Is “hate” too emotional a word? Is venture capitalists' rejection of women "just strictly business”? Perhaps. But for women entrepreneurs, who've started businesses faster than the general startup rate since 1992, it is an emotional issue. We had higher hopes.

A report just released by Babson College, Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital, is the first comprehensive analysis of U.S. venture capital (VC) investments in women-owned businesses in 15 years. And while the report reveals there’s been progress since 1999, it also shows it’s simply not enough.

Getting the Facts

Here are a few key highlights from the report:

• Eighty-five percent of all VC-funded businesses had no women on their executive team, and only 2.7 percent had a woman CEO. This, despite the fact that businesses with women on board perform as well as or better than those led by men.
• Venture capital firms with women partners are more than twice as likely as those with male partners only to invest in companies with a woman on the executive team and more than three times as likely to invest in companies with women CEOs.
• The total number of women partners in VC firms has declined significantly since 1999, dropping from 10 percent to just 6 percent.

Babson entrepreneurship professor Candida Brush, lead author of the study, told Businessweek she had a hunch younger VC firms would be more likely to have women partners—but she was wrong. “We thought we’d find the 35-year-olds—who grew up with their mothers working and their sisters starting businesses—more socialized to accept women investors,” Brush says. Instead, the more established firms, the ones with formalized HR policies, were, according to Brush, "the ones recruiting for more diversity.”

So What's the Problem?

Although women get a mere 7 percent of VC funding, we can’t lay all the blame at the feet of VCs. The overall lending picture for women is grim. Fundera recently cited a study from the Senate Small Business & Entrepreneurship Committee that reveals women get just 16 percent of conventional loans and 17 percent of SBA-backed loans.

Silicon Valley pioneer Kathryn Gould was a venture capitalist for 25 years. She started her own VC firm in 1995 but not by choice. She was looking for a new job in an already established VC firm but says it would have taken her a long time to get hired. As she told the graduating class at the University of Chicago’s Booth School of Business in June, “I was one of the top handful of VCs in the business at the time … Anybody could see my results were heading toward extraordinary … A guy with my numbers would have been snapped up fast … For me, starting the firm was way faster.”

Gould believes one reason there are so few female VCs is that women don’t have the right training to become one. “The best VCs come from technical backgrounds,” she says. “We need to encourage girls to study STEM. Girls in elementary schools do as well as boys. But too many smart girls in high school are dumbing themselves down.”

Ruta Aidis, vice president of research at the GEDI Institute and the creator of the Gender-GEDI report, agrees that the educational system has to change. “Everyone should start coding at age 5,” Aidis says. Aidis cites a program at Harvey Mudd College in Southern California that increased the number of women in its computer science program to 40 percent after making an introductory computer science class mandatory.

But, Aidis says, there’s also a lack of role models. As she notes, “Most people can’t name five females in the tech industry, even though they’re there making an impact.”

Lauren Flanagan, managing director of BELLE Capital USA, an angel fund that invests in women-owned businesses, says, “The VC business is quite challenged—it’s an old boys’ club.” But Flanagan doesn’t think VCs hate women. “Of course some VCs make sexist comments and inappropriate advances, usually toward younger, female founders, but these are generally exceptions.”

Or is it? The author of a recent groundbreaking feature in Glamour magazine interviewed a number of women in technology, and almost all complained about an environment that is “unsafe for women” and “straight out of one of those PSAs on sexual harassment.” As the Glamour article notes, “The sexism is real.” 

On the Positive Side

One bright spot for women entrepreneurs is in the e-commerce sector. According to VC and private equity research firm PitchBook, among e-commerce startups, nearly 40 percent of the companies that got funding were founded or co-founded by women.

And that’s a sign of the future believes Amy Millman, president of Springboard Enterprises, a nonprofit organization dedicated to accelerating women entrepreneurs’ access to the equity markets. “The fact is,” Millman says, “women are getting VC money for businesses that VCs are interested in. However, many women start consumer-facing businesses, and only recently have we seen VC interest [in those types of companies]."

Flanagan also thinks this is a positive trend. “Women are the primary purchasers both [as a] consumer—by a huge majority—and in the enterprise, by a slight majority," she notes. "They understand buyer behaviors and needs. I wouldn't consider backing an e-commerce company that didn't have at least one woman on the founding or senior leadership team.

“Many male VCs claim they don't see that many deals with female founders," she adds. "And [while they say] they don't discriminate, many practice ‘pattern recognition investing,’ in which they invest in people and things they know and leaders that look like themselves. It's as if they live in a parallel universe!”

Geri Stengel, president of Ventureneer, a digital media and market research company, agrees. As she explains, “Men need to consider funding people who don’t look just like them: white men from prestigious universities with proven track records and connections to power brokers.”

Looking Ahead

So where do we go from here? Stengel thinks we’re at the beginning of a “sea change.” Aidis says VCs need to come to their senses. “There’s a huge economic consequence of reducing diversity," she explains. "When you have fewer women entering a field, you restrict the possibility of revolutionary innovation.”

Is this part of the battle for women’s equality? Flanagan certainly thinks so. “Some VCs are uncomfortable around strong women," she says. "I was called ‘bossy’ and ‘abrasive’ in my younger days as an entrepreneur, which bugged me until I learned to hear it as ‘leader’ and ‘powerful’—which is what men behaving the same way would be called.”

Influential tech journalist and entrepreneur Kara Swisher told Glamour she’s going to “keep ranting” until things change. “There are not enough women on boards, not enough women in high positions, not enough women in schools, not enough women in venture capital, not enough women being invested in," Swisher says. "Most men [in tech] don't want this to go on, but they are unwilling to do anything about it. These people can invent self-driving cars and can't solve one of the basic problems of humanity, which is treating everyone equally.”

In the Businessweek article, Brush notes that it’s time to focus on the VCs. “It was all about what women need to do," she says. "Not anymore. The women are there, they’re qualified, and they perform well. I’m very tired of this argument that it’s the women who need to fix themselves.”

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