Women at the Wheel

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Successful Start-Ups Have More Female Executives
Study from Dow Jones VentureSource Examines Women’s Role in Start-Ups

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Women at the Wheel

  1. 1. { Women { Wheel at the Do Female Executives Drive Start-up Success?
  2. 2. contents Executive Summary 1 1.1 1.2 1.3 1.4 1.5 2 2.1 3 Methodology 5 VentureSource Database Executive Information Success Industry Breakdown Statistical Methods 5 5 5 5 5 Venture Industry Female Executives 6 Venture Capital Industry Trends 6 2.1.1 Female Executives in Venture-backed Companies 2.1.2 Exited Venture Companies 10 2.2 Proportion of Female Executives by Industry 13 2.3 Title Analysis 15 Successful vs. Unsuccessful Companies 18 3.1 Dependence Relationship between Proportion of Female Executives and Successful Rate of Company 19 3.2 Industry Analysis 22 3.2.1 Successful vs. Unsuccessful by Industry 22 3.2.2 Proportion of Female Executives in Successful Companies by Industry 23 Titles and Successful Companies 25 Female Executives and Predicting the Success of the Start-up 25 Success vs. Failed Companies 27 Industry Analysis 28 Proportion of Female Executives in Failed Companies by Industry 30 5 Conclusion 32 6 Appendix 33 3 3.3 3.3.1 4 4.1 4.1.1 8
  3. 3. executive summary A ccording to the 2010 U.S. Census, more adults over the age of 25 than ever before (30%) have college degrees, with more women earning bachelor’s and advanced degrees than men. While women have outnumbered men in college enrollment since the 1980s and undergraduate degrees earned since 1996, 2010 was the first time women earned more advanced degrees than men. This leaves the open question: Why are women so poorly represented in senior executive roles? This study focuses on the current state of women in U.S. venturebacked companies and how women in leadership roles affect the success of a start-up. To accomplish this, we reviewed more than 15 years of venture-backed company data and executive information in the VentureSource database. 1.3% of privately held companies have a female founder, 6.5% have a female CEO, and 20% have one or more female C-level executives. The most common positions held by female executives were within Sales Marketing roles, accounting for 27% of the total population sample. The overall median proportion of female executives is 7.1% at successful companies and 3.1% at unsuccessful companies, demonstrating the value that having more females can potentially bring to a management team. By industry, we identify the median proportion of female executives at successful companies as higher than that of unsuccessful companies in the IT, healthcare, consumer services, and business and financial services industries, which are the four largest sectors. We see that a company’s odds for success (versus unsuccess) increase with more female executives at the VP and director levels. For start-ups with five or more females, 61% were successful and only 39% failed. Study Authors Jessica Canning, Global Research Director (formerly), Dow Jones VentureSource Maryam Haque, Senior Research Analyst, Dow Jones VentureSource Yimeng Wang, Research Assistant, Dow Jones VentureSource Acknowledgments Guidance given by Prof. Eric A. Suess, California State University, East Bay Editing assistance by Valerie Foo, Senior Research Manager, Dow Jones VentureSource Women at the Wheel Do female exectives drive start-up success? In comparing successful versus unsuccessful companies, our analysis unveils: 3
  4. 4. women at the wheel Do Fem a le Executi ves Dr i ve Sta rt-up Success? Women at the Wheel Do female exectives drive start-up success? 4 Does having a higher proportion of female executives at a venture-backed start-up improve the company’s chances for success?
  5. 5. 1 Methodology 1.1 VentureSource Database Dow Jones VentureSource has been tracking financing events, people, companies, and investors involved in the venture capital (VC) industry. With more than 25 years of historical data, VentureSource has comprehensive industry statistics dating back to 1987 for the U.S., 2000 for Europe and Israel, 2005 for China, 2007 for India, and 2008 for Canada. Data is collected through a combination of primary and secondary sources with each datapoint thoroughly reviewed under rigorous methodology. Exit ratios are calculated as exit valuation/total venture investment. Acquisitions with an unknown exit ratio have been excluded from the “Successful” versus “Unsuccessful” data set. 1.2 Executive Information VentureSource tracks over 300,000 current and former executives globally. Each person is a senior-level executive with direct decision-making responsibilities for the company or investment firm. 1.5 Statistical Methods All of the statistical methods in this report are benchmarked against the 0.05 significance level, meaning our conclusions are claimed with 95% confidence. When we refer to a distribution as normal, we are observing that the distribution is a Gaussian distribution, or bell-shaped curve symmetrical about the mean, which is equal to the median. We applied the Shapiro-Wilk test for normality. When results produce a p-value less than 0.05, the data is considered not normal, and we perform nonparametric tests on the data. Company executives in this study were grouped in the following categories: founder, board member, C-level, VP level, and director. 1.3 Success In this study, companies are defined in two ways: “Successful” is considered: exited through an initial public offering (IPO), is in IPO registration, is privately-held and consistently profitable or has been acquired for an amount greater than its total venture investment (i.e. had an exit ratio greater than one). “Unsuccessful” companies are divided into two categories: “Not Yet Successful” are still private and independent but have not yet become successful, as defined above. “Failed” companies have ceased operations, gone bankrupt, or exited at a valuation below their total venture capital funding. For all boxplots, bars at the end of dotted lines represent the lower inner fence and upper inner fence of the dataset, excluding the outliers. The lower inner fence and upper inner fence are calculated as the (First Quartile)-(1.5 x Interquartile Range) and (Third quartile)+(1.5 x Interquartile Range), respectively. The lines, from bottom to top, in the box are the 25th, 50th (median), and 75th percentile marks, respectively. The 25th percentile mark often overlaps with the lower inner fence mark, in which case only the former is labeled in the boxplots. Green dots denote averages. Women at the Wheel Do female exectives drive start-up success? For this study, we looked at companies headquartered in the United States but included all executives, regardless of location. The 20,194 VC-backed companies analyzed in this report received an equity financing between 1997 and 2011, or exited between 1997 and 2011. The resulting sample size consisted of 167,556 executives, of which 11,193 were female. 1.4 Industry Breakdown VentureSource groups companies into the following industries: business and financial services, consumer goods, consumer services, energy and utilities, healthcare, industrial goods and materials, and information technology (IT). 5
  6. 6. 2 Venture Industry Female Executives 2.1 Venture Capital Industry Trends Historically, IT has dominated venture investment globally. In 2011, there were 3,344 U.S. venture deals that raised $34.14 billion, of which $8.24 billion went to IT. This is a 16% increase in financing over 2010 but still 64% below the peak of the dot-com bubble in 2000. fig 2-1 U.S. Venture Capital Deal Flow by Industry 7000 Number of Financings 6000 5000 4000 3000 2000 1000 0 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 fig 2-2 U.S. Venture Capital Investment ($B) $100 Amount Invested ($B) Women at the Wheel Do female exectives drive start-up success? 6 1998 $80 $60 $40 $20 $0 1997 business and financial services 1998 1999 consumer goods 2000 2001 2002 consumer services 2003 2004 energy and utilities 2005 2006 healthcare industrial goods and materials information technology
  7. 7. There were 568 exits in 2011, an 8% and 19% decline from 2010 and 2000, respectively. IT accounted for nearly 39% of total venture exits in 2011 with 205 acquisitions and 16 IPOs. fig 2-3 U.S. Venture-backed IPOs by Industry and Year of IPO 300 Number of IPOs 250 200 150 100 50 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2010 2011 fig 2-4 U.S. Venture-backed Mergers Acquisitions by Industry and Year of Acquisition 600 Number of MAs 500 400 300 200 100 0 1997 business and financial services 1998 1999 consumer goods 2000 2001 2002 consumer services 2003 2004 energy and utilities 2005 2006 healthcare 2007 2008 2009 industrial goods and materials information technology Women at the Wheel Do female exectives drive start-up success? 700 7
  8. 8. 2.1.1 Female Executives in Venture backed Companies Since 1997, 55% of the pool of 20,194 U.S. VC-backed companies have had at least one female executive. The proportion of female to male executives at these companies is two to nine. (Figure 2-5) Companies are likely to have just one or two female executives (approximately 40% of the sample), compared with five or more male executives (78% of the sample). However, looking at just the number of females does not tell the full story. Analyzing the proportion of females to males and the subgroups of success and industries are where differences between genders are more evident. fig 2-5 Number of Companies by Total Number of Males and Females on Management Team 15,608 companies have five or more male executives Number of Companies 20000 15000 10000 5,174 companies have only one female executive 5000 2711 1140 Women at the Wheel Do female exectives drive start-up success? 8 1074 1430 1108 0 1 Executive 2 Executives 3 Executives female male 809 1147 4 Executives 1069 5+ Executives
  9. 9. Currently privately-held companies make up 44% of this sample. Nearly half of these 9,978 companies have at least one female executive. Of the 94,000 employees who have worked in a director-level position or higher at these companies, some 10% (9,300) were female and 90% (84,000) male. Companies that received initial equity financing in 2006 or earlier are more likely to have one or more female executives, whereas companies backed in 2011 have the fewest. (Figure 2-6) The trend implies that companies hire more female executives as they advance. fig 2-6 Percent of Still Private Companies with Female Executives by Initial Financing Year 1400 24% 1200 24% 33% 800 43% 49% 76% 33% 600 55% 400 59% 75% 69% 61% 0 63% 63% 78% 200 73% 39% 27% 22% 1997 1998 1999 51% 66% 25% 37% 31% 34% 2000 2001 2002 2003 37% 2004 41% 2005 Year of Initial Equity Financing 0 female 1+ female 57% 67% 67% 2008 2009 2010 45% 2006 2007 2011 Women at the Wheel Do female exectives drive start-up success? Number of Companies 1000 9
  10. 10. 1.3% of privately held companies have a female founder, 6.5% have a female CEO, and 20% have one or more female C-level executives. Early-stage companies are more likely to have no female executives and few employees, often with a limited group comprising a founder, CEO, and few high-level executives. In our sample, development stage 0 female 1+ female all companies Startup 83% 17% 395 Product Development 59% 41% 2003 Generating Revenue 49% 51% 5372 Profitable 34% 66% 1188 Restart 50% 50% 20 All Companies 51% 49% 8978 2.1.2 Exited Venture Companies A VC-backed exit refers to a company that was acquired, merged, or went public, and as a result, its investors no longer hold any equity. Figure 2-7 shows the median number of all executives at companies that exited between 1997 and 2011. The overall median number of executives at these companies was 13, while the median number for male executives and female executives was 12 and 2, respectively. fig 2-7 20 Median Number of Executives Women at the Wheel Do female exectives drive start-up success? 10 Median Number of Executives in Exited Companies by Gender and Exit Year 16 12 8 4 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year of Exit female male overall 2007 2008 2009 2010 2011
  11. 11. 2.1.2.1 Proportion of Exited Companies with Female Executives Over Time The percentage of VC-backed exits with at least one female executive has been steadily increasing from 43% in 1997. During the 1999 dot-com bubble, women crossed the 50% threshold. Upon reaching a high of 71% in the exit doldrums of 2003, the percent of venture-backed exits with at least one female executive dropped to 61% in 2011. Of successful VC-backed exits, 64% of companies had at least one female executive. (See Section 3.) fig 2-8 Percent of Exited Companies with One or More Female Executives 800 700 500 57% 57% 400 71% 57% 300 70% 70% 60% 69% 61% 68% 43% 64% 71% 47% 61% 200 100 57% 53% 43% 43% 43% 40% 34% 29% 29% 2002 2003 30% 30% 31% 36% 2004 2005 2006 2007 2008 2009 39% 2010 2011 39% 0 1997 1998 1999 2000 2001 Exit Year 0 female 1+ female Women at the Wheel Do female exectives drive start-up success? Number of Exits 600 11
  12. 12. 2.1.2.2 Comparing Female Presence in IPOs vs. Acquisitions Over Time For 1997 and 1998, the median proportion of females at companies that exited was 0.0% with an upper quartile of 11.1%. This was due to a smaller portion of exit data at that time. The median and the mean have been increasing since 1998, reaching a peak in 2003 but declining in the 2008 recession; the median went from 5.9% in 1999 to 8.3% in 2003, and the mean went from 6.9% in 1998 to 10% in 2003. This is likely because of a contraction in the liquidity environment for start-ups in 2008, not a change in the proportion of females in the start-up community. The presence of female senior executives differs notably between companies that had an IPO versus an acquisition. The percentage of VC-backed MAs with at least one female executive between 1997 and 2011 hovered between 60% and 70%. However, the same metric for IPOs was much higher: 75% or more of IPOs had at least one female executive since 2003. In 2011, 58% of acquisitions had at least one female executive compared to 84% of IPOs. 2.1.2.3 Proportion of Female Executives Within Exited Companies The boxplots below detail participation and employment for female executives at exited companies by exit year. The boxplots show positively skewed distributions, meaning that the average female proportion is greater than the median proportion of female executives of the respective exit year, and a large amount of companies have a smaller proportion of female executives. Since the distribution is skewed, we examine the data by medians, a better metric for judging the distribution. The female executive proportion medians show small movement. However, the proportion of female executives at exit companies has been trending upward, with the median proportion of female executives from 2002 to 2011 generally higher than those from 1997 to 2001. The median time to liquidity for those that exited between 1997 and 2011 was 4.3 years. Surprisingly, a large percentage of companies in operations for more than four years before their exit had zero female executives. (See Appendix Figures 6-1 and 6-2 for MA and IPO breakouts.) The proportion of female executives at exited companies climbed slightly but still remains a minority, regardless of “success”, when looking at the history of exited companies through an IPO or acquisition between 1997 to 2011. Figure 2-9 shows the proportion of female executives in boxplots according to the company’s exit year. Proportion of Female Executives (Director and Above) Women at the Wheel Do female exectives drive start-up success? 12 fig 2-9 Proportion of Female Executives in Companies That Exited Between 1997 and 2011 0.4 0.3 0.2 0.1 0.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  13. 13. 2.2 Proportion of Female Executives by Industry This section examines female executives by their industry groups. executives differ depending on the industry. Again, all the averages are higher than the medians since the distributions are positively skewed. The boxplots below depict the distributions of female executive proportions in all the companies in the study, by industry groups. The green dots represent averages of the female executive proportion for each industry. The boxplots suggest the distributions of female Companies in the business and financial services and healthcare industries tend to have a higher percentage of female executives. Companies in the energy and utilities and industrial goods and materials industries hire fewer women overall and have a smaller proportion of female executives than that of other industries. fig 2-10 0.5 0.4 0.3 0.2 0.1 0.0 business and financial services consumer goods consumer services energy and utilities healthcare industrial goods and materials information technology Women at the Wheel Do female exectives drive start-up success? Proportion of Female Executives Close-Up of Proportion of Female Executives by Industry Group 13
  14. 14. fig 2-11 Median Proportion of Female Executives of Exited Companies per Year by Industry Proportion of Female Executives 0.15 0.10 0.05 0.00 1998 Women at the Wheel Do female exectives drive start-up success? 14 information technology 2000 healthcare 2002 consumer services 2004 business and financial services 2006 energy and utilities 2008 consumer goods 2010 industrial goods and materials
  15. 15. 2.3 Title Analysis The female roles at VC-backed companies have varied by title. While males dominated in every title level (Figure 2-12), most notably the C-level and board positions, females have made a larger dent in the VP, director, and other titles (“other” refers to managers, consultants, general counsels, engineers, etc.). Also, start-ups naturally have fewer director-level executives during their early stages. fig 2-12 Executive Breakdown by Title Level and Gender for All Companies 90000 80000 70000 Number of executives 60000 50000 40000 93% 7% 6% c-level 85% 94% board member 30000 10000 0 15% 76% 78% 24% director vp female Analyzing just female executives at VC-backed companies, 46% held a VP-level position, compared to 30% of males. C-level roles consist of 20% females 22% other male versus 28% of males, and 19% of females served as board members compared to 36% of males. Women at the Wheel Do female exectives drive start-up success? 20000 15
  16. 16. fig 2-13 Female Title Breakdown for All Companies other 6% vp 46% director 9% board member 19% c-level 20% Women at the Wheel Do female exectives drive start-up success? 16 (see appendix figure 6-3 for the male title level breakdown for exited companites.)
  17. 17. The most common positions held by female executives were within Sales Marketing roles, accounting for A deeper analysis of the executives’ titles shows what verticals had higher concentrations of females. 27% of the total population sample. (See Figure 2-14.) fig 2-14 Female Title Breakdown for Exited Companies le legal ro counsel/ 5% % s6 ce ur eso nr ma hu sales and/or marketing 27% operations 8% technical 11% product 11% finance 17% (Note: Administration roles appear within “Other,” as there were not enough to breakout.) Women at the Wheel Do female exectives drive start-up success? business development 8% other 7% 17
  18. 18. 3 Successful vs. Unsuccessful Companies The thesis for this paper claimed that having a higher proportion of female executives at venture-backed start-ups improves the ultimate success of the company. We grouped companies into two categories in order to further analyze this section of the report: successful and unsuccessful. (See Section 1.3 for definitions.) fig 3-1 Annual Pool of Companies per Year tier 1 tier 2 number of companies % of companies Unsuccessul Failed 4367 35.8% Not yet successful 7833 64.2% unsuccessful total 12200 60.4% successful 4321 21.4% unkown 3673 18.2% total number of companies 20194 There are more companies entering the VC industry each year than are exiting, as shown in Figure 3-2, which means investors have to decide which companies to continue supporting. For this section, Women at the Wheel Do female exectives drive start-up success? 18 companies still in an investor’s portfolio and operating privately but not yet profitable, in addition to the companies that went bankrupt or ceased operations, are considered “Unsuccessful.”
  19. 19. fig 3-2 Annual Pool of Companies that Entered, Exited, and Ceased Operations per Year 3000 Number of Companies 2500 2000 1500 1000 500 0 1998 1999 2000 2001 2002 entered (initial equity financing) 3.1 Dependence Relationship between Proportion of Female Executives and Successful Rate of Company The figures below include all industries. 2003 2004 2005 ceased operations 2006 2007 2008 2009 2010 2011 exited (ma or ipo) The overall median proportion of female executives in successful companies is 7.1%, compared to 3.1% at unsuccessful companies (Figure 3-3). Women at the Wheel Do female exectives drive start-up success? 1997 19
  20. 20. fig 3-3 Proportion of Female Executives by the Ultimate Success of the Company 0.4 0.3 0.2 0.1 0.0 no yes (Note: The averages, displayed by green dots, are almost identical.) Women at the Wheel Do female exectives drive start-up success? 20 The histograms below represent differences in the distributions of female executives between successful and unsuccessful companies. Successful companies have a sample standard deviation of 0.103 while that of unsuccessful companies is 0.139. The unsuccessful companies’ female executive proportions are more spread out, and include more companies that have no female executives. The distribution of the successful companies is less skewed, and shows that companies with an executive team composed of 5% to 25% female executives are successful.
  21. 21. fig 3-4 Comparative Histograms of Proportion of Female Executives by the Ultimate Success of the Company 6000 Frequency 5000 4000 3000 2000 1000 0 0.0 0.2 0.4 0.6 0.8 1.0 Proportion of Female Executives Through the application of Pearson’s Chi-Square test with Yates’s continuity correction, we evaluated if a dependence exists between a company with any female executives and its success. We claim with statistically significant evidence that there is a dependence between a company having female executives and its success. Since the proportion of female executives for all companies is not normally distributed, we applied the Mann-Whitney-Wilcoxon test to examine the hypothesis that successful companies have greater successful companies population median proportions of female executives than those of unsuccessful companies. From the resulting p-value, we claim the population median proportion of female executives of the successful companies is statistically significantly greater than that of unsuccessful companies. To better understand the relationship between female executives and the success of the company, it is imperative to understand venture capital and how changes in industry investments can affect the liquidity options and likelihood of success for companies. Women at the Wheel Do female exectives drive start-up success? unsuccessful companies 21
  22. 22. 3.2 Industry Analysis 3.2.1 Successful vs. Unsuccessful by Industry By industry, energy and utilities companies have seen the lowest success rate, while IT companies have the highest. This is attributed to the IT industry’s historical domination. The majority (79%) of companies that entered the energy and utilities industry are still privately held and operating, so they are classified as “not yet successful.” While IT is consistently one of the largest investment sectors and has seen the highest success rate, it is tied with business and financial services companies for having the largest failure rate too. Nearly one-third of companies in the IT and business and financial services industries have failed. Overall, between 71% and 87% of each industry consists of unsuccessful companies (consisting of those labeled failed and not yet successful). The failed companies within these groups are addressed separately from the not yet successful companies in Section 4. fig 3-5a Success Rates by Industry 8000 7000 Women at the Wheel Do female exectives drive start-up success? 22 Number of Companies 6000 29% 71% 5000 4000 25% 3000 26% 74% 78% 22% 2000 56% 42% 55% 1000 32% 0 39% 75% business and financial services 32% 23% 19% consumer services healthcare failed not yet successful information technology successful
  23. 23. fig 3-5b Success Rates by Industry 400 16% 350 84% 87% 13% Number of Companies 300 250 19% 81% 200 73% 79% 150 66% 100 50 11% 8% consumer goods energy and utilities failed not yet successful 3.2.2 Proportion of Female Executives in Successful Companies by Industry When we apply the Chi-Square test to check for dependence between companies with female executives and their success we encounter Simpson’s Paradox, one in which the observation for dependence differs when groups are combined versus split. We observe no dependency between success and having female executives at companies in the consumer goods and energy and utilities industries. Since Simpson’s Paradox arises from over-combining data, we conclude that a relationship between companies with female executives and their success does exist, but it is conditional on the industry. industrial goods and materials successful From comparing the medians in the boxplots below, we see that companies in the information technology, business and financial services, consumer services, and healthcare industries have more female executives at successful companies than that of unsuccessful ones. The green dots represent averages and are shown above the medians, again suggesting that distributions are positively skewed. Confirming that data groups are not normally distributed, we again perform the Mann-Whitney-Wilcoxon test for each industry. The population medians of female executives at successful companies are significantly higher than those of unsuccessful companies in information technology, healthcare, consumer services, and business and financial services. Women at the Wheel Do female exectives drive start-up success? 15% 0 23
  24. 24. fig 3-6 Overall Proportion of Female Executives by Ultimate Success of Company and Industry information technology companies business and financial companies consumer goods company industrial goods and materials Proportion of Female Executives 0.5 0.4 0.3 0.2 0.1 0.0 no yes no no yes yes no yes Successful Status consumer services companies healthcare companies energy and utilities companies all companies Women at the Wheel Do female exectives drive start-up success? 24 Proportion of Female Executives 0.5 0.4 0.3 0.2 0.1 0.0 no yes no no yes yes no yes Successful Status Due to the data distribution within consumer goods, energy and utilities, and industrial goods and materials, we cannot conclusively say that the median proportion of successful companies is higher than unsuccessful companies. This is primarily due to investment preferences within the venture capital industry, consequently resulting in smaller numbers of companies for those sectors.
  25. 25. 3.3 Titles and Successful Companies question of whether a CEO’s gender impacts the success of a company in some way, as well as the question of whether business conduct between genders affects the success of private companies. By the Chi-Square test of Independence, we see there is a dependence between the success of a company and the existence of a female CEO. However, there is no statistically significant dependency between a female founder and the success of the company. Analyzing by industry group produces the same result for founders—the success of the company is independent of its having a female founder(s). However, grouping by industry and applying the ChiSquare test to exam dependency between the success status of a company having a female CEO, we see that our earlier conclusion exhibits Simpson’s Paradox. There is only statistically significant dependency for companies in the consumer services industry. Dependence should not be confused with causation. It merely means that a relationship between the two variables exists. Due to the relatively small number of female founders in the overall pool of companies (fewer than 1%), we were unable to analyze the dependence of female founders by industry. For those industries with sufficient data, none of them confirmed a dependence when the Chi-Square test was applied. 3.3.1 Female Executives and Predicting the Success of the Start-up As we observed some dependency between female senior executives and the ultimate success of a company, we now take a closer look and apply regression analysis to the data. As previously mentioned, we measure success quantitatively for exited companies by exit ratios and qualitatively for privately held companies by their development stage (e.g., those that are profitable). In this section, we built a model to understand shifts in exit ratios (defined in Section 1.3 as exit valuation/total equity raised). To take into account the non-quantifiable privately held, profitable companies, we built a logistic regression model to predict the categorical dependent variable of ultimate success of the company by analyzing the changes in odds ratios of successful companies versus unsuccessful companies. Women at the Wheel Do female exectives drive start-up success? Only 6.5% of the privately held companies that received venture capital funding between 1997 and 2011 had a female CEO. Such a small percentage raises the 25
  26. 26. Before running any model, we find that the exit ratios are not normally distributed. To fit a linear model, we apply Box-Cox transformation on the exit ratios to have an approximately normally distributed dataset, tested by qq plot, a model assumption for testing regression. Our full model’s predictors are companies with a female CEO, with a female founder, the proportion of female executives at five levels (C-level, VP-level, founder-level, director-level, and board member), the state in which the company is headquartered, and industry group. After running the model selection by AIC (Akaike Information Criterion) value, we come to our reduced model to regress exit ratio. Exit ratio is fit by a linear model of having a female CEO; proportion of females at board member, VP, and director level; interaction between proportion of female executives at VP and director level; year of exit; and industry group. By analysis of variance (ANOVA), the reduced model does not fit significantly differently from the full model. Therefore we fit the reduced model at an adjusted R-square of 0.22, meaning 22% of the variance can be explained by this model. Women at the Wheel Do female exectives drive start-up success? 26 The statistically significant predictor for the exit ratio is the proportion of female board members, VPs, and directors; year of the exit; industry group; and female VP and director proportion interaction term, which is the multiplication of female VP and director proportions. Holding all other variables constant, we find that having a female CEO will slightly decrease the exit ratio of the company. Similarly, the exit ratio of a company slightly decreases with an increase in the proportion of female directors, VPs, or board members. However, not all merged or acquired companies have a calculable exit ratio since the valuation of many is not disclosed. Therefore, results are not definite for the entire industry. There also may be confounding variables excluded in the model. Further studies must be done to complete and validate our conclusion regarding exit ratio. Given those limitations, we find that the Box-Cox transformed exit ratio of the company decreases by 0.22 if there is a female CEO, holding all other factors constant. The transformed ratio increases by 0.13 for every 0.1 increase in the interaction term of female VP and director proportion. The transformed exit ratio would decrease by 0.07, 0.05, and 0.06 for every 10% increase in female executives at the board member, VP, and director levels, respectively, if all other factors were held constant. To predict ultimate success of the company, which is a binary categorical dependent variable of success or unsuccess, we apply logistic regression. In this study, a company’s success can be regressed by statistically significant factors of having a female CEO, proportion of females at the VP and director level, and industry group. Looking at the statistically significant factors, particularly the ones related to female executives, a company’s odds of success increase with female executives at the VP and director levels. With every 10% increase in female executives at the VP level and holding all other predictors constant, the odds of success (versus unsuccess) increase by 1.06 fold or 6%; for every 10% increase in female executives at the director level, the odds of success increase by 1.03 fold or 3.3%. Having a female CEO, with all other variables held constant, yields a 0.73 multiple odds of success, or a 0.24 decrease. By this model, the odds of success increase by 2% and 0.7%, respectively, for a 10% increase in C-level female executives and board members. Thus, we see that having female executives positively helps VC-backed companies. Particularly at VP and director levels, the participation from female executives makes a significant difference in pushing a company to its success.
  27. 27. 4 Success vs. Failed Companies While the overall median number of females at both successful and failed companies was two, Figure 4-1 shows that companies with only one or two female executives saw a higher number of failures, whereas those with three or four female executives had a slightly better chance of success. For start-ups with The previous section compared companies that achieved success with those that have not. However, it is important to separate those companies that have not achieved success into two categories: not yet successful and failed. (See Section 1.3.) Since the fortune of the former group is not definitive, they are excluded in this section of the analysis, which focuses solely on true success versus failure. five or more female executives, 61% were successful and only 39% failed. Of the 8,688 companies for which their success/failure was definitive, 49.7% achieved success (based on the above definition) and 50.3% failed. fig 4-1 Overall Success Rates of Companies with Female Executives 1400 1169 1201 1000 800 668 703 600 400 352 360 338 239 200 200 229 0 1 female 2 females 3 females failed successful 4 females 5+ females Women at the Wheel Do female exectives drive start-up success? Number of Companies 1200 27
  28. 28. 4.1 Industry Analysis With the varied nature of industries within venture capital, companies in some industries are bound to have higher success rates than others. While consumer goods, energy and utilities, and industrial goods and materials all have fewer companies than other industries, they all show positive success rates. Of the industries with more than 1,000 companies (e.g., business and financial services, consumer services, healthcare, and IT), only healthcare has a positive success rate. Business and financial services and IT have seen the largest number of companies but also the highest failure rates. fig 4-2 Overall Success Rates of Companies by Industry Number of Companies 4000 48% 3000 2000 46% 57% 1000 54% 55% 45% business and financial services consumer goods 0 Women at the Wheel Do female exectives drive start-up success? 28 49% 51% 63% 37% consumer services energy and utilities failed Again, there is not much disparity between a company’s success and failure by its proportion of female executives, as shown from the boxplots below. The overall median proportion of female executives in successful companies is 7.1%, which is the same as the 7.1% median for failed companies. The medians, 52% 43% 61% 39% healthcare industrial goods and materials information technology successful averages, and overall distributions are very similar. Confirmed by the Mann-Whitney-Wilcoxon test, there is no statistically significant difference in the population median between female executives of successful and failed companies.
  29. 29. fig 4-3 Proportion of Female Executives by Success Proportion of Female Executives 0.5 0.4 0.3 0.2 0.1 0.0 fail success Through the Chi-Square test, we find there is a statistically significant dependence between having female executives and the success and failure of a company. There also is a dependence between the survival of the company and having a female CEO, but no dependency for having a female founder. Women at the Wheel Do female exectives drive start-up success? Successful Status 29
  30. 30. 4.1.1 Proportion of Female Executives in Failed Companies by Industry Companies with female executives have played a large role in liquidity events as well as influenced failed companies in the industry. Looking at Figure 4-2 and the four industries with the greatest sample sizes (business and financial services, consumer services, healthcare, and IT), Figure 4-4 further isolates just the failed companies within those industries. Past trends suggest that companies with one to two female executives have failed more than those with zero females. However, within each of these industries, companies with three or more female executives have failed less. fig 4-4 Failed Companies by Industry and Female Presence 2500 Number of Companies 80 2000 222 1500 1000 957 49 134 62 394 350 Women at the Wheel Do female exectives drive start-up success? 30 0 business and financial services 0 females 109 227 500 36 67 284 207 211 consumer services healthcare 1-2 females 3-4 females 867 information technology 5+ females
  31. 31. The boxplots in Figure 4-5 reveal no strong differences in the distribution of female executive proportions for successful and failed companies by industry. By the Chi-Square test, there is only dependence between a company having a female CEO and success for those within the consumer services and IT industries. Across all industries, there is no statistically significant relationship detected for a company having female founders and its success. fig 4-5 Proportion of Female Executives by the Ultimate Success of the Company 0.5 0.4 0.3 0.2 0.1 business and financial services consumer goods consumer services failed When we change our logistic regression model to predict the odds ratio for successful companies versus failed companies, it finds several significant factors for modeling: having a female CEO, proportion of female executives at board member level, and industry group. energy and utilites healthcare industrial goods and materials information technology successful The odds ratio of successful companies compared to failed companies (holding all other variables constant) with a female founder, 10% hike in C-level female executives, or 10% hike in VP-level female executives, increases by 22%, 0.6%, and 0.7%, respectively. Women at the Wheel Do female exectives drive start-up success? 0.0 31
  32. 32. 5 Conclusion Our hypotheses claimed that a higher proportion of female executives at venture-backed start-ups improves the ultimate success of the company. Using an extensive and comprehensive VentureSource dataset, we analyzed gender trends by numerous metrics and by industry: female-to-male ratio at privately held companies and exited companies; gender ratio by company development stage; proportion of female executives for successful, not yet successful, and failed companies; and title analyses. Our results yielded varied outcomes for these different layers of analysis. In some cases the female prevalence shows significance, while in others there is no dependence or simply not enough data to analyze. Women at the Wheel Do female exectives drive start-up success? 32 With a wide gender gap among start-up teams and increased interest in illuminating this trend, our data brings color to this discussion. However, our analysis shows that the answers to the impending questions are not so black-and-white. It is commonly claimed that senior management teams initially have fewer females than males, but we see that companies begin to increase the female proportion once companies are further along in development. While females are less likely to head the founding of a company or to run operations during the formidable early years, they step in at the more stable threshold of generating revenue and hold mostly VP-level, C-level, or board member positions. Often at a later stage, the foundation and direction of the company have already been established, and changes may be too difficult to implement for immediate effects. By industry, females have been more prevalent in the healthcare and business and financial services sectors, which raises the idea for exploring whether these industries play to their strengths, interests, and experience. Recognizing the competitive nature of the VC industry and the “50-50” chance of success, companies and investors look for the advantage, and our analysis identifies the impact that female senior executives have had on a company’s fate. In comparing successful versus unsuccessful companies, the overall median proportion of female executives is 7.1% and 3.1%, respectively, demonstrating the value that having more females can potentially bring to a management team. By industry, we identify the median proportion of female executives at successful companies as higher than that of unsuccessful companies in the IT, healthcare, consumer services, and business and financial services industries, which are the four largest sectors. We also see that a company’s odds for success (versus unsuccess) increase with more female executives at the VP and director levels. In the pool of successful companies versus failed companies, we do not see any significant difference between the proportion of female executives. However, a dependence exists between a company with a female CEO and its success within the consumer services and IT industries, the two industries that in the past five years saw the highest number of new companies enter the VC market. Our analysis opens up a new set of questions on the gender gap and its impact on companies and the overall VC industry. Again, with our statistics, we have identified areas where trends/dependences exist or do not exist; we are not implying any causation. There are countless factors that one could test to further analyze a company’s success or the affect of females on a management team. However, based on this exclusive dataset and definitions of success, this report sheds light on the areas of greatest impact by females in the VC industry.
  33. 33. 6 Appendix fig 6-1 VC-backed MAs by Companies with Female Executive(s) 600 530 490 500 508 533 559 518 476 465 399 400 325 300 100 52% 37% 415 58% 68% 56% 69% 68% 67% 58% 64% 66% 265 61% 70% 46% 231 200 433 42% 48% 63% 58% 54% 1997 1998 1999 44% 42% 34% 30% 32% 31% 32% 33% 36% 39% 2004 2005 2006 2007 2008 2009 42% 0 2000 2001 2002 2003 2010 2011 Exit Year 0 female 1+ females Women at the Wheel Do female exectives drive start-up success? Number of MAs 436 33
  34. 34. fig 6-2 VC-backed IPOs by Companies with Female Executive(s) 256 250 Number of IPOs 209 200 72% 150 69% 121 100 50 55% 72 24 45% 64% 28% 31% 20 23 71% 29% 70% 30% 87% 13% 36% 0 1997 1998 46 84% 76% 57 81% 77% 16% 1999 2000 2001 2002 2003 0 female Women at the Wheel Do female exectives drive start-up success? 34 81 70 24% 23% 19% 2004 2005 2006 2007 1+ females 46 45 88% 12% 89% 11% 84% 16% 2009 2010 2011 8 8 88% 12% 2008
  35. 35. vp 30% Women at the Wheel Do female exectives drive start-up success? 2% director 3% other fig 6-3 Male Title Breakdown for All Companies c-level 28% board member 36% 35
  36. 36. For questions concerning this report, contact: Dow Jones Private Equity Venture Capital Women in VC Study Research Team research.privatemarkets@dowjones.com or call 415-439-6633 For more information on VentureSource, contact: Dow Jones VentureSource Client Services client.services@dowjones.com or call 877-633-8663 pevc.dowjones.com September 2012 © 2012 Dow Jones and Company Inc. All rights reserved.

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