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Why Aren't There More Women Starting High Growth Businesses?

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There are a lot of people trying to figure this out right now. There was an interesting conference called the We Own It Summit in New York. The Summit was put on by Astia, a venture accelerator targeting "exceptional startups" with women on their founding teams (I happen to be on the NY Advisory Board, but I didn't have anything to do with organizing the Summit). The Summit brought together entrepreneurs, investors and leaders of organizations involved with encouraging women's participation in high growth entrepreneurship (participants included The Ewing Marion Kauffman Foundation, Esther Dyson and other thought leaders).

There are a lot of wonderful groups helping women businesses owners. But so many women-owned businesses remain "lifestyle" businesses. According to the Center for Women's Business Research, women start businesses at twice the rate of men, but only 3% of these businesses get to $1m in revenue. Most generate enough revenue to support the entrepreneur and their family, but not enough to have a significant impact on the community and not enough to catch the attention of investors -- which is a "chicken and egg problem" because one of the major reasons why these businesses don't scale (although certainly not the only one) is access to capital.

According to research done by Babson College, "if women entrepreneurs in the US started with the same capital as men entrepreneurs, they would add a whopping 6 million jobs to the economy within 5 years -- 2 million of those in the first year alone."

Of the $17.6 billion in angel investment last year, only 9.4% of that went to women entrepreneurs. Moving up the food chain, only 8% of venture backed tech startups were owned by women. Overall (not just technology) only about 5% of all equity capital investment in the US goes to women-owned businesses and just 3% get VC investment according to the Diana Project at Babson College. Why is this? Well, one reason is: they don't ask. Women business owners with $1m plus businesses are still twice as likely to use debt instead of equity, according to Illuminate Ventures. Or they self-finance. In fact, you know that startling stat about the percentage of women who got angel funding.... well, it's not so startling when you hear that only 21% of those who sought angel investment were women. So, their batting average isn't so bad, but they're just not coming to the plate. Another reason is that the "old boy's network" still exists: 77% of the venture capitalists are men (even more in high tech -- over 90%). And yet, according to Illuminate, high tech companies built by women are more capital efficient -- they had revenues more than 12% higher than male-run firms and used an average of one-third less capital.

At the Summit, Lesa Mitchell, Kauffman Foundation vice president of advancing innovation, called this the "Decade of the women high growth entrepreneur." So, how do we make sure that this comes true? One of the panelists at the Summit asked why when now 50% of the incoming class at MIT were women, there aren't more women entrepreneurs starting high growth businesses.

Last week Thomas Friedman wrote about how college grads should be encouraged to start up businesses as the future of our economy. He said: "We need three things: start-ups, start-ups and more start-ups." But what he didn't say is that with 100 women college graduates for every 77 males, we need to put a special emphasis on encouraging these young female graduates to think about starting high growth businesses as a real career path.

At the Summit, there was a lot of discussion of WHY there is a dearth of high growth women-run companies and what would happen if there WERE more high growth women-run businesses.

But, the more important question that everyone was trying to figure out is HOW to make a change.

Some of the interesting takeaways that I came away with include:
  • Women are afraid of failure more than men. A man can have several business failures under his belt before one hits, but if a women fails once, she is more likely not to start up another business. According to one of the panelists: "You can't be afraid to fail." The fear factor has prevented so many women from even asking for capital.
  • Women need role models, networking opportunities and most importantly, access to capital.

Many of the groups at the Summit are making a difference. Astia is one of them. They are providing mentoring, training and access to venture capital to high growth women-run businesses. They've been operating in San Francisco for years, but recently launched in NY, London and India. Their results speak for themselves. Since 2003, More than 60% of the companies looking for capital were successful, raising more than $650M. Their companies have had 18 "exits," including 2 IPOs.

Ernst and Young has also stepped up. For years, they presented Entrepreneur of the Year awards around the world, but there were very few women represented. So, they created a program called Winning Women now in five countries.
The program is designed to "help women entrepreneurs to accelerate the growth of their businesses and realize the potential they envision for their companies." The deadline for this year's competition is June 30th.
You can get the criteria and apply online on their website.

We need to encourage women not to be afraid of failure and not to be afraid to ask. We also need to make sure that more women are sitting across the table as investors when business owners do ask.
Finally, we need to keep mentoring, training and providing examples of those who have succeeded.