- Silicon Valley has long had a diversity problem.
- Women, African-Americans, and Latinos are underrepresented in the tech industry and tend to be paid less than their white male counterparts.
- But the diversity problem is even worse than that; a new study found that the gender disparity in equity — or stock ownership — held by tech workers and founders is even worse than the pay gap.
- In Silicon Valley, stock holdings can be much more important and valuable than salaries.
- The disparity is important, because Silicon Valley’s ecosystem centers around startup founders who cash in their shares when their companies go public or are acquired.
It’s no surprise that the tech industry has a diversity problem.
But it turns out that the problem is much bigger than people in Silicon Valley and beyond may have realized.
It’s well known that women, blacks, and Latinos are underrepresented in tech companies, particularly in the upper ranks. It’s also well known that they tend to get paid less in salary for the same jobs than their white male counterparts. But the tech industry has a far larger divide that’s been mostly kept secret until now, having to do with the ownership of companies.
Much of the payoff that tech workers get from working in the industry comes in the form of ownership stakes in their companies, whether in the form of founders‘ shares or stock options or restricted stock. It turns out that distribution of those shares is even more titled in favor of men than pay or representation within companies, a recent study from Carta found. And the underlying value of the shares is even more weighted in favor of men.
Women hold just 9% of the wealth linked to shares in tech startups
Carta offers an online service that helps companies manage their employee-owned shares and options. For its study, it looked at the private, venture-backed companies in its database. It didn’t have direct information on employees‘ gender, but inferred it from their names, excluding those that were ambiguous. By definition, all the people included in the study held some sort of ownership stake in their companies; employees that don’t have options or shares in their companies aren’t in Carta’s database.
Women comprised 33% of the people in the study; in other words, they made up about a third of all employee shareholders. But their shares were worth just 9% of the total value held by all employee owners in the study. Of the $42.6 billion held by the startup founders or workers included in Carta’s study, just $4 billion was held by women.
Much of that imbalance is due to the paucity of venture-backed female founders and the value of the firms they lead. Women represent just 13% of all the founders in Carta’s database. And their share of the total value of founder-held shares is only 6%.
„There’s just a disproportionately low amount of capital going to back women,“ said Jana Messerschmidt, another member of the #Angels group.
Women do better as employees than as founders, but they still are getting a raw deal when it comes to equity stakes in their companies. Some 35% of non-founder employees in Carta’s database are women. But their shares are worth just 20% of the total value held by such employees.
Put another way, women tech workers hold about 47 cents worth of equity for every dollar held by their male counterparts.
Startups don’t tend to bring on women until later
Women lag behind men in part because they tend to be a small minority of the early employees at tech companies. At firms with 20 or fewer equity-holding employees, just 29% are women, on average. Even at companies with 101 to 400 equity employees, women make up just 35% to 36% of those workers. It’s not until firms get to more than 400 workers that their portion of employee-owners who are women goes north of 40%.
By comparison, women comprise some 47% of workers in the total private US workforce.
Their low representation at early-stage startups is important. Early workers tend to get more valuable share grants than later workers, in part because they get in on the ground floor, when the company is usually worth very little.
Additionally, a disproportionate portion of the early hires at startups are engineers or developers, workers who are typically seen as vital to the startups‘ success and often paid accordingly. Women tend to be dramatically underrepresented in such positions.
Startups generally wait until later in their development to fill out the departments where women are more prominent, such as marketing, human resources, and sales — and they tend to award them with fewer and less valuable shares.
„The amount of equity that’s given to employees decays over time,“ said Henry Ward, Carta’s CEO.
The study had some notable shortcomings. Carta’s database doesn’t actually include equity holders‘ gender. The company inferred gender from the holders‘ names, excluding those from its study that were ambiguous. So the equity disparity could be somewhat bigger or smaller than what Carta found.
Additionally, the database doesn’t include any data about holders‘ race or ethnicity. So, Carta wasn’t able to look at the equity differences among different groups. Those too are likely to be significant. African-Americans and Latinos have long been grossly underrepresented in the tech industry. And a recent study indicates that members of those groups tend to be in lower-paying positions on average than their white counterparts and, even accounting for that, tend to be paid less than whites in comparable positions.
This is more than just a problem for the 1%
To be sure, compared with other inequality problems the US faces, disparity in equity compensation and holdings may seem rather trivial. Many workers — particular those in lower-skilled jobs — don’t get health care benefits or sick days, much less stock options.
Tech workers, meanwhile, are generally well compensated overall, regardless of how many options they get. And when you’re talking about founders, you’re often talking about people in the top 1% of income earners.
But the disparity does matter, at least in terms of its downstream consequences. Much of Silicon Valley’s ecosystem is built around the equity held by successful startup founders. Those founders often take their payouts when their firms are acquired or go public and use them to create other firms or to fund other entrepreneurs through so-called angel investments.
Many also join venture capital firms, where they help determine which of the next generation of startups get funding, or sit on tech company boards, where they help shape the composition of executive teams. They also often use their startup payouts to set up foundations that give out money to their preferred charities.
Silicon Valley is a clubby place. Founders tend to hire people who look like them, went to college with them, or run in the same social circles. VCs tend to invest in companies with founders that either look like them or look like founders who succeeded in the past. In both cases, the people who get funding or top positions tend to be male and white or, to some extent, Asian.
And that’s become something of a cycle. White male VCs fund startups run by white men who, when they cash out, become VCs who fund the next generation of white male entrepreneurs.
So the disparity in equity in Silicon Valley doesn’t just affect who’s seeing the big bucks when a company goes public, it also affects who gets funded the next time around, who gets hired, what products and services are developed, and what communities see investments.
„In Silicon Valley, money from a successful exit is about more than just wealth,“ said Sladden. „It’s the power to shape and choose the products and institutions that shape Silicon Valley the for next generation.“
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Source: Business insider