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We Need More Women Starting (Big) Companies

02/04/2015 12:41 pm ET | Updated Apr 06, 2015
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I recently read an article about The Babadook, an independent horror movie that received rave reviews (97% on Rotten Tomatoes). The writer and director is a woman, Jennifer Kent, and the movie features a psychological treatment of various family anxieties. It's so good and revolutionary that one movie critic exclaimed in response, "From now on, all horror movies should be directed by women."

Hundreds of horror movies have come out over the years that were kind of similar to each other. And yes, they were probably all directed by guys. Then a woman comes along and delivers a different kind of horror flick that goes to different places and is a commercial hit.

It struck me that the same thing applies to companies.

Elizabeth Holmes founded Theranos, a blood diagnostics business, 11 years ago when she was only 19 years old. Theranos developed technology that enables blood tests with only a drop of blood, eliminating pain, discomfort and costs. Theranos today is valued at $9 billion, and Holmes, now 30 years old, is a multi-billionaire.

Sara Blakely had the idea for hosiery that was slimming and firming while she was selling faxes door-to-door. She started Spanx with $5,000 16 years ago -- she was originally turned down by every hosiery manufacturing mill before one operator, who had two daughters, agreed to work with her. Today, Spanx is a billion dollar company and Blakely is another self-made billionaire.

Kristin Groos Richmond and Kirsten Tobey noticed that meals offered in public school cafeterias were high on calories, but low on nutrition. They started Revolution Foods in 2005 to provide healthier alternatives. Today, Revolution Foods provides over one million healthy meals per week in schools and grocery stores around the country.

Pain-free blood tests, slimming hosiery, better food for children -- these are problems that women started companies to solve. Each of these companies is thriving, employing hundreds of people and touching lives each day. And the world is a much better place for it.

Of course, women are free to start any kind of company they want. But women sometimes identify different problems than men do and start different sorts of companies as a result. The organizations they run are run differently too. We need more women solving different problems, starting companies and creating jobs to drive our economy and society forward.

It is already happening. But not at the levels it could be.

More women start companies than men -- women started over 400,000 businesses in the U.S. in 2011-2012, about twice as many as men. But 88% of women-owned businesses were sole proprietorships that didn't have employees, and only 2% reached $1 million in revenue. Women start more companies but they have a hard time growing.

If a woman is successful in getting investment, she's likely to be successful. Women-led private technology companies achieve 35% higher return on investment than male-led tech companies. But there are a number of structural impediments for women starting bigger companies.

1. Women Start with Less Money.

As one female investor put it, "if you make 77 cents on the dollar and you compound that over a lifetime, you end up with women having a lot less free cash flow." The first money into a business is typically your own. Women make approximately 23% less than men in terms of salary, which gives them less risk capital to start a big business.

2. Investors are Generally Dudes.

The proportion of angel investors who are women is higher than it's ever been, at about 20%. This is up from only 5% in 2004. But 1 out of 5 is still pretty bad. It gets much worse in the venture capital context, where only about 4% of partners, who typically make investment decisions, are women. Most male investors don't consciously exclude women; they just want to make money. But venture-backed women-led companies bring in 12 percent more revenue than male-led companies -- and yet only 3% of venture capital between 2011 and 2013 went to companies with a female CEO. This suggests that there's some bias at work -- that women have to be better than their male counterparts to get venture backing.

3. Women Have Fewer Role Models.

There are fewer female entrepreneurs and CEOs to look up to as role models and mentors. For example, only 5% of Fortune 1000 CEOs are women. If you try to engage a male mentor, the odds of him going creepy on you are non-zero. The images of entrepreneurs still tend to be brash, male, iconoclasts. I've met hundreds of young women who have the makings of an entrepreneur but are still hesitant to see themselves in that light, in part because they don't have as many role models that they see themselves in.

4. Women Sometimes Have Children (and stay home to nurture them).

I became a parent a couple of years ago so I'm sensitive to this. Thank god that some women want kids or else none of us would exist! But mothers face a choice that most fathers don't. Women sometimes take a step back from work for a few years to take care of children -- the labor force participation rate for women with infants drops to 57% before rising back to 75% for women with children six years or older. Women are the primary caregivers to children in 70% of married households as well. In my experience, entrepreneurship tends to be kind of cumulative, like a layer cake. Taking some time away can make it hard to rev up. Women face this challenge more often than men.

5. Women Can Be More Conservative.

I spoke to a woman entrepreneur who's married to another entrepreneur. She related how tough it was to get her women friends to invest in her new company, contrasting it with her husband, whose friends had been lending each other money or investing for years. Studies have shown evidence that women are more risk-averse (and, on a related note, better performing) investors than men.

Men are often kind of slobs. We're like, "Eh, we'll figure it out." Women, perhaps less so. Today most of the brainpower that our colleges are producing are women (57% of college graduates are women, 62% of Master's degrees, etc.). I started an organization to encourage entrepreneurship in the U.S. To me, we need to get more women entrepreneurs starting significant companies REALLY badly, or else we're taking the majority of our talent off the field.
Happily, there are promising signs. The National Venture Capital Association is trying to get women into positions at firms in the worst way. The tech community is becoming increasingly sensitive to gender issues. Female Founders Fund, Golden Seeds, Plum Alley, Gotham Gal and many others are getting more capital to female entrepreneurs. Girls Who Code is introducing more young girls to coding early.

One friend who's a female investor, Kimmy Scotti, commented that she thought women come back to entrepreneurship after they're a little bit older and more confident. She's also optimistic about the future.

But there's a lot of work to do.

We can all do more. Here at Venture for America, our class of Fellows this year is currently about 40% women, not ideal but getting better. We're enlisting female mentors and looking to partner with more companies with women leaders. We've set up a task force to focus on empowering women internally. Our team is 50% women and we want to achieve the same ratio among our Fellows and companies in the next few years.

The process starts early. Tell young girls they can be anything, including entrepreneurs and self-made billionaires. Encourage your friends/daughters/female students/yourself to take a shot. Lend a hand. Invest. Women can make it happen -- remember that you're probably as smart (or smarter) than the guy who's trying anyway.

Women will start companies that will be distinctive, operate differently, and solve different problems in different ways. It will lead to a much better world. We need more Babadooks, fewer Friday the 13ths.

This post originally ran on BusinessInsider.com