Sometimes, it seems as if as much as things change for women entrepreneurs, they are standing still. That paradox couldn’t be more true than when discussing high-growth women entrepreneurs and their ability to raise capital. That is the #1 challenge women face when starting and growing their companies, found David S. Ricketts, Senior Innovation Scholar at the Technology and Entrepreneurship Center at Harvard. His comment is based on a survey of high-growth women entrepreneurs, angel investors, venture capitalists, government representatives, media, academics, researchers and corporate executives who attended a recent DWEN Research Symposium. By focusing on where change is happening, where it isn’t, and examining what interventions are working, we can facilitate even greater change.
Women start companies with 50% less capital than male counterparts, according Access to Capital by High-Growth Women-Owned Businesses. Female-founded Inc. 500|5000 firms are dramatically less likely to raise equity financing from angels and VCs than male-founded companies (14.4% versus 3.6%). They are also dramatically less likely to ask close friends (9.2% versus 1.8%) and business acquaintances (13.5% versus 5.4%).
There’s no doubt about it: women business owners face greater funding challenges than men. Some of the obstacles are internal, such as not dreaming big (so there is no need for outside funding) and some obstacles are external, such as discrimination.
This flies in the face of the facts. Women have leadership chops and the skills needed to build and scale businesses even more than men, as these research studies show: Dow Jones, First Round, Kauffman and the SBA. While the number is still small — 171,842 million dollar plus women-owned businesses — the growth rate is five times that of male entrepreneurs, according to the National Women’s Business Council’s analysis of 2012 Census.
Why the dramatic increase? The ecosystem has exploded over the past few years. In the late 90s, Springboard Enterprises, an accelerator for women-led businesses in technology, media, and life sciences, and Astia, a nonprofit that identifies and propels high-potential women-led companies with expertise and money, were pretty much alone in providing support. Now there are accelerators, leadership programs, networking groups, media and competitions galore. Here are a list of some.
- Accelerators/bootcamps: Dreamit Athena, MergeLane, Million Dollar Women Workshop and Women’s Startup Lab are exclusively for women. 500 Startups, MassChallenge and Y combinator position themselves as women friendly.
- Competitions: EY Entrepreneurial Winning Women, InnovateHer, Rent the Runway/UBS Project Entrepreneur, Tory Burch Foundation Fellows and WPO/American Express 50 Fastest-Growing Women-Owned/Led Companies. All provide recognition and credibility. Some provide money, mentorship and education.
- Media: Broadmic, Forbes Self-Made Women, Impact With Wings: Stories to Inspire and Mobilize Women Angel Investors and Entrepreneurs (to be release on May 1, 2016) and Women 2.0.
- Networking groups: Dell Women’s Entrepreneur Network (DWEN), Monarq, Sheworx, SoGal Ventures, The Vinetta Project and WE Festival.
- Women are sharing resources. Mackenzie Burnett of Distributed Systems put together this list of women angel and early-stage tech investors.
Venture capital is still a boys club
Yet, with all the support women receive and their success, access to venture capital remains a stubborn challenge. The reason for the funding gap for women receiving venture capital is the gender imbalance at the partner level. The proportion of women partners in U.S. venture capital firms was small in 1999 — 10% — and it was downright miniscule in 2014 — 6%, according to Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital, a report by Babson College.
The impact on women cannot be overstated. Venture capital firms with female partners are two and one half times more likely to invest in companies with women on the management team (34% vs. 13%). ”I am in San Francisco and have a daily vantage point at the intersection of tech corporate venture and commercialization,” said Lisbeth McNabb, Corporate Venture and Public Board of Director. “There is a lot more conversation to have women on the deal side of the table. Yet, we still need to see a lot more execution”
It should be no surprise that the percentage of women being hired has dwindled when men like the chairman of Sequoia, Michael Moritz, make condescending and elitist comments on TV about his firm’s inability to find qualified women to hire.
It is a testament to women entrepreneurs and some funders that, despite all odds, the percentage of women-led, venture-backed companies has increased from 5% in 1999 to 18% in 2015.
- VC funds that are aimed at investing in women-led firms have been forming and still more are forming. These include BBG Ventures, Belle Capital USA, Female Founders Fund, Golden Seeds, Intel Captial Diversity Fund, SoGal Ventures and Women’s Venture Capital Fund.
- Women venture capitalists are leaving the big firms, but they’re not leaving the industry. They are setting up their own firms. These women include Jennifer Fonstad and Theresia Gouw of Aspect Ventures, Adele Oliva of 1315 Ventures, Aileen Lee of Cowboy Ventures, Susan Mason and Jodi Jahic of Aligned Partners, Kirsten Green of Forerunner Ventures, Tracy Warren and Tammi Jantzen of Astarte Ventures, and Nancy E. Pfund and Cynthia Ringo of DBL Investors.
- Corporate venture capitalists have a better track record hiring women as investment decision makers. Some are also investing in funds that are managed by diverse teams or have diversity as an investment thesis. Dell and Google are investing in funds with diversity. “Access to capital is a big one [challenge], particularly for women, said Karen Quintos, senior vice president and chief marketing officer of Dell. “We created the Dell Women’s Entrepreneur Network six years ago to help them connect to the capital and networks they need to take their businesses to the next level. The Intel Capital Diversity Fund was a natural partner for us.”
- Smaller, younger venture funds are forming whose investment decision makers are diverse as this list put together by The Information: Future List demonstrates. Talent is out there but larger firms are stuck in old hiring patterns.
Women have made enormous progress raising money from angels. A whopping 36% of all companies seeking angel funding in 2014 were female founded and 28% of all angel-backed companies are female founded. In large part, this is due to the dramatic rise in women angels. More than one in four angel investors (26%) are now women, an impressive 318% growth in the last 10 years.
Angel investing is not for everyone. You need to be wealthy, a salary of $200,000 if you’re single ($300,000 if married) or have assets of $1 million more, excluding your home. You must have the right risk profile. If you’re not prepared to lose your investment, this form of investing isn’t for you.
Anecdotal evidence from Harness the Power of the Purse: Winning Women Investors suggests women have a deepening interest in investing in women entrepreneurs because of the personal connection they feel. Angel investing is personal and a way to pay it forward by using your expertise to influence the trajectories of other women-run companies.
It takes skill to succeed at angel investing. Training organizations include 37 Angels, Female Funders, Golden Seeds, Pipeline Angels (expanding from 21 cities in 2015 to 33 in 2016). For those who prefer not to roll up their sleeves and do due diligence, another approach is to join Plum Alley Investments, which sources and vets the most promising private-company investment opportunities that are women-led to make it easier for you. They introduce potential investors to a broader community of investors and innovative companies, forming syndicates so their money has more impact as it is pooled with others.
It should be noted that women of color have an even harder time accessing venture and angel funding. #ProjectDiane found black women represent 18% of all women in the U.S. but only 4% of all women founded tech companies. To help change that, Values Partnerships is working with Shark Tank to bring more diverse ideas and voices to the show by hosting a series of casting calls.
Innovative companies are not innovating to fundraise
Rewards-based crowdfunding may not be for all innovative companies, but it is good if, for example, you have a gadget, food or fashion company. Companies can use platforms, such as Indiegogo, Kickstarter and Plum Alley, to pre-invoice customers for a new and exciting product. You don’t have to pay interest on the money raised or give away a piece of a company. You do need to pay platform and credit card fees, and marketing expenses, among other things. Conducting a successful crowdfunding campaign is evidence of potential, and makes it easier to raise money from angels, VCs and bankers, and to get retail distribution deals.
Here’s the interesting news: Women outperform men when raising money for their companies through rewards-based crowdfunding. Their marketing messages and products are resonating with the market.
Rewards-based crowdfunding is growing exponentially, but it is still only a drop in the overall fundraising bucket: $239 million in 2014 according to Massolutions. Women entrepreneurs’ campaigns, both large and small, are succeeding. Here is advice from an entrepreneur who recently succeeded.
While women-led companies, such as Digitz, a payment processing company, and Onevest have raised millions, for the most part, women are sitting on the sidelines: 36% of companies seeking angel financing offline are women-led versus 18% of companies seeking equity crowding that are led by women.
Why are women staying on the sidelines? Several reasons have contributed to equity crowdfunding’s slow start, but many are fading out of the rear-view mirror as the movement gains momentum. The term “crowdfunding” is used for a variety of ways of raising money. This can be confusing to anyone, let alone those who are new to fundraising. As best practices emerge, equity crowdfunding’s steep learning curve is lessening.
Closing the confidence gap
Internal factors related to confidence impact a woman’s ability to succeed at starting and growing a business. And, of course, the external environment sends signals to women, either supporting or discouraging them. Confidence is about being bold, having the courage to move forward despite the risks and the faith that you have the ability to succeed. Only 46% of U.S. women believe they have the skills and knowledge to start a business versus 61% of the men, according GEM Special Report: Women’s Entrepreneurship 2015.
The group offered several suggestions for closing the confidence gap:
- “Develop your Big Hairy Audacious Goal (BHAG),” said Lisa Ridley, Compass Group Coaching. “If you don’t know where you’re going, any road will get you there,” she paraphrased Lewis Carroll.
- “We need more role models to show the way,” said Alicia Syrett, Pantegrion Capital. The media has a huge role to play in celebrating not just the accomplishments of entrepreneurs at the pinnacle of success, but those on the way up, such as the recently announced winners of three competitions. The top three Fastest Growing Women-Owned/Led Companies are Sarah Kauss of S’well, who grew her beverage bottle manufacturer business, based in New York, from $2. 5 million in 2013 to $47 million in 2015. Nina Vaca of Pinnacle Group, an IT workforce solutions firm based in Dallas, who grew her business from $201 million in 2013 to $1 billion in 2015. Ellen Latham of fitness studio franchise, Orangetheory Fitness, a Fort Lauderdale, FL-based firm, who increased her revenue from $3 million in 2013 to $47.5 million in 2015. The three winners of Project Entrepreneur are Amy Husted and Audrey Wallace of Komae, the babysitting app startup out of Akron, Ohio; Suelin Chen of Cake, the end-of-life app out of Boston; and Christine Moseley of Full Harvest Technologies the San Francisco-based B2B platform for excess produce. The three winners of InnovateHer are Elizabeth Caven, UpCraft Club, a digital sewing pattern company based in Des Moines, IA; Dawn Dickson of Flat Out of Heels, rollable, tote-able, ballet-style flats that can be used as an emergency flat or worn everyday, is based in Miami Beach, FL; and Dr. Agnes Scoville, Scoville & Company of St. Louis, MO, whose first product Pacidose, ensures babies receive the right amount of medicine, is based in St. Louis, MO.
- Corporate executives have big roles to play as mentors, advisors and sponsors. ”I believe entrepreneurs can benefit from leveraging corporate executives as both advisors and sounding boards to learn and leverage how diversity initiatives and management strategies have been impactful to business results’” said Cheryl Cook, vice president of Global Channels and Alliances.” Corporate executives can also open doors for you.
- “Form an advisory board,” suggested Jeanne Sullivan, a recovering venture capitalist. Assemble a top-notch board of advisers, and you’ll create a powerful asset with the potential to make a huge difference in your business. Board members can provide advice, inform you of current and future marketplace trends, facilitate funding, recruit talent or suggest alliances.
- To this list, I’ll add the importance of having a diverse and large network. Research shows that entrepreneurs with larger and more diverse networks grow their businesses bigger. Yet, even though women are great communicators and collaborators, we don’t excel at building power networks. Women tend to build deep and narrow networks and men build wide and shallow ones. The weaker ties built by casting a wide networking net are the greatest source of new ideas, information, and opportunities. Using social networking puts your networking on steroids.
Change is the wind. In some cases the wind is barely a breeze and in other cases, it’s gusting. By highlighting where the greatest change is needed, we can focus attention there.