Start Me Up: Why Women Funding Women Entrepreneurs Works Best
Female entrepeneurs are more successful when their startupsa re funded by female venture cpaitalist. Yet research shows women on ABC's "Shark Tank" (shown here) ask for less money for the ideas than men do.
Show her the money. Please.
New research published in the Harvard Business Review reveals that female entrepreneurs are more successful when their start-ups are funded by female venture capitalists.
Sahil Raina, assistant professor of finance at the Alberta School of Business writes: ”With startups financed by all-male VCs, there is a whopping 25 percentage-point difference in the exits of female-led and male-led startups. Yet when startups are financed by VCs with female partners, that difference disappears. There is no meaningful difference in the success rates of female- and male-led startups when they’re financed by VCs with women partners.”
“Female entrepreneurs are more successful when their start-ups are funded by female VCs.”
Raina continues, “These findings suggest that, somehow, VCs with female partners are better able to evaluate or advise female-led startups, or both, to the point that there’s no performance gap between startups led by women and those led by men. However, if female entrepreneurs get their funding from VCs solely led by men, their startups will be far less likely to be acquired or make it to an IPO.”
Gender matching can be one big factor in the improved performance of women entrepreneurs, he writes. It could also be that female VCs are better at advising women entrepreneurs or better at picking the winners. Still, “If the goal is to have more successful technology startups led by women, it may not be enough to simply encourage more women to start companies. A crucial step to helping more female entrepreneurs succeed may be to encourage more women to join venture capital firms.”
Entrepreneurs and risk takers are weighing in, as the findings are rattling some cages.
Kimberly Weisul writes in Inc.: “I’m not sure how encouraging these findings are to women entrepreneurs. On the one hand, women who are leading startups, and constantly being told by men that they have no chance of success, just got a nice shot in the arm. These women may or may not go on to conquer the world, but male investors who tell them it’s impossible don’t seem to have any better judgment on this than anyone else.”
According to Weisul, “We all know that women get precious little venture capital funding: Only three percent of venture capital goes to female CEOs, according to Babson College. And that might be because so few women become venture capitalists: Only six percent of investing partners are women, also according to Babson.”
Scarcity of women in venture capital firms is at play for sure, according to Leana Rao at Fortune. “The lack of women who invest in startups in Silicon Valley is an issue that has come to light over the past few years. Fewer than 6 percent of all decision-makers at U.S. venture capital firms are women, according to data compiled by Fortune, showcasing the glaring gender inequality issues in the investment industry and Silicon Valley as a whole,” she writes.
Rao interviewed Ann Miura-Ko,”a partner at early-stage firm Floodgate and was an early investor in ride sharing giant Lyft.” Rao quotes her: “Women feel more welcome in firms where they see other women,” Miura-Ko said.”Women tend to question how they will fit into male-dominated firms. They ask, ‘Do I really want to be one of the first females at this firm and am I setting myself up for success.’”
When women entrepreneurs aren’t given enough money for funding, the first step is to ask for it.
At Cornell University, new research shows that women entrepreneurs don’t ask for enough money for their projects. Sharon Poczter , assistant professor of applied economics and management, and her “co-author, then-undergraduate Melanie Shapsis, spent a year analyzing more than 100 variables in nearly 500 pitches from every episode of “Shark Tank” on ABC-TV, according to Cornell’s website.
In the study, “Know Your Worth: Angel Financing of Female Entrepreneurial Ventures,”authors “Poczter and Shapsis found that companies owned by women or by a team that included women were valued at $685,000 less, on average, than firms owned by men. All-female team valuations were $1.3 million on average. But for all-male teams, the average asking valuation was $2.7 million – nearly twice as much,” writes Susan Kelley.
“Asking for more is something very straightforward that women can do. Our results suggest getting access to more financing is not going to take an institutional reconstruction,” Poczter is quoted as saying.
In Chicago, InvestHER Ventures cofounder and partner Cayla Chambers, is all about investing in female-led startups, according to ChicagoInno.
Chambers “is aiming to address this by funding women-led ventures (or ventures with a female executive with equity interest). They partner and invest in early stage, data-driven tech companies with some B2B component in untapped markets, according to their website,” writes Karis Hustad.
At the BlogHer 2016 conference August 4-6 in Los Angeles, sponsored by SheKnows Media,there will be a live version of The Pitch: SMB Edition with a panel of judges evaluating pitches from participants.
Women entrepreneurs represent a growing industry and a strategic business investment.
“2016 is an amazing time to be a female entrepreneur: startups with female leaders are more successful than those run only by men, there are growing networks to support us, the costs of running a business are coming down and there are more sources of funding available than ever,” said Sallie Krawcheck, Chief Executive Officer and Co-Founder of Ellevest, a recently launched digital investment platform for women, in Business Wire.
Elisa Camahort Page, Chief Community Officer, SheKnows Media, told Business Wire: “At SheKnows Media, we created The Pitch to help change the ratio of women- versus men-owned businesses by giving female entrepreneurs strategic access to female consumers via our massive marketing and media channels.”
This is a good time to be a woman venture capitalist and also a good time to be a female entrepreneur, writes Annie Lamont in the Commerce Department’s website.
“I wholeheartedly believe that opportunities for women in venture capital have improved this decade. It’s actually a fabulous time to enter the VC ranks, even though women partners are still rare at many VC firms. It’s all about joining that ‘club,’ which is not without its challenges but is more possible than most women realize,” writes Lamont, managing partner of the $500 million venture fund Oak HC/FT that centers on healthcare and financial services technology companies.
“The number of women-led, venture-backed companies climbed to 18 percent in 2015 from 5 percent in 1999. And while women business owners continue to face greater funding challenges than men, the growth rate of women entrepreneurs is five times that of male entrepreneurs,” Lamont adds.
Taken from the Commerce Department site, here are Lamont’s tips for women seeking a VC career:
Don’t pass up opportunities to get a foothold and prove your mettle. Once you are able to get your foot in the door, make the absolute most of it through demonstrating your passion and genuine interest in learning about the business.
Network, network, network. This industry is 100 percent about relationships. So reach out to VC partners and their portfolio companies. Find a mentor. Persevere and show initiative, ask questions, do your research, speak up.
Differentiate yourself. Find an investment specialty and stick with it. For me, it was healthcare and fintech. Demonstrate your knowledge and build on that expertise, exercise judgement and treat people fairly. (Because it’s the right thing to do and they don’t forget and will work with you time and again).
“As for women entrepreneurs,” Lamont writes, “be a pied piper, look for and identify a big idea and a big need, master the art of communicating to VC angels and firms, and attract a team of A-plus players compelled to join you in your mission.”
“The inclusion of more female investors will launch more successes of female entrepreneurs.”
But as the saying goes that success breeds success, the inclusion of more female investors will launch more successes of female entrepreneurs. So what comes first then, the chicken or the egg? The answer is the hens do.
About the Author
Michele Weldon is editorial director of Take The Lead, an award-winning author, journalist, emerita faculty in journalism at Northwestern University and a senior leader with The OpEd Project. @micheleweldon www.micheleweldon.com