(Note: I have a column in today’s USA Today on why women-owned businesses receive such a small percent of equity funding. Is it because sexist VCs refuse to read business plans by women? Not so much… when women ask, they get funded at the same rate as men. The biggest problem — as with submitting op-eds or negotiating for raises, incidentally — is that women don’t ask. The question is what to do about that).
NEW YORK — It was a scene straight out of the 1990s: A web start-up, flush with nearly $1 million in new investor cash, threw a party at a downtown bar to toast that success. But here’s the 2011 twist to the story of DailyWorth, a daily e-mail newsletter of financial tips: the founder, Amanda Steinberg, isn’t a 24-year-old male Stanford dropout. She’s a thirtysomething mom of two who is determined to change the image of what a serious entrepreneur looks like.
“I started this thing with the vision of having millions of subscribers from day one,” she says. She spent 10 years in the tech world and saw many “half-baked business models.” She knew she could “do a much better job.”
That might be true — but Steinberg is one of the rare women who has convinced the so-called angels and venture capital investors who fund start-ups of that fact. Women own 29% of all businesses, according to a recent American Express study. Yet various expert calculations find they receive well under 10% of all equity financing. Many female entrepreneurs either use their own funds or take out bank loans to grow. These methods have their merits, but also their limits. According to AmEx, women-owned businesses employ just 6% of the country’s workforce and contribute less than 4% of overall business revenue.
Knocking down the barriers
Though the world of equity financing — and the fast growth it enables — might be one of the last old boys’ clubs, there’s a movement is afoot to infiltrate it. That’s good news: Angel and venture capital cash aren’t for all businesses, but if an equitable percentage of women scored it, that could help put a dent in the 8.8% unemployment rate.
Much has been written of the barriers women face in the business world. Starting a capital-intensive business is an amplified version of all of that, with short-notice travel and make-or-break meetings. The morning Steinberg pitched Eric Schmidt’s Tomorrow Ventures, for instance, her son had a fever, her husband was out of town and she had to make 11 calls to find a sitter. (It wound up investing $75,000.)
Connections also matter more than they probably should. Because early-stage investing is a high-risk proposition, many investors want to know and feel comfortable with the founders they’re backing. Here, too, women face obstacles.
Tereza Nemessanyi, founder of Honestly, Now — a type of social network site where users can ask friends to anonymously give them personal advice — looked into applying to Y Combinator, one of Silicon Valley’s best-known incubators. Start-ups that go through the program get exposure to major venture capital funds and mentors. The problem? You have to relocate to Silicon Valley for months. “I can live cheap,” Nemessanyi says. But the fortysomething mom “can’t take my kids out of school for three months” without major hassles. So they’d probably stay behind. No wonder, she notes, that very few women apply.
But that’s not all that’s going on. A few years ago, researchers, including John Becker-Blease, now a professor of finance at Oregon State University, analyzed the funding patterns of angel investor groups. The unsurprising finding was that women scored just 9% of the funds. The surprising finding? Male and female founders who did apply had almost the exact same 14% success rate. “So the crux of it … is that there were very few women in the pool seeking funding,” Becker-Blease says.
It’s a similar pattern to opinion columns. Few columns in national newspapers are written by women, but men submit 80%-90% of potential columns. Regardless of whether editors or investors might be harboring secret sexism, the biggest problem is that women don’t ask.
Storming the barricades
This is a far more complex issue than cigar-chewing investors refusing to read women’s business plans. It’s certainly possible that many female entrepreneurs want to stay small and want to maintain full ownership of their ventures. There is a “perception that to build a company worthy of venture capital you have to give up your life,” Steinberg says. People think it’s “somehow so much harder than running a lifestyle business.” But is that true? She maintains that it could be “easier to run a (venture capital-backed) business where you can afford to have staff and not kill yourself.”
While “mompreneurs” have been a hot concept for years, the larger cultural narrative might, unfortunately, nudge women toward thinking of business ideas that can be accomplished while the baby is napping, rather than employing hundreds and generating cold, hard cash. The challenge, says Steinberg, is for women to “think bigger.”
Fortunately, some organizations are helping women do just that. Women 2.0, an organization dedicated to women in technology, holds workshops to help entrepreneurs hone their business plans, and arranges nationwide networking meetings between entrepreneurs and investors. Since 2000, Springboard Enterprises, a non-profit that also arranges support and networking, has helped more than 400 women-led companies raise more than $5 billion.
David Ronick, founder of UpStart Bootcamp, which coaches entrepreneurs on writing business plans and making funding pitches, estimates that 70% of his clients have been women — and they make great pupils. “They admit what they don’t know,” he says. “We’re trying to level the playing field.”
Slowly, especially as successful female entrepreneurs cash out and become investors themselves, this will happen. That’s good news for all of us, because “entrepreneurship drives the economy,” Ronick says. “Women have everything they need to do just as well as men.”
Given the low numbers now, a small increase in funding could mean a big payoff in jobs and growth. Right after Steinberg scored her funding, for instance, she hired five full-time people to help her pursue her next million.
Laura Vanderkam, author of 168 Hours: You Have More Time Than You Think, is a member of USA TODAY’s Board of Contributors.
One thought on “Venture Capitalists: It’s Time To Invest In Women (USA Today)”
I think the larger problem is that as a small business owner you are not really sure what it (the growth, the next big leap) looks like. That is how does it happen.. so you get this money.. then what.. does that VC own your company know… Do you promise to pay them back in five years with x percent interest.. I think Laura you need to push the story further — for it to be informative enough..right now it is kind of general
That is because there are so few women out there doing it and the obstacles to small business ownership are so high — taxes, childcare etc, it is hard to know what happens or why you’d want that investment money or what is the best investment money.
I think more grant-type programs with back end pay-backs or more explanation of how it works would help. For example, I’ve had folks say to me, hey I’d like to invest in your business but it is hard to know why you’d want to give up ownership of your business– ok so you hire five folks, and they each sell more or do more etc. It is that part of it that I think women don’t get — how to get from doing it all to running it all… I think even your article assumes that we get it and we don’t. So for example, I’d like to see and read about women who do it and what it looks like.. so
Amanda builds company
Amanda gets money for company to grow
Amanda hires five employees…
Then what happens?
Amanda’s revenue goes up..
Amanda must pay back venture investor or
like what happens.
I’d like to read the rest of this story… you sort of start to get to it when you say she hired five people… but I’d like to know what happens.. she pays those investors back with interest.. like what happens… and a lot of us worry about loosing ownership of the business or what that looks like.. not lifestyle issues — but ownership and how you could make enough money to pay al that money back and still be boss etc.
It is one thing to say I want to sell a million dollars and have my kids know I am their mom.. it is another thing to do it…
what does it look like and how does that money operate.. this is what we want to know as woman-owned businesses say selling less than $500,000 a year with less than 10 employees!