At the beginning of 2014, Forbes said the year would be a “breakout year for women entrepreneurs.” Indeed, Forbes had its reasons to believe so. According to a 2013 American Express-sponsored report, from 2002 to 2012, women-owned ventures with $10 million dollars or more in revenues increased by 56.6 percent—a rate 47 percent higher than overall ventures.
In that same time, women-owned businesses grew by 28.6 percent—again, higher than the 24.4 percent increase among all U.S. businesses. According to the Center for Venture Research at the University of New Hampshire, almost 20 percent of angels in 2012 invested in women-led ventures. That may not seem like a lot, but it was a 40 percent increase over the previous year.
While progress continues to be made, some issues are stubbornly persistent. In March, when Poets&Quants released its Top 100 MBA Startups, based on funding raised, there were only three startups founded solely by women (Rent the Runway in 11th with $114 million, Birchbox at 16th with $72 million and Stitchfix at 22nd with $47 million). What’s more, the first woman-founded venture not by a Harvard graduate was Piazza, all the way down at 62nd with $15.5 million raised.
A VENTURE CAPITAL VOID
More recently, the gender discrimination lawsuit involving venture capital giant Kleiner Perkins Caufield & Byers (which funded five Poets&Quants Top 100 Startups) and former partner Ellen Pao has put the issue in the limelight again. Although Pao failed to win the case against her former employer, it’s opened up the conversation surrounding representation of women in funding-rich Silicon Valley.
Today, the number of women in venture is actually improving. And according to Angela Lee, an assistant dean at Columbia Business School and founder of 37 Angels, an angel investment network that trains women to invest in early-stage startups, that is a good thing for women-led ventures.
“As the number of women being angel investors has increased, the number of women-led companies funded has increased,” says Lee. “There was a time when the number was around 4 percent of women in startup funding. Now it’s up to 18 to 20 percent and you see more funding in women-led companies.”
‘WE INVEST IN AND HIRE PEOPLE WHO LOOK LIKE US’
The difference might be as simple as having comfort with those we can relate to and understand better.
“We invest in and hire people who look like us,” Lee says. “We naturally gravitate to others who look like us. It could be race, age or educational background. It’s not just a women versus men thing—it’s a diversity thing.”
She also likens the issue to growing diversity amongst students and professors at business schools. “You see initiatives to diversify classes at business schools,” Lee explains. “And you see more diversity in faculty. But the difference is many professors are close to retirement, so you can increase diversity as others retire. The senior partners at venture capital firms aren’t old. They’re like 40. So it’s hard to make change when the people at the top aren’t going anywhere.”
A DIVERSITY IN PARTNERS AND MARKETS
Hence, you have the value of a firm like 37 Angels. And others are popping up all the time. The New York Times recently featured women-led early-stage investment firms such as Cowboy Ventures, Aspect Ventures, Broadway Ventures and others that are attempting to disrupt male-dominated space. However, are women-led early stage investment firms enough when the issue is having female representation at the top of established venture capital firms.
Professor Linda Darragh at Northwestern’s Kellogg School of Management, who serves as the executive director of the Kellogg Innovation and Entrepreneurship Initiative as well as the Helzer Center for Private Equity and Venture Capital, says having women as partners at top venture capital firms can help diversify the markets those firms can invest in.
“In the past few years, I’ve heard stories of women-led ventures having a hard time generating Series A funding because the investors don’t get beauty or other women’s markets,” says Darragh. “In one instance, a male partner went home to his wife and told her about the product and she said it was an amazing idea with a huge market and he should invest in it. So it helps to have investors understanding the markets.”
Angela Lee of Columbia Business School and founder of 37 Angels
A RESOURCE GAP OUTSIDE OF B-SCHOOL
Kat Vorotova, a Columbia Business School graduate, says different industries can play a role in the success of starting a venture. After graduating with an MBA in May of 2014, she launched her company, Try the World. Her venture allows customers to purchase gift packages (usually containing geographic-specific foods) for themselves and others.
“To be quite honest, I didn’t feel that my gender was an obstacle,” Vorotova says. “I think for some industries it might different than others. In the food business, there are several women and I don’t feel like I am a pioneer.”
Vorotova does say she believes there is a resource gender gap outside of the friendly confines of b-school walls. “The resources in school were fine,” Vorotova says. “The resources outside of business school are not equal. Many women have challenges in securing financing. Venture capital, in general, is more male dominated. There are fewer females that might understand businesses woman might be running. Getting more women to work in venture capital is definitely a challenge that needs to be overcome.”
‘VENTURE IS A PLACE THAT REQUIRES LOTS OF HUSTLE’
Founder of Greenbox, an eco-conscious pizza box that was featured on ABC’s Shark Tank, Jennifer Wright-Laracy says that while she does see a potential issue in raising funding, she thinks it’s more important women are encouraged and given opportunity at a young age—far before the funding pitch meeting.
“I don’t think women are encouraged early on,” Wright-Laracy says bluntly. “I don’t think there are enough mentors for women to realize they are capable. They can think big. They can start a national or international company or one that is beyond working for themselves. I think the way to encourage that in the future is having mentors for girls at the high school level and show them that it is possible. They don’t have to work for someone else and can think beyond a mom and pop type of business if they want.”
Lee says Columbia and some other schools are beginning to acknowledge this issue.
“Venture is a place that requires lots of hustle,” Lee says. “I have done studies sitting in classrooms at Columbia Business School and counted the number of comments being made by the students. I found 10 to 15 percent of the comments were made by women. It worries me that women are hesitant to raise hand.”
INCLUSIVENESS AND CONFIRMATION BIAS
According to Lee, Harvard Business School is doing the most to foster inclusiveness.
“They (Harvard) have people in the classroom who monitor how inclusive the environment is for women,” Lee explains. “This is to help with confirmation bias. There’s a lot of data around confirmation bias. An example is women and math. There was a study that looked at Asian women taking math tests. Before taking the test, one group was reminded they were women and the other group was reminded they were Asian. The group that was reminded they were Asian scored 30 percent better because Asians are supposed to be good at math and women aren’t.”
Lee says there is too much confirmation bias right now surrounding women being expected to fail as entrepreneurs. Nevertheless, Darragh and Kellogg are doing what they can to offset the confirmation bias by inclusion. According to Darragh, the number of women in Kellogg’s New Venture Discovery and New Venture Development courses ranges from 30 to 36 percent—close to the 37 percent of women currently in the two-year full-time MBA program at Kellogg. And Darragh isn’t hesitant or shy to rattle off all of the successful women-led Kellogg startups.
Linda Darragh of Northwestern’s Kellogg School of Management
LESS TALK, MORE ACTION NECESSARY
“We continue to see a number of alums having this entrepreneurial focus,” Darragh says. “One alum started Brideside, which is in the bridesmaid market. There is Gloss48, Heirlumé and TotSquad, which are four examples of Kellogg women-led businesses finding investors and are continuing to build and scale.”
In addition to introducing female entrepreneurs to female investors, Darragh says Kellogg is emphasizing the importance in communicating the market and story of business to men who most likely don’t understand. “They have to do their due diligence in building a story that explains the power of a market many men probably don’t know exists,” Darragh explains.
While slight change is occurring in B-schools and the world of venture, Lee says even more action is needed.
“What I see is a ton of dialogue and not much activity,” Lee says. “There’s so much dialogue and panels and talks. My hope is all of this dialogue will lead to action. And in 10 years the things we did now led to change. But I haven’t seen it yet.”
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