Women in venture: The case for increasing representation in digital health investing

Women make up 12.2 percent of digital health VC partners, but many in the industry are discussing the importance of diverse viewpoints.
By Laura Lovett
04:17 pm

When it comes to digital health, investors get a bird’s eye view and play a major role in steering the direction of the industry’s future. That is why many are stressing the importance of a diverse viewpoint for investors in an industry focused on bringing digital tools to the masses. 

Traditionally this has been a challenge for the venture space, where women only account for 12.2 percent of digital health VC partners, according to a RockHealth report. While that percentage is higher than at the biggest VC firms in the US, where only 8 percent of partners are women, according to a MassChallenge and BCG report it still only accounts for a small percentage of the industry. 

“There are actually very few female investors in the health IT marketplace, and in investing in general. It’s a real shame because there is a trickle-down effect that results in female entrepreneurs having a more difficult time raising capital,” Emma Cartmell, founder of Cartmell LLC, told MobiHealthNews. “I do see some incredible female-led health tech companies that have affordable, high-impact solutions that I invest in and support, but they subsequently have a really hard time raising money from VCs.”

However, the field is slowly starting to diversify. The number of female digital health VCs increased by 1.3 percentage points from 2017 to 2018. Researchers are also finding that hiring more women onto a VC team can be a smart money move — it is associated with improved fund returns and profitable exits, according to Harvard economists Paul Gompers and Silpa Kovvali.  

Diversity makes sense

Digital health products are designed for a diverse group of individuals and settings, so having investors representing different perspectives is key, according to Luba Greenwood, who focuses on strategic business development and corporate ventures at Google Verily. 

“It is vital in digital health to have people not just on the venture side, but also on the boards and management of digital health companies, that come from different genders, economic backgrounds, ages and different perspectives,” Greenwood told MobiHealthNews. “The best return on your investment is going to be in companies that are going to do that by working with payers, provider groups, pharmaceutical companies and diagnostic companies. Because you have such different types of companies, you need different perspectives as an investor. You need to understand how the consumer world works.”

While gender is an important piece to this puzzle, Sarah Sossong principal at Flare Capital stressed the importance having diversity — not just in gender but in various backgrounds on a team. Women are not the only group underrepresented in the venture space: only 2 percent of VC investors are hispanic and just 1 percent are black, according to the Gompers and Kovvali report.  

“Venture capital is a really network-driven industry and so it really matters who you spend time with when you are hosting events, who you put on the stage, who you hire to be your partners,” Megan Zweig, head of research at Rock Health, said. “If your venture team and network reflect a certain demographic and maybe it’s overwhelmingly male, that is going to mean that the entrepreneurs that come to you are going to be predominately male, because they are going to see themselves in you and you are going to look at them and equate them to past founders and successes you had.

Zweig said it is important for VCs to include different voices in events and talking to people with different backgrounds. 

“That actually has to be a really intentional process because that may not be happening organically by virtue of the people you are already surrounding yourself with. So we really think that wholesale transformation in the area of venture capital is needed to start leveling that play field.”

Working with female entrepreneurs is also a savvy financial move for venture funds, according to Zweig. She pointed to the MassChallenge and BCG study, which reported that on average startups cofounded by women raise less than half of what men raise, yet these companies generate 10 percent more revenue over a five-year period than ones without a female cofounder.

“We are also doing this because it just makes smart business sense,” Zweig said. “Women are really great leaders of companies, and that has really been brought out in the data.”

Having women on a VC team has been shown to help a fund’s returns. Zeaske pointed to the Gompers and Kovvali article, which reports that funds that increased the proportion of female partners by 10 percent had a 9.7 percent more profitable exit. 

“There are a few different tangible reasons why a VC fund wants diversity in their partner base on their team. The number one is that having a woman on your team increases fund performance,” Jessica Zeaske, partner at ECHO Health, told MobiHealthNews. “Any time you are bringing in diverse perspectives into a decision making process — whether that is gender or what school people went to or what regions they are from — they are going to come to a better decision in the end. Therefore having different perspectives around that table is critical to fund performance.”

Diversity isn’t just important in the VC funds but also in board rooms, said Cartmell. But this poses its own set of challenges. 

“It is still difficult to find qualified female board members. You need to have been in the C-suite or to have run and successfully exited a company in order to be on the board. But since there is still a bias in women raising money and being in those C-suite positions, there’s a trickle-up effect in how few women are qualified to sit on a board because they are still fighting for opportunities to raise money to fund companies and get into the C-suite.”

Getting more diversity on a board could mean looking at the recruiting process a little bit differently. 

“Every board should focus on making sure that the criteria by which they are recruiting a board ... has enough breadth so that a significant pool of people of diverse backgrounds — that can be gender, race, varied backgrounds — [can apply],”  Zeaske said. “You want senior executives who have careers that can bring insight, but that doesn’t always mean at a CEO level. It could be at a COO level or a CFO level. And that expansion of title can be one way to make sure that the pool is diverse to begin with.”

Challenges and opportunities 

Being the first woman at a fund isn’t always easy and can put extra pressure on someone to succeed, Cartmell said.  

“Your metrics are going to be the same as your male counterparts, but you are going to feel a lot more scrutiny and pressure to make sure the companies you back are really successful and you are going to do everything in your power to try to make sure they are," Cartmell said. "Men do that too, but I feel as though women put more pressure on themselves to perform when they are the first woman in any given situation. I don’t think venture capital is unique. If you are the first woman on an engineering team you don’t want to be the one on the team to mess up.”

When it comes to breaking into the industry, there is no one set path to becoming a VC in digital health. Greenwood said that differs from other VC focuses, which require a specific set of credentials to enter. 

“If you look at digital health and the trajectory of someone in digital health venture versus biotech venture it is quite different,” Greenwood said. “So in biotech venture you usually have a PhD or MD or both. Then you start in science and then work for a pharmaceutical company or a biotech company or start your own biotech company, and that is your trajectory to later go into venture.”

She said this could be could change in the future as more companies see the need to onboard investors with clinical experience and the industry learns through trials and failure. But she said in the future she sees a lot of opportunities for women in this emerging field.

Mentorship is one avenue to help new VCs understand the complex industry and make connections. 

“One of the main focuses that we should be focusing on is finding male and female mentors for venture capitalists,” Zeaske said. “Having male and female mentors provides that guidance and understanding and a safe place for people rising in their career to ask questions and seek help. I recommend this to anyone looking at roles in the Csweetener as a potential source of a mentor.”

Zweig said funds need to be deliberate about their moves promoting more diversity. In the past, she said she has heard a panelist say that gender diversity will sort itself out, but she disagrees. 

“It is getting better over time, but that is because we are intentionally calling it out and putting effort behind it. I’ve seen so many more events lately that are intended to elevate founders of color, women founders,” she said. “I have had a male venture associate email me because he was putting on an event and wanted recommendations on women speakers. At Rock Health we actually keep a catalog of women in health because we know that every event should have them. We need more of that and an understanding of what are the drivers of this problem, and an acknowledgment that you have to be proactive and intentional about it. And if you are not, then you are probably reinforcing the problem.”

Open dialogue that includes men and women is essential, Zeaske said. Bringing everyone into the fold to discuss the issues and the future could mean things are changing. 

“When I look at my colleagues in this field having these open discussions and having real changes of behavior by men and women in this field, I have tremendous hope we are addressing this problem and have faith in the future of this for this industry,” she said. “As we create communities and more women see the numbers coming forth in VC, that is another testament to why I have hope in the future.”


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