Photo: Bloomberg
Photo: Bloomberg

Opinion | Diverse, ‘no-bro’ startups yield higher returns

It's high time that startup evaluation parameters included aspects such as inclusivity

Even Nemesis, the Greek goddess of retribution, would have smirked at how Binny Bansal, the co-founder of Flipkart, could not hold together at the now Walmart-owned firm. He was expected to steer the Indian e-commerce giant and also retain some of the founder juice at the company for the next few years, especially after the other co-founder, Sachin Bansal, left the company unceremoniously soon after the acquisition.

Binny’s exit came in the wake of a probe into an “allegation of serious personal misconduct" reportedly referring to a complaint of alleged sexual harassment. Bansal denied the allegation, and though the probe did not find much evidence against him, it revealed “other lapses in judgement, particularly a lack of transparency". Eventually, he had to leave. 2018 was the year of #MeToo, a force of reckoning spearheaded by fearless women and some men, which rocked workplaces. Accounts of misconduct were revealed at startups and venture firms throughout the year, forcing high-profile investors and CEOs to resign: Justin Caldbeck, Dave McClure, Mike Cagney, Chris Sacca, Marc Canter, Shervin Pishevar, Andy Rubin, Amit Singhal, Steve Jurvetson. This has essentially meant that any noise in this direction cannot be ignored.

Discrimination and harassment are not holding women back; there is sheer disparity in their participation, too. As per Innoven Capital’s “Early Stage Investment Insight Report-2018", only 17% of Indian startups have at least one female co-founder. This is even worse than the 22% in 2016 and 20% in 2017. Similarly, there is only a handful of women leading private investment firms. In the US, too, only 17% of startups have reportedly had at least one female founder. Since most startups have two or more founders, it’s safe to assume that less than one in 10 startup founders is a woman.

The problem is far more complex. The limited talent pool of women in engineering or technology fields and limited role models of successful female entrepreneurs are some of the root causes for fewer women in this space. Besides, founding a company requires a lot of work and sacrifice, hampering work-life balance. Women sometimes face unique challenges compared to men.

One may argue if there was a fundamental need to have more women in the startup-venture industry. Well, there is a financial incentive to close the gender gap: Greater diversity yields higher returns. Startups with a female founder generated 78 cents of revenue for every $1 of funding, while male-founded startups generated 31 cents, according to a BCG study of 350 startups. The question becomes pertinent in the new year: Will the portrait of a young founder as a man finally change? Will the startup ecosystem, which romanticizes the “boys club" playbook, be more inclusive? Such changes require re-orientation both from startups and investors. As start-ups mature and pursue global ambitions, the time has come to introspect on what kind of success they seek—one which is a one-trick pony remembered only for big valuation, or becoming an institution embracing sustainability and diversity. The playbook needs to change on part of investors as well. Investors seem focused on diligence metrics like burn rate, product expansion and so on. It’s high time the evaluation parameters included aspects like inclusivity, women in leadership positions, a “no-bro" culture, facilitating respect and professionalism.

Investors must change their approach from the very beginning. According to a Harvard Business Review study, clear biases exist when investing in startups where both male and female founders get asked different questions—investors adopt what’s called a promotion orientation when quizzing male entrepreneurs, which means they focused on hopes, achievements, advancement and ideals. Conversely, when questioning female entrepreneurs, they embraced a prevention orientation, which is concerned with safety, responsibility, security and vigilance.

In 2017, Netflix updated its manifesto on its organizational culture with a focus on inclusion and respect. The document has been hailed as “the most important document to come out of the Valley", even “a manifesto for the Internet’s economic epicentre". At a time when sexism and other ruthless behaviour in tech industry is playing out, Netflix’ commitment to not hire jerks can be rewarding: “On a dream team, there are no ‘brilliant jerks’. The cost to teamwork is just too high," it said. It’s high time Indian startups set an example by having a world-class culture document of their own.

Shrija Agrawal is Mint’s associate editor. Due Diligence will run every week and cover issues in India’s venture capital, private equity and deals space.