Monday Aug 2, 2010 by Monika Desai - Founder and CEO, Open Runway
As an entrepreneur launching my first startup, I rarely think about the fact that I am a woman but it’s hard not to notice when I am usually one of just a handful of women in the room at most of the entrepreneurial events I go to. Take for instance, WebInno. It always seems like 80% of the attendees are men and only 20% are women. There are even less women who are actually up there demoing their companies.
It’s not just Boston. I noticed the same 20% trend as a participant of the First Growth Venture Network, a mentorship program for high potential tech based startups in NYC. Of the 14 startups participating in the program only 3 of them had female founders.
That’s why it didn’t surprise me to learn that of the 425 applicants who applied to MassChallenge, only 18% were female. Because there were so few female entrants, only 15 of the 110 finalists are woman (see list of female finalists here). For those of you keeping track that’s 13%!
After learning that I was one of only a handful of women founders that applied to MassChallenge, I started wondering if the trend I was seeing was indicative of the rest of the nation. A quick search revealed that it is: only about 20 percent of U.S. companies with $1 million or more in revenue are women-owned.
Why are there no Women?
I wanted to understand why there are so few women entrepreneurs starting high potential, high growth companies so I embarked on some research. While I came across several theories, I came to the conclusion that there are 2 main factors: 1) lack of access to capital and 2) few role models.
Less Access to Capital: According to the Center for Women’s Business Research, data shows that while about 41 percent of private companies in the U.S. are owned by women, only 3 percent to 5 percent of them get venture capital. The US Global Entrepreneurship Monitor says that women start ventures with eight times less funding than their male counterparts. I thought perhaps women were simply not seeking capital but then I saw this stat: women-owned businesses accounted for 21 percent of the entrepreneurs that sought angel-investment capital in 2009, but only 9.4 percent of those females were successful in their quest, according to a report published by Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire.
While there are several reasons why women have less access to capital, one factor is the scarcity of female venture capitalists. A quick look on TheFunded revealed that only 3 of the 95 venture capitalists on the 7/19 list of “Top VCs” were women. Research shows that having female VCs does have an impact on women getting funded. According to Cindy Padnos of Illuminate Ventures, a venture capitalist, firms with at least one woman partner are 70 percent more likely to lead investments in a woman-run company than a VC firm with all male partners.
Few role models: How many women can you name that have founded companies that have become household names? I don’t know about you, but I can count them on one hand. In the tech space, at the highest level in the biggest companies, we have a handful of role models: Meg Whitman (eBay), Carly Fiorina (HP), Carol Bartz (AutoCad, Yahoo!), Marissa Mayer (Google) – great women, great leaders, instrumental in their company’s success but they didn’t found these companies. Women need more examples of women who have founded and led high impact companies to inspire them to build high growth companies.
Women Build Great Companies
So why do we need more women entrepreneurs anyway? The bottom line is that women led ventures ROCK. Here are a few interesting stats that show why:
• Women are more Capital Efficient: Venture backed companies run by women have 12% higher annual revenues than those run by men using on average one-third less committed capital according to a study by British researcher, Library House.
• Women create more Jobs: A Babson College study found that if female entrepreneurs started with the same capital as their male counterparts, they would add 6 million jobs to the economy in 5 years – 2 million in the first year alone.
• Women do more with Less: Venture-backed start-ups run by women use, on average, 40 percent less capital than start-ups run by men and are increasingly involved in successful initial public offerings of stock, according to a recent white paper by Illuminate Ventures.
• Women Fail Less often than Men: Despite having less capital, women-owned businesses are more likely to survive the transition from start-up stage to established company (Illuminate Ventures)
A New Wave
All that said, I do think we are on the cusp of a dramatic shift. A new wave of women entrepreneurs are quickly leveraging existing technologies to create new business models online that are disrupting industries. GILT founded by Alexis Maybank & Alexandra Wilkis Wilison is a perfect example of this. GILT is one of the fastest growing companies in e-commerce history, and has made Flash Sales a household word. There are hundreds of competitors both in the US and worldwide that are all trying to capture the GILT magic for every conceivable niche.
Caterina Fake (Flickr, Hunch) is another favorite of mine. Flickr, the company that she co-founded completely disrupted online photo sharing, people’s perception of content sharing, and showed the hundreds of companies that followed that the freemium model can create a self-sustaining and capital efficient business. She’s now moving on to her second, big endeavor, Hunch, and has teamed up with some top tier investors and advisors.
These women and others, who are creating disruptive companies, and having successful exits are laying the foundations of a new generation of role models, and are tearing down the barriers that might keep women from embarking on building high growth, high return companies.
Look out world, here we come!
Monika Desai is the co-founder and CEO of Open Runway, a social commerce platform that empowers shoppers and emerging designers to create and shop for women’s fashion (starting with shoes) through customization and community-voted design contests. You can follow Monika (@monikaadesai) on Twitter by clicking here.