JAN 6, 2016
Geri Stengel via Forbes.com
What’s good for women is good for the economy.
Economists and academics agree women entrepreneurs are an under-tapped force that can rekindle economic expansion. Women are becoming more entrepreneurial. Women own 36% of all businesses, according to the 2012 U.S. Census ‒ a jump of 30% over 2007.
My 10 reasons the force will be with women entrepreneurs are a mix of marketplace trends, expanding financing options, and the growing recognition that support is needed and is effective. The biggest challenge women face when starting and growing their businesses is access to capital, especially equity financing, as I was reminded by Sharon Vosmek, an economist and CEO of Astia ‒ a nonp rofit that identifies and propels high-potential women-led companies with expertise and money. Female entrepreneurs start companies with 50% less capital than male entrepreneurs, according to Access to Capital by High-Growth Women-Owned Businesses, research commissioned by the National Women’s Business Council (NWBC). So no surprise, money is a large focus of the article. I’ve also included resources in case you want to go deeper into a topic.
“We believe that today provides a perfect opportunity, a perfect storm if you will, for women entrepreneurs. Interest rates are at record lows, creating a robust environment for commercial borrowing,” said Carla Harris, NWBC’s chair , a nonpartisan federal advisory council. “Record levels of cash are on the sidelines with both institutional and individual investors and on corporate balance sheets. And all of these entities are looking for good ideas, particularly as the appetite for risk continues to increase in the market.”
Entrepreneurs start companies when they see a need in the marketplace that they can fill, whether it is creating a new product or service or targeting an underserved segment of the market. Women entrepreneurs are more adept than their male counterparts at seeing gaps in the market and seizing the opportunity, according to The 2015 Kauffman Index: Startup Activity. “WBEs [women business enterprises] are agile, innovative problem-solvers, meeting corporations’ needs quickly, adapting to marketplace changes and providing deep value and cost-effectiveness,” said Pamela Prince Eason, president and CEO of Women’s Business Enterprise National Council (WBENC) .
“2016 will be the year in which the forces of entrepreneurialism and feminism converge,” writes Sallie Krawcheck, CEO of Ellevest and chairman of Ellevate . “Together, they will drive a long-wave, golden age of female entrepreneurship, which will be a positive for all of us: positive and empowering for the women who make the leap, good for the economy, good for consumers, and good for society.”
To support the growth of women starting and growing businesses, a robust ecosystem has been building itself out. Here are just some of the organizations that are available to you.
Media play an important role in inspiring entrepreneurship and providing a road map. High-visibility stories about women who have succeeded big time or are on the rise are a testament to the public’s appetite for this information.
Women entrepreneurs are not just making headlines they’re making it on the the Forbes 2015 World’s Most Powerful Women List. These women became celebrities because they built empires. These aren’t the only women in the headlines. TechCrunch has prepared a list of female founders who’ve made a major dent on the tech. Check out their list of 18 Female Founders Who Killed It In 2015.
Media also shine a light on the challenges women face. Fueled by data, a juicy gender discrimination lawsuit and ridiculous comments by a well known VC, the media kept the spotlight on the notorious lack of diversity among venture capitalists. The media used Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital , a report by Babson College, to document the industry’s lack of diversity at the investment-decision level and its impact on women-led companies. The media put the industry under a microscope during the Ellen Pao gender discrimination lawsuit against her former employer, Kleiner Perkins Caufield & Byers. Pao lost the case but the coverage helped galvanize the industry and others to change. The depth of the problem was once again highlighted recently, when Michael Moritz, chairman of Sequoia Capital, a top tier VC firm with no female partners, made condescending and elitist comments on Bloomberg TV about his firm’s inability to find qualified women to hire. Social media erupted.
Women-owned/led firms business now account for 13% of middle-market firms (companies with revenues between $10 million and $1 billion), according to the Middle Market Power Index by American Express Global Corporate Payments and Dun & Bradstreet. Companies run by women are entering the middle market at rates eight times businesses in general. While the number of middle-market firms grew by 4% between 2008 and 2014, the number of women-owned/led firms increased by 32%.
“Ten years ago, 7% of WPO member businesses had revenues of $10 million. Today, one quarter of our membership is at $10 million or more in revenue,” said Marsha Firestone, president and founder of the WPO.
While angel and venture backed women-led companies get the headlines, America’s future runs through Main Street , writes Maria Contreras-Sweet who heads the Small Business Administration. Small business activity for nearly all 50 states and the top 40 metropolitan areas is on the rise, according to Kauffman’s Main Street Entrepreneurship Index. Women are one reason for the growth.
Not all metrics about women-owned businesses are positive. These firms generate only 11% of the combined revenues of businesses and women are less likely to have employees than in the past, according to NWBC’s analysis of 2012 Census. The percent of employer firms that are women-owned businesses decreased from 2007 to 2012 and the decline was steepest among African-American and Hispanic women-business owners. Employer firms represent 11% of all women-owned firms, 3% of African American women-owned firms and 5% of Hispanic women-owned firms.
Many women-owned businesses are struggling and this is cause for concern. “We speculate that there may have been a bigger necessity among women of color to start their own businesses,” said Harris. “There was an increased necessity for women of color to supplement either their existing income (as they are often paid substantially less than the national average) or creating a primary source of income.” Necessity entrepreneurs are far less likely to be successful than entrepreneurs who start businesses to pursue an opportunity.
To achieve their potential, low-income, immigrant women need support. Women Entrepreneurs NYC (WE NYC) is a first-of-its kind model in a major American city for empowering women through entrepreneurship. “The City wanted to make the most impact by addressing the biggest opportunities and biggest market failures,” said Alicia Glen, the deputy mayor for housing and economic development.
These women face a society (and maybe even their own internal voices) that, by and large, say “you can’t do it.” WE NYC will address the confidence gap by demystifying business planning and financing through training, mentoring and networking events in neighborhoods across the five boroughs. In addition, the City is also evaluating creating a financing vehicle to address the needs of women raising between $25,000 and $250,000. The program has already inspired Boston to do something similar.
Money from venture capitalists scales disruptive products and services, said Nisa Amoils, an active angel investor. We cannot afford to leave out half the population developing future innovations.
You can’t improve what you don’t measure. Transparency and accountability are critical. “…sameness may have been a strength, but now it is creating blindspots,” writes by Chamath Palihapitiya , founder and chief executive officer of Social+Capital, a venture capital firm. His firm and The Information, a technology media company, published data ranking venture capital firms’ diversity in terms of gender, ethnicity and age. By publishing his company’s diversity numbers and its return on investment, Palihapitiya aims to prove that having a different interesting group of people will generate massively outsized returns. The National Venture Capital Association also has an initiative that includes tracking diversity.
While progress at big VC firms will be slow, I am encouraged by the number of women venture capitalists who are leaving the big firms to start their own firms. I am encouraged by the progress women are making in corporate venture capital firms, which Kay Koplovitz, chairman and cofounder of Springboard Enterprises , an accelerator for women-led bu sinesses in technology, media, and life sciences, writes about. According to CB Insight’s 2014, 17% of the top 20 Corporate VC firms had women on the investment team versus 11% of Top 20 VC list. Since women VCs are more inclined to see the value in a women-led enterprise, this shift bodes well for women entrepreneurs. I am also encouraged that nine of Forbes’ 30 Under 30 Top Young Investors Of Venture Capital In 2016 are women.
The chances of women getting funding from angels have improved, but despite their abilities, it is nowhere near commensurate with their male counterparts, said Vosmek.
While the number of female accredited investors (a.k.a wealthy people) becoming angels has increased dramatically — one in four angels are now women — more fuel is needed. And it’s on its way. Organizations to help women become angel investors are springing up:
Other training organizations include 37 Angels, Pipeline Angles (now in 21 cities) and Women First from Angel Resource Institute. The rise in the number of women angels is great for early stage women-led companies, but it is venture firms that will provide growth capital, said Amoils. As the hiring of Joanna Drake Earl demonstrates, angels are a source for VC partners.
For those of you who don’t have an appetite for the risk associated with equity investing, stay tuned, as you’ll read in the next bullet, debt products should arrive after the implementation of Title III of the JOBS Act.
Women alone can’t solve the underfunding of women, men still control the vast majority of investments. Men need to ask themselves tough questions, suggests Vosmek. “Why do I have so few women-led companies in my portfolio?” “Is it how I source companies and network?” Then they can address their own hidden bias.
I love companies like Kanjoya, Textioand Unitive, which use technology to root out bias in communications. And that Facebook is sharing its Managing Bias training for others to use. I wonder if Sequoia will use any of these tools.
Women-owned businesses are receiving more traditional loans, particularly from the SBA, according to 10 Million Strong: The Tipping Point for Women’s Entrepreneurship, NWBC’s annual report. The SBA made $3.8 billion in capital available to women. Lending to women is up to 36%, increasing 19 percentage points, according to the SBA Office of Capital Access.
The contraction in funding during the great recession inspired a wave of innovation in financing that will help all small businesses thrive, especially those run by women, who lag men in raising capital. These options fall into three categories: online marketplace lenders, rewards-based crowdfunding and equity-based crowdfunding.
Online marketplace lenders provide simplicity and convenience in applying, a quick decision on loan approval, speedy delivery of capital and a greater focus on customer service. Applications can be completed in fewer than 30 minutes, compared to the 24 hours typical for the traditional bank application process, according to the Joint Small Business Credit Survey Report 2014. Morgan Stanley estimates marketplace lenders will grow from 2% of loans to small businesses (approximately $5 billion) in 2014 to 16% in 2020 .
“[Women] are typically owner-operators, so they often don’t have the time to fill out the lengthy and cumbersome application at the bank, or to wait the weeks it takes them to get approved, said Candace Klein , chief strategy officer of Dealstuck, “Because online marketplace lenders look at a number of online and offline factors to determine financing eligibility, accept creative forms of collateral, and move quickly in offering funds, even women with moderate to low credit scores may qualify for growth capital. They are filling a need for debt financing that banks aren’t able to fill.”
For an analysis of some online marketplace lenders, go to NerdWallet.
Rewards-based crowdfunding provides debt- and equity-free money. You don’t need to give up a piece of your company in exchange for the money or pay interest on a loan. However, you do need to give something tangible in exchange for someone’s money. That could be pre-invoicing the product, selling it at a discount before it is manufactured, or offering a token gift, such as a t-shirt. Websites, such as Indiegogo, Kickstarter and Plum Alley, coordinate the transactions.
To be successful, rewards campaigns takes a lot of hard work as well as marketing dollars . Women are proving that they have the right stuff to be successful at rewards campaigns. Women had a 70% success rate in reaching their goals on Kickstarter vs. 61% for men, with further analysis showing that it was not women’s more modest financial goals that accounted for their higher rate of success, according to research conducted by Hebrew University, the Kauffman Foundation, and UC Berkeley.
Equity-based crowdfunding includes three forms covered by the JOBS Act (Title II, Title III and Title IV) and intrastate crowdfunding. All allow private companies to market their securities offering through social or traditional media via crowdfunding platforms. The term “equity crowdfunding” is somewhat of a misnomer. Deals on these platforms can be debt, revenue sharing or royalty agreements.
To learn best practices when doing an equity-crowdfunding campaign, read Equity Crowdfunding: Lessons From the Field and 5 Secrets to a Successful Equity Crowdfunding Campaign.
Learn more about new ways to fundraise online to start and grow your business.
“One of the biggest problems women have is getting access to new markets,” said Firestone, who is also president of Women Presidents’ Educational Organization, a regional certification provider for the WBENC . “ Certification allows women [who own at least 51% of their business] to get to markets they never dreamed of reaching before. If it wasn’t for certification, they never could have grown their revenues to degree that they now are.”
“Corporate America has a very large role to play in entrepreneurship,” said Nina Vaca when I interviewed her for my free ebook, Forget the Glass Ceiling: Build Your Business Without One . Vaca is founder and CEO of Pinnacle Technical Resources, an IT staffing and technology company. Her company was #1 on WPO’s 50 Fastest-Growing Women-Owned/Led Companies list . Her company is approaching a billion in sales. Vaca was referring to the importance of certification in helping open doors to corporate and government contracts for women-owned companies.
I will take her comment one step further. Corporations can provide money and expertise to grow women’s businesses big. Corporate Venture and sponsorship of accelerators and incubators is on the rise, but there is plenty of room for growth and exciting ways this can be combined with crowdfunding. One $10 million women-owned certified business owner I interviewed is ready to scale her business to a billion dollars. She needs outside capital to do that. Her innovative product is generating lots of profits for a retailer that has a venture capital arm. Imagine if they helped her scale by providing money and expertise. “As women build relationships with large corporations, they increase their options; doors can be opened to other parts of the company,” said Firestone.
Middle market companies have a role to play too. They can be a strategic investor. Jewel Burks, co-founder and CEO of Partpic, uses object recognition software to identify missing or damaged parts, such as screws, so the manufacturer can send a replacement. Robert Saunders, whose family owns Xander Fasteners, became a strategic investor and her first customer.
“Corporations looking to dip their toe into venture capital, can become a limited partner in a venture capital firm that invests in women-led companies,” said Amoils.
Mentorship and support is great, but money is way better. “This is THE missing piece for women,” said Vosmek.
Whether it is attracting or retaining talent or supporting women entrepreneurs, many corporations claim women are a top priority, but don’t back up their words with money. More corporations need to recognize the value of supporting women: It improves their own bottom lines. Investing in women entrepreneurs gives them access to products and services that better meet the needs of businesses and consumers. Women-friendly companies also benefit from increased brand loyalty from women, who make more than 80% of consumer purchase decisions in this country.
Money is out there. As Harris points out in my first bullet point, corporations are sitting on cash. Family offices, foundations, endowment funds, retirement funds and even wealthy individuals could invest in VCs whose partners are diverse or funds that target investing in women-led companies. More male angel investors could invest in ‒ and not just say they support ‒ women-led companies. Not because it’s the right thing to do, but because they’ll make more money.
Women have more than proven their abilities. In the past, I’ve cited research from Dow Jones, Kauffman and the SBA showing not just good performance but out performance of women-led companies compared to all-male teams. The latest is published by First Round, a venture capital firm, which found that female-founded companies they funded performed 63% better than all-male founding teams. Even sharks recognize the outsized returns women deliver. “One hundred percent of my returns the last six years have come from companies run by women,” said Kevin O’Leary, entrepreneur and Shark Tank investor, in Forbes. “…So this year on Shark Tank, I’m investing in a lot of women.”
There is also tons of research reports that prove that diverse teams outperform non diverse teams. But just in case you don’t believe me, here is research from Carnegie Mellon/ M.I.T./Union College, Credit Suisse , McKinsey and a summary article of other research by Scientific American.
Ladies, the force IS with you, how will you leverage it?