Female Entrepreneurs and the Fight for Funding
Latest posts by Heather Landau (see all)
- Female Entrepreneurs and the Fight for Funding - August 30, 2016
- Tips for Expanding or Opening a Business in Europe - June 18, 2015
“If I can make it there, I’ll make it anywhere.” New York has always been attractive to the self-made man, but it could now be the premier destination for the self-made woman, too. The Big Apple is being widely hailed as the new template for female-friendly business formation, enabling female entrepreneurs to launch startups with the fewest barriers to success. But how does the rest of the U.S. stack up, and what is the situation for women looking to start businesses globally?
Fairytale of New York
For residents of America’s largest city, the signs are certainly positive. Since his election in 2014, Mayor Bill de Blasio has undertaken a concerted campaign to attract entrepreneurs of all kinds, and has hired women in many key positions of government. More than 70 percent of the city’s 27 agency commissioners are women, as are most of its digital and tech directors.
Numerous grants and programs have been created to support female and minority business owners, including the $16 billion Minority and Women-Owned Business Enterprises (MWBE) certification and Women Entrepreneurs NYC (WE NYC) program of coaching and support. The resulting upturn has been swift: women now run more than 40 percent of all businesses in the city. The 2016 Dell Women Entrepreneur Cities Index (WE Cities) ranks it first in the world, topping the criteria of “Markets and Capital” and “Policy Enabling Market Access,” and coming second in “Culture” and “Frequency and Value of Funding” for female entrepreneurs.
It’s a trend that’s being emulated across North America:
- The U.S. as a whole ranked a clear first in the 2015 Female Entrepreneurship Index (FEI), beating nearest rival Australia by more than eight points
- San Francisco’s Bay Area, Washington, Seattle and Austin all rank in the top 25 WE Cities
- A report by the Center for an Urban Future found that Memphis and Dallas lead the country in female-led business growth and revenue, respectively
- 2015’s Global Startup Ecosystem Ranking indicated that six of the world’s top 20 cities for the percentage of startups founded by women were in the United States
The global battle for top spot seems to be hotting up, too. The quartet of Scandinavia and Finland all rank highly in the FEI, with WE Cities placing Stockholm as the most enabling environment for female entrepreneurs. The city’s world-leading equality incentives, childcare provisions and blazing tech infrastructure could make it a more appealing destination for female tech founders than close competitor San Francisco, which only ranks sixth by the same metric. And the FEI’s number two ranked nation, Australia, has all the signs of making rapid exponential improvements. Since 2011, the percentage of female startups has gone from 1 in 6 to 1 in 4, and as of this year, the ratio of male to female business operators between the age of 15 and 19 is 1-to-1.
Venture capitalism: the funding gap
While these are all positive signs, the overall picture is a little more sobering. The perception that men make better entrepreneurs than women isn’t borne out in any statistics, but it seems to be gospel for many venture capitalists. In 2014, businesses with female CEOs only accounted for 3 percent of those funded by venture capital globally, and female led businesses received 50 percent less capital than their male-led counterparts. The U.S. doesn’t tower over the rest of the world, either: out of more than 200 startups granted series A funding (between $3 million and $15 million) in the Bay Area last year, just 8 percent were female led; in New York it was 13 percent. But while it’s tempting to write this off as institutionalized sexism, the evidence paints a more complex and nuanced picture.
As one entrepreneur who sold her startup to Microsoft posits, securing funding for smaller, stereotypically “girly” ventures seems to be getting easier, with male venture capitalists increasingly comfortable taking advice from their wives or girlfriends on business ideas. But when it comes to areas that are more familiar to VCs or seen as male-dominated, such as tech or engineering, there seems to be more of a reluctance to buy into concepts.
And the problem persists that the types of business most often launched by women are in more traditional “lifestyle” areas like fashion, food and horticulture that don’t have the appearance of high-growth VC funded businesses. There are also hints of a more pernicious idea: the question of balancing one’s work and family life. With so little information available at this early stage of funding, decisions are made on a heady cocktail of gut instinct and over-analysis that punishes any nagging uncertainties.
It is something of a catch-22: the absence of women forging a path in certain industries doesn’t inspire confidence in new ideas, but without female success stories, the figureheads don’t exist to engender those ideas. And without more women in high-growth sectors, the appearance of female-led businesses as being apposite to VC funding persists. According to the 2015 Global Women Entrepreneur Leaders Scorecard (GWEL), only 21 percent of female business leaders envision more than 50 percent growth in their companies. There’s a tenuous argument that this is gender-based humility, but the factors self-perpetuate: the lack of investor confidence means a lack of funding, and the lack of funding means a lack of entrepreneur confidence. The impact on businesses that would most benefit from funding is profound: of around 350 female tech startup leaders surveyed in 2014, 80 percent had primarily self-financed their ideas.
Disrupting the bias cycle
The good news is that venture capitalists are ultimately concerned with making money from their investments, and the more female-led businesses that manage to forge a path in male-dominated fields, the less alien the idea of them being successful will seem. The primary battle is against the principle of homophily: a subconscious attraction to like-minded and like-bodied individuals.
As VCs are mostly male, they naturally tend to network and collude with other men, building networks of trust that can be difficult for women to break into. The influence is implicit, but it manifests in a more detached, even objective view of female entrepreneurs. It’s arguable that the familiarity with and trust in male entrepreneurs can encourage VCs to take greater leaps of faith with their projects.
There’s an extent to which psychology can be gamed, and the desire now exists to do so. Businesses and investors across the spectrum are recognizing the benefits of greater diversity both for the generation of ideas, and to better hone and target products and services for 51 percent of the population. But while the number of male entrepreneurs has risen significantly, the number of women starting businesses has stagnated. While some would argue that fewer women are interested in starting businesses, parallel evidence suggests that the image of business as male-dominated could be putting young women off.
Take the analogous field of computing. It wasn’t always stereotyped as a male pursuit: programming was initially the natural career track for women with clerical backgrounds. A 1967 Cosmopolitan article titled, “The Computer Girls,” extolled the virtues of programming, while 75 percent of the staff at the Enigma code-cracking Bletchley Park were women, including four of the top cryptographers. Fast-forward to the digital age, and IT literacy is a particularly crucial life skill, a major means of empowerment – and the foundation of most of the world’s largest companies.
Recent U.S. federal government tests showed that girls are outperforming boys in tech and engineering tests, while science, technology, engineering and mathematics (STEM) graduates are regarded as earning the highest starting salaries. Yet at present, women hold fewer than 20 percent of computer science and engineering bachelor degrees. The problem is seemingly not proficiency, but perception: the various external influences that make entire fields and disciplines seem uninteresting or off-limits.
Empire state of mind
Improving the environment for prospective female business owners is of paramount importance, but equally crucial is promoting business and other male dominated areas of innovation to young women. Government grants are extremely helpful for the women already looking to start a business, but many may have been put off the idea by the perceived difficulties, or never even considered it. Something as intangible as feeling discouraged from experimenting with computers at a young age could have a devastating impact on someone’s ability to run a business, pick up a discipline or follow through on a ground-breaking idea.
The best news here is that all of these problems are being talked about. Successful businesspeople like Arianna Huffington, Marissa Mayer and Sheryl Sandberg are being given a platform to inspire and educate, discussing the problems they faced and posing solutions. Agenda-setting magazines and old media are being circumvented by direct platforms like YouTube and TED, where talented individuals are sharing their passions with the world, exposing young people to ideas and interests they might never have come across two decades ago. Schools are slowly introducing internet resources to enliven and personalize dry classes, and jumping on the Minecraft bandwagon to teach everything from science to geography in fun virtual environments.
Higher up the food chain, universities are acting to encourage greater participation in STEM subjects. Harvey Mudd College has boosted female enrollment to almost 50 percent with introductory computer science classes and female faculty, while Georgia Tech has made its student outreach more welcoming. Corporations are seeing the advantages for PR and future recruitment too, with the likes of Oracle and Google launching vast initiatives like Hour of Code, Girls in Tech and Let Girls Learn to plug the gaps in traditional education.
As the real world becomes even more integrated with the digital one, the availability of resources and visibility of industries and their icons is likely to rise in even the most oppressive locations. Cultural hang-ups about “career women” still exist, and local governments still have a massive part to play in ensuring a level playing field. But as Generation Z surpasses the image problem around business and innovation, female entrepreneurship should be set for a rapid rise.