However, that sexism is not necessarily what drives the rejection.

The point I want to make, in summary, is that women entrepreneurs should not use sexism as a way to explain why they are getting rejected by VCs. It’s an easy out. The real journey of a serious entrepreneur is far more complex.

Jennifer Hyman has made that journey with commendable intellectual honesty and persistence. Her 2014 revenue number is forecasted to be around $100 million. In another year or two, the company should hit a billion dollar valuation.

If you are a woman entrepreneur, and you are facing a lot of investor rejections, please feel free to come discuss your business with me at one of my free online roundtables. I promise to do my very best to help you figure out how to be successful in your entrepreneurial journey.

Leave aside the sexism issue for now. It isn’t productive to complain about it. Let’s work on your business and make you successful, instead.

Once you are successful, do what Jennifer did. Give an interview to Forbes, and tell them how you overcame the odds, including your experiences with sexism.

Those tend to make very good stories!

This segment is a part in the series : Women Entrepreneurs

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