The Economist.com – Female Founders
According to research done by Babson College, “if women entrepreneurs in the U.S. started with the same capital as male entrepreneurs, they would add a whopping 6 million jobs to the economy within 5 years – 2 million of those in the first year alone.” We know that small business is the engine of job growth in the United States. Kauffman Foundation research shows that all net new jobs in the U.S. are created by firms less than 5 years old. Today female led high-tech startups have lower failure rates and greater capital efficiency than those led by men. The average venture-backed tech company run by a woman is started with one-third less capital and had annual revenues that were 12% higher than those run by male counterparts. “Having women at the helm makes good business sense,” Cindy Padnos, managing director of Illuminate Ventures explains. In her High Performance Entrepreneurs: Women in High-Tech report, Padnos’ research demonstrates that women do more with less.
Yet, while women launch nearly half of all new businesses in the United States, access to capital remains largely out of reach. Of the $17.6 billion in angel investment in 2009, only 9.4% went to women entrepreneurs. This is problematic as early stage capital is often critical to keep young companies alive. Further, according to data from Dow Jones Venture Source, only 11% of U.S. firms with venture-capital backing in 2009 had current or former female CEOs or women founders. Why is this? One reason is that women don’t ask. Research shows that women are twice as likely to use debt rather than equity or self finance to get businesses going.
Another reason is that the “old boy’s network” still exists. Nearly 80% of venture capitalists are men. Women lack direct relationships with early stage funders and the ability to gain high-quality referrals. Access to early stage equity financing plays a critical role in the successful development of startups. Venture capitalists act as gatekeepers not only to funding but to introductions, partnerships, and future business opportunities. Today just 3 to 5% of female owned companies receive venture funding according to the Center for Women’s Business Research. Most women run startups support the entrepreneur and their family but fail to attract significant enough capital to scale.
So how do we unleash women entrepreneurs to create jobs and sustainable economic development? First, encourage women through forming support networking. A number of such efforts are already underway. In New York, a group of tech and digital media executives host the “Breakfast Club” for professional networking and to share practical advice. Arianna Huffington, designer Donna Karen, former U.K. first lady Sarah Brown and incubator i/o Ventures have launched a $25,000 competition to find the “next female tech trailblazing entrepreneur.” And, this December, the technology conference TED is organizing a women-focused conference.
Second, increase access to capital for women owned businesses. Although today female entrepreneurs do not obtain access to equity funding at the same rate as their male counterparts their access is expanding. An increase in women investors, women—entrepreneur focused non-profit groups, and awareness to support a more inclusive investment strategy is helping women entrepreneurs. Astia, a venture accelerator, provides mentoring, training, and access to venture capital to high growth women-run businesses. Springboard Enterprises offers programs to educate and promote female entrepreneurs who seek equity capital. Further, Illuminate Ventures invests in U.S.-based high-growth tech companies with an emphasis on companies with women co-founders.
Finally, bolster government efforts to support women owned small business. The Small Business Administration’s Office of Women’s Business Ownership & Entrepreneurial Development manages a network of Women’s Business Centers across the United States. These centers offer training and counseling but could enhance facilitation of private sector partnerships. We need government to follow through on supporting women in the workforce. Having interviewed more than 200 entrepreneurs in the last two years, I know that women are leading extraordinary startups with far reaching impact. My hope is that we further empower women entrepreneurs to help us innovate our way to economic recovery.