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For over a year I have been video interviewing venture capitalists, angel investors and women founders trying to investigate the apparent shortfall in funding for women led technology startups. My goal has been to listen to as many people as I could from both sides of the table, in order to get a diversity of opinions on this controversial subject. Whilst I have been doing these interviews, many people have said to me that no problem exists and that women can be as easily funded as men if they have a great idea, team, plan and advisors. However the statistics show another story. The percentages of women in technology, female entrepreneurs and female venture capitalists are extremely low compared to men. But the reasons are multifold and complex and cannot be resolved quickly or easily. With this post I hope to shed some light on the intricacies of this issue. Everyone that I interviewed was inspiring and added a different voice and view to the puzzle.
Some of the amazing female entrepreneurs and venture capitalists I interviewed for this project were Cindy Gallop, IfWeRanTheWorld; Danae Ringelman, Indiegogo; Julia Hu, Lark; Leila Chirayath Janah, Samasource; Lisa Stone, Blogher; Wendy Lea, Get Satisfaction, Ann Miura-Ko, Floodgate; Catharine Merigold, Vista VC; Patricia Nakache, Trinity Ventures; Brad Feld, Foundry Group; Chris Dixon, Founder Collective; Dave McClure, 500 Startups; Fred Destin, Atlas Venture; Fred Wilson, Union Square Ventures; Guy Kawasaki, Garage Ventures; Jason Mendelson, Foundry Group; Jeff Clavier, Softtech VC; Mark Suster, GRP Partners; Neil Rimer, Index Ventures; Randy Komisar, Kleiner Perkins and Tim Draper, Draper Fisher Jurvetson. You can see the full list here.
I have teamed up wtih Startup Genome to help get a critical mass of women to participate in the Startup Genome Project in order to add the dimension of quantitative data to the discovery of the DNA of women led startups. The Startup Genome has already learned that “approximately 70% of the startups in their dataset scaled prematurely. I am very interested to see if the same pattern holds for women, because through the interviews I have conducted the consensus has been that women tend to be perfectionistic, moving slower but more surely than their male counterparts. Is it possible that the more careful nature of women may cause them to fail less? We shall see what the data reveals, but the Startup Genome Team reminds me that while women may be more likely to avoid premature scaling, they may fall prey to “dysfunctional scaling”, a problem that occurs when entrepreneurs fail to step on the gas pedal once the product has been validated.
Following are some of the strands of DNA I have identified through the 130 interviews I have conducted over the last year.
Is There a Problem for female entrepreneurs?
Many people have said to me that no problem exists and that women can be as easily funded as men if they have a great idea, team, plan and advisors. However the percentages of women in technology, female entrepreneurs and female venture capitalists are extremely low compared to men.
Is There Overt Discrimination?
Many suggested that there is no conscious bias on the part of investors but that we all naturally feel more comfortable with those who are similar to us. Investors are looking for low risk and high reward. If someone is dissimilar to them and they do not understand them, they may see them as a riskier investment and decide to pass. True to the law of you get in what you put out; many suggested that if you act as if there was no overt discrimination, then you may be less likely to be discriminated against. However women may tend to keep mum about discriminating behavior by men in business in order to protect their credibility and careers.
Does Bias Keep Women Disadvantaged for Investment?
Studies suggest that we all have unconscious bias and that of course then can affect female entrepreneurs when raising investment due to their low numbers. Some suggested that there were fewer obstacles to raising funding through other means for women rather than venture. As a result, larger percentages of women are raising investment through alternate means such as crowd sourcing, debt, friends and family etc, than are attempting to raise venture capital. Successful women may also strive to succeed through their own merits in an effort to support the notion that there is no gender bias.
Are there Advantages of Diversity?
There have been studies done about the advantages of diversity and many people spoke about how startups, just like corporations can produce better results by having a diverse executive team and board. It was suggested by some that having women on the executive team of a startup would help the company better understand and serve their customers because the internal team composition would better mirror the composition of the target market. Women also bring stability to teams and greater creativity through providing perspectives that often differ markedly from men.
Should we generalize about Gender?
Many of those interviewed baulked or apologized about making generalizations about gender but most did just that at some point in the conversation, including myself. Unfortunately, it’s very difficult to discuss issues about men and women without generalizing, as it is something we all fall back on when we try to make sense of those dissimilar to us.
Are there differences between Men and Women?
Despite that fact, I will mention some generalizations that people discussed. We all acknowledge that men and women are different, not just physically but our early training and roles deliver a different version of life. There are also many studies on the fact that our brains are wired differently along with the fact that we are ruled by different hormones. It was suggested by many, that women generally perform better with human factors in business and often attribute their success to others. Due to their varied roles and responsibilities they also seem to be able to manage both home and business well. Women may tend to take business more seriously than men. However it was also suggested that women can be just as competitive and ambitious as men, particularly when that is encouraged and supported.
How does the Female Demographic Impact Investment?
The female market is huge particularly in online businesses and drives a lot of revenue. Women are also a tougher market to target as they are more demanding. Therefore having more women in startups could mean better insight into customer needs, which could allow those startups to serve those markets better and achieve greater success than their peers.
Are women even interested in becoming entrepreneurs? A great many small businesses are run by women, about 50% in the US. So why are there less technology startups led by women? It could be that women have to make adjustments to adapt to the greater demands of the lifestyle of a high growth technology entrepreneur. Women have been proven to be good credit risks and are a major force now in in the upper management in the Fortune 500, so perhaps tech entrepreneurship is just one more area where women will soon prove their equal competency to men. There could be a new focus on the strengths of women in business to counteract old erroneous images in the culture and to encourage more women to become high growth technology entrepreneurs. In the startup world there is a certain stereotype of the type of founder that investors love to fund: young, white, male and geeky. Female entrepreneurs need to challenge this stereotype by showing that they possess alternative approaches to solving problems that can make for great startups and disrupt industries in new ways.
A lot of feminine strengths may not match up to historical and portraits of successful entrepreneurs. This could mean that some women may need to learn skills and shore up certain qualities to be a good fit. Many spoke about the need for great female entrepreneurial role models and mentoring of women both by men and women, which includes peer mentoring as well. Women entrepreneurs may also need to learn about the venture and angel industry and to identify the best investors to whom they should pitch their startup. There are now many women friendly investors, many of whom I interviewed. It is helpful for women entrepreneurs to grow their networks and to get to know investors before stepping up to the plate to raise investment capital. This can help a female entrepreneur’s general confidence and help her identify the best avenues for her to target. Here are some interesting stats on women who raise venture from a 2007 survey by British Researcher Library House:
- women ask for exactly what they need in capital and end up with half what they require from investors
- men tend to ask for twice as much venture in hopes of getting half from investors
- female CEOs delivered higher revenues using less capital than those by men
- the average venture backed company run by a woman has annual revenues 12% higher than those by men using on average one third less capital
Female Venture Capitalists
Female venture capitalists are a very small percentage of the venture industry. It was noted that many successful entrepreneurs become venture capitalists later in their careers. Due to the small numbers of female entrepreneurs this has limited the number of female venture capitalists. This funnel is a problem. Increasing the numbers of female entrepreneurs, may in turn increase the numbers of female venture capitalists, starting a virtuous cycle. If investment firms also mentor more women and encourage them into their ranks this could also kickstart the cycle that could get women into the startup ecosystem.
Advantages of Being a Female Entrepreneur
One of the current advantages of being one of the few female entrepreneurs is that you are noticed and often remembered more than men. If an investor is conscious of bias then this could become an advantage. If women entrepreneurs can deliver the necessary requirements when pitching and develop the qualities that investors are looking for, then their minority status could make them more likely to get funded as investors look for undiscovered gems that other investors overlooked.
What do Female Entrepreneurs have Going for Them?
Consumer internet already has a number of successful women and this may be an area that women feel comfortable leveraging their strengths to create successful startups. If women can learn to better leverage their strengths: networking, forming fabulous teams and advisory boards, and managing their businesses with resourcefulness and creativity, they could become very proficient at playing the startup game.
Importance of Being Yourself
It was stressed by most investors and founders that it is crucial to the success of a startup and raising funding to be yourself. Being a minority, women may feel under pressure to act like men, but most of the people I interviewed encouraged female entrepreneurs to remain authentic and not to try to act like men when trying to raise money. It does not help anyone’s confidence and sense of presence if they are not relaxed and comfortable with who they are, no matter their gender.
Women’s receptivity to others may at times undermine their confidence and they may not come across as brash as some men. However a positive focus for themselves and their ideas along with encouragement from others can easily change this issue. It was also noted that extreme aggressiveness is required to achieve success in business. This may be a key factor that holds some women back as this may not be a natural response for some. Women may often tolerate unfriendly or unsupportive people for too long. There may also be a challenge for women in their style, finding a middle path between being empathic and warm and making tough decisions. It is of course possible for women to learn to become very flexible in these different modes of operating or feeling. Inner strength and confidence raise awareness of this propensity and skills such as assertiveness, active listening and negotiation can be learned.
Importance of Confidence
Everyone spoke about the need for extreme confidence and passion in entrepreneurs when building their businesses and raising capital. Women often attribute their success to others or circumstances outside of their control and may not focus enough on building their sense of self-efficacy. Our training and culture encourage us to put others first, as the principal care takers in the community. It is helpful to stay objective by focusing on your traction and market to show investors that your startup can succeed. Having the necessary requirements to inspire confidence in investors and knowing the data well can be a big confidence boost. A healthy ego makes for a balanced person and a great business. Overconfidence and brashness may be confused with authentic confidence but many investors suggested that brashness can be a turn off and doesn’t necessarily inspire confidence! Women are often great consensus takers but ultimately a good CEO will be able to make her own decisions after listening to her advisors.
Risk and Failure
Many people that I interviewed suggested that women can be more risk averse than men. Risk always implies the possibility of failure. Women may take risk more seriously because failure often feels like a life and death matter to them. If women are not exposed or interested in sports when they are young, they need to find other ways to support them in being willing to accomodate risk and failure and at times to even enjoy the thrill. Women need to be encouraged to find their competitive expression without damaging their ability to be receptive to others.
Think Big – Scale your Business
Whereas many men have big dreams, women may tend to ‘think too small’. This may stem hormonally from our primary focus on the immediate people in our care or responsibility. Historically big picture thinking and exploring may have just been the domain of the male hunters. However this can easily be learned and changed if needed. Women’s sports and working on teams can provide confidence in winning and losing on a big scale.
Don’t be Afraid to Ask for Money
Another big issue that many brought up, is that women don’t like to ask for money. This is a huge problem if you are an entrepreneur that needs to raise money. You definitely have to become comfortable with asking for money! There seems to be something deeply ingrained in us as women that we should do what we can with what we have.
Then there is the challenge of the intensity and crazy lack of balance in startup culture that is not appealing to many women who value their family and personal lives. This necessitates women’s organizations and networks, along with individual female entrepreneurs developing their own version of startup culture. Creativity is necessary to match the time demands and pressures. A few mompreneurs spoke about thinking outside the box and solving these problems.
Sex and Power
One of the big differences for female entrepreneurs is the physicality of their gender. Some had been propositioned by investors. It is important that both investors and women keep clear about sexual boundaries in the pitching process. Everyone needs to understand that funding is based on merits of the startup and team. However when chemistry does happen between people who are looking to work together, it can easily be mistaken for sexual chemistry because it comes from the same place in us, our passion! Rather than pretending this important part of the creative process doesn’t exist or misinterpreting it by fearing it, literalizing and acting out sexual innuendo or relationship, investors and women entrepreneurs need to respect and honor this chemistry so that they can work together successfully. Investors need to take this risk along with the financial risk when they invest in a female entrepreneur and know that this fertile energy can be harnessed to build a great business. Female entrepreneurs should not be afraid of the power of this chemistry and its transformative affect on them and their business.
Female entrepreneurs may choose to segment their careers around child rearing ages before and after but it is important that investors do not prejudice their choices in funding an entrepreneur on supposition that they will abandon their business to start a family. For female entrepreneurs it is important to address the elephant in the room (as Mark Suster suggests) and update investors even before they ask about how they have decided to prioritize their business and family life.
Helping Other Women
Many people suggested that things will change when more women help other women. Most women are juggling a lot on their plates but that does encourage empathy for others in the same boat. There are already some great organizations that support female entrepreneurs like Astia, Pipeline Fund and Women2.0. However it is on each one of us to do what we can for other women as we move forward. The female startup ecosystem will only become stronger and therefore will be more conducive for meritocratic funding. There are also a few great organizations worth mentioning that encourage and support young girls to study science, math and engineering like NCWIT and Anita Borg Institute.
The role of a venture capitalist is fund and advise startups to become successful and profitable businesses. It has become something of a cottage industry with its own unique culture. As with the startup culture, it is composed mainly of men and even though they deal with risk in a major way, it has been shown to be an industry that is slow to change. Limited Partners who provide the funds to venture firms are resistant to change and insist on continuing with a model that is possibly broken. As Chris Dixon said to me “They’re people that work at pension funds and endowments and just like in any situation where somebody is investing on behalf of somebody else, there’s what economists call ‘agency problems’.” Despite this additional challenge in the industry, the one constant that we all face is change and the venture industry will not be immune to this force of nature, particularly as it hits the bottom line. All the venture capitalists that I interviewed were open and willing to invest in great female founded ventures. Some have already discovered the benefit and advantages of being ahead of the pack and are deliberately investing in great women led startups. And of course venture capitalists and angel investors will ultimately benefit more when there are greater numbers of female startups.
Disadvantages of Investing in Similarity
Because women think differently and see the world through different eyes than male entrepreneurs there may be great opportunity now. If we encourage openness with each other and respectful networking, then all will benefit. This path could also play a major role in improving economies in the western world which are suffering from the type of brash male dominated thinking that triggered mortgage crises and the ensuing financial collapse. Accessing the untapped potential of more venture backed female entrepreneurs could be a critical missing piece to creating the prosperity we all want.
I encourage all women led startups to use the Startup Genome Compass so that we can have more hard data about the gender differences in the world of technology entrepreneurship.