Women in China VC: Gender balance

When Apple and Facebook last year offered to freeze eggs for female employees who wanted to focus on their careers without sacrificing the chance to have children later on, they provoked fierce debate.

Some slammed the US tech giants as exemplars of corporate bias against women and motherhood; others were baffled as to why giving employees greater choice should be seen as controversial. Huoy-Ming Yeh, China head of Silicon Valley Bank (SVB) Capital, falls into the latter category.

"One of the reasons there are more men in the workforce is that a woman's childbearing age determines when she should stay at home. The best ages for having children are the late 20s and early 30s but if women choose to stay at home and have kids they might give up 10 years of their career," Yeh says. "I advocate that women in their 20s should freeze their eggs so they can choose if and when they want to leave workforce."

Egg-freezing is an extreme example of how female employees with demanding yet potentially lucrative jobs can have a career and a family. Female venture capitalists whose job it is to find the next Apple or Facebook face a similar dilemma - seemingly spending more time on a plane than at home, achieving a work-life balance is a challenge.

This is the most oft-cited reason for why women are underrepresented in the private equity and venture capital industry, but in the China VC space they have still managed to make a breakthrough. Although finding that balance is certainly an issue, there are also broader cultural and historical factors at work - serving as both facilitators and obstacles to greater female participation.

Asia-based private equity firms have the highest proportion of women in senior roles: 11.8% as of March, compared to 11% in the US and 9.7% in Europe, although the share has fallen from 12.8% in 2013, according to Preqin. Globally, women account for 11.2% of senior roles in VC firms - the same as 2013 and up from 9.7% in 2012 - well ahead of the buyout firms' share of 9%.

For China alone, women are better-represented in venture capital than anywhere else in the region, industry participants suggest. There are also more women in senior positions compared to the US.

"Even 10 years ago, it was the same," says Yeh. "There was a group called Women in Leadership started by female PE and VC partners in 2006. It has since expanded to include women in senior executive positions - CEO, CFO or CIO - with all types of company in China. I don't see the same concentration of senior level women in the US that I see in China."

Big names

Female VC investors are also well-known in the industry. In Forbes China's latest annual list of the top venture capitalists in China, Kathy Xu, founder of Capital Today Group, ranked second overall after SoftBank China Venture Capital's Chauncey Shey. TDF Capital's Tina Ju, GGV Capital's Jenny Lee and DCM China's Ruby Lu, are also in the list.

The Forbes China ranking is based on the Midas List published by the magazine's US affiliate. It is not a perfect measure - the formula depends on exits over the previous five years and does not take into account returns by money multiple or IRR - but it offers an interesting snapshot of industry trends. Lee also features 52nd on the US list, which came out earlier in 2014, the second-highest China-based entrant, male or female.

The primary reason why women have been able to make the breakthrough to senior levels in China is that the market is still at a relatively nascent stage.

Lee helped US-based GGV set up its China operation in Shanghai in 2005. "I started on the ground earlier than anybody else in China, so I compete on an equal level and this allows me to perform well," she says. "If I entered the US market 10 years ago, coming up against venture capitalists operating in a market with 50 years of history, I would struggle to compete even if my performance was outstanding."

TDF's Ju also benefited from being an early starter. She began her career in venture capital with VTDF in 1999 and went on to set up VTDF China in 2000 and TDF Capital in 2005. After raising two funds under the KPCB China banner, last year she reactivated the TDF franchise and is on the road looking to raise $200 million. Capital Today's Xu is another example of a successful spin-out, having previously worked for Baring Private Equity Asia. 

These women who have taken on senior roles within the industry are expected to be an example to others, encouraging a greater number of younger women to embark on careers in venture capital. However, the road is not without obstacles.

First, the hiring process in both private equity and venture capital is not systematic. It is difficult to know which firms are recruiting staff and in many cases people are brought on board at the last minute. Even if an applicant is invited for interview, the decision might be a long time coming, particularly for senior level positions as firms want to make sure an individual is a good long-term fit. Women profess themselves uncomfortable with these unpredictable processes.

Work-life balance is another barrier to entering the industry, particularly among women who want to have children.

"The profession itself requires intensive travel and long working hours, so some may choose to exit early. But for those who are passionate and decide to make it a life-long career, once they get through the early years and become senior at a firm, the work is increasingly fun," says Stephanie Hui, head of Goldman Sachs' merchant banking operations for Asia Pacific ex-Japan.

It is very much an issue of personal choice and there are industry participants who insist it is possible to strike an acceptable balance between work and family responsibilities. Nisa Leung, managing partner at Qiming Venture Partners, notes that in today's world, the husband is often willing to share these domestic responsibilities. Furthermore, in major Asian cities, domestic helpers and child minders are still readily available and generally affordable.

"For a female venture capitalist to strike a work-life balance, it also depends on the company culture and support from the management team," Leung says.

Hui echoes this view, adding that most female investors, though their burdens may be heavy, have the luxury of flexible working hours. For example, when she not traveling for work, Hui usually arrives home around 8 p.m. and gets to spend time with her children. "And I continue working from home after they go to sleep. It is all about delivering quality work," she says.

However, there are still some VC firms are reluctant to hire women, in China and in the US, based on the presumption that female employees sacrifice job performance in order to care for children at home. It is illegal in Hong Kong and the US to reject a female applicant on the basis that she might have a child, or terminate employment once they give birth.

"But these things do happen - they just do it quietly," says Lisa Suennen, founder of healthcare consultancy Venture Valkyrie. "I don't really understand the fear about women having children because men play a role in that process as well. I think there is an assumption that the woman raises the child. These old ways of thinking will eventually disappear, but not yet."

A flexible approach

Nevertheless, the industry is gradually evolving into an environment that is friendlier towards working women. For example, the California Public Employees' Retirement System (CalPERS) runs a program designed to support funds managed by minority groups. Intel Capital recently said it would invest $300 million internally in the hiring and retention of women and people from minority groups, with a view to contributing to greater diversity in the US workforce.

Across the whole private equity industry, women in PE traditionally underrepresented than VC. The reason lies to relationship building with entrepreneurs and the nature of investing businesses.

Women VCs are generally easier to interact with younger entrepreneurs. In particular for early stage investments, the start-ups may not have proven products or revenue. VCs' decision to invest would heavily rely on their judgment of the management team. Women are good at in this front.

"Women have such instinct in assessing people's personality and motivations, which brings new perspective in the decision-making process, in addition to the analysis of industry and products," says Sally Shan, a managing director with fund-of-funds HarbourVest Partners. "Women are also good listeners and have the strength of being relatively non-confrontational, which helps them to connect with young entrepreneurs."

More than a half of GGV's 30 new investments last year were Series A rounds, and most of the CEOs of these companies are below 30 years old. The youngest is 23. The new generation of tech start-ups in China - be it the internet-of-things, mobile technology or online-to-offline (O2O) e-commerce - are led by a younger generation of entrepreneurs. They are more open-minded and familiar with the asset class, especially those that have been educated overseas.

"Young entrepreneurs often struggle to think independently and they lack a clear vision of how to build a business," GGV's Lee says. They want VCs could help them by appreciating and sharpening their ideas, but they also want VCs to get smarter. As a result, they may be wary of working with a young and relatively inexperienced investor."

The implication is a female venture capitalist who is working with a tech entrepreneur faces a very different proposition to a female private equity manager dealing with the founder of an established business.

Most start-ups are concentrated in major cities such as Shanghai and Beijing, so there is less need for the venture capitalist to make repeated journeys to far-flung lower-tier cities in order to conduct due diligence. Another factor is the origins of the founder. The PE investor may frequently interact with 50-something CEOs who grew up within the state-owned enterprise system. Relationships underpin business partnerships and relationship-building activities tend to be social in nature - it is far easier for a male investor to eat and drink with a male founder.

"PE and VC are high pressure, challenging areas of work, but the private equity due diligence process tends to be more complex and time-consuming, which makes it even harder for women investors to have a well-balanced career and family life," Shan says. "And while PE transactions may involve multiple parties and there is uncertainty around deal completion, in the VC space the individual investor can have more of an impact. It delivers higher personal fulfillment."

In this context, it is arguably easier for venture capitalists to distinguish themselves through domain expertise in areas such as healthcare or niche fields of technology. Gender becomes less relevant; it is more a question of an individual's knowledge and relationships.

As a result, while it would be wildly optimistic to talk of a male-female balance in venture capital, as the industry evolves in China there should be scope for more women to build upon the progress made by the pioneers. The entrepreneurs they back will continue to be predominantly men, though, with anecdotal evidence suggesting that women account for less than 10% of start-up CEOs.

This is in part explained by education - females still make up a tiny fraction of graduates from engineering and technology-intense courses. It is also generally harder for them to raise VC funding. According to industry participants, a male entrepreneur is more likely to pitch an idea aggressively and this tends to resonate with investors looking for the next Facebook or Alibaba Group.

"Women tend to be more conservative in the way they describe the future of their company. If there are more women in the VC world who appreciate how female founders think, over time you will have more women entrepreneurs. It is a virtuous cycle," Goldman's Hui says.

This begs the question as to whether female venture capitalists are more effective than their male counterparts in backing female-run or female-oriented businesses. In the US, a number of funds have been set up with a view to leveraging this dynamic, but not everyone is willing to buy into it.

"Women are often but not always more willing to invest in female entrepreneurs. I don't know if this type of fund is a good thing or bad thing," Suennen says. "While having segregation is good in theory, I'm not sure that it resonates with investors."
Ultimately, performance is the key. Female venture capitalists are competing against the rest of the industry on a gender-neutral basis, whether they are trying to raise funds from LPs or building up an investment track record.

"The world doesn't give you a special treatment because you're a woman." GGV's Lee says, "I don't compete myself with about 10 women VCs in China, I compare myself with thousands of VCs in the world."

 

SIDEBAR - Female founders: Cultural barriers

Less than one in 10 founders of technology start-ups in China are female. The origins of this trend can be found in college. Men have traditionally been more drawn to study tech-related subjects and without this kind of grounding it can be difficult for a woman to launch a career as an entrepreneur.

At the same time, while many first-time founders are in their early to mid-20s, having started out on their own after a couple of years with a larger company, Asian cultures tend to be more family-oriented. Women of this age are encouraged to settle down and have children. Even if they do have the option of setting up a company, they might be reluctant to take the risk.

"There are some female entrepreneurs but they tend to be in couples; there are a lot more husband and wife teams founding companies," says Rui Ma, venture partner at US angel investor 500 Startups. "It's more culturally accepted because women are expected to help out their families."

Yan Liu, founder of co-working platform ASK Lab and co-founder of crowdfunding platform Loving the Crowd, agrees that female entrepreneurs are less willing to take charge of an entire operation. They are usually co-founders alongside men. "That's tradition - the woman doesn't want to overtake the man," she adds.

Ma also finds that women are often perceived to be weaker managers than men. 500 Startups launched the 500 Women Syndicate to mainly invest in women-founded companies and Ma approached 10 Chinese GPs to participate as angel investors. The feedback fell into one of two extremes: either they 100%-supported women entrepreneurs or they didn't want to back female founders on the grounds that they couldn't build better businesses than men.

The younger generation of potential entrepreneurs is also influenced by the wishes of their parents. According to Todd Embley, program director at Chinaccelerator, parents want their children to enter secure professions - and this means working for big corporates rather than creating a string of start-ups.

Chinaccelerator hired an overseas-educated intern last year who handed in her notice because her parents wanted her to find a stable job within the Shanghai government. Embley offered the intern a pay rise and a full-time job but she turned it down because her parents threatened to cut off her allowance.

"It's interesting that her parents were able to control her future and position because they gave her RMB10,000-30,000 ($1,600-4,800) extra every month," Embley said. "Once the kid got used to that and they threatened to take it away, she would do anything they wanted."

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