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Summary:

Women are underrepresented in venture-backed startups, according to data released today by a firm called CB Insights, which notes that only 8 percent of venture-backed startups have female founders. That and some data released by Illuminate Ventures has me wondering if there’s a female-focused funding model.

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Women are underrepresented in venture-backed startups, according to data released today by a research firm called CB Insights, and detailed in posts around the web. The report notes that only 8 percent of venture-backed startups have female founders, although the regional data shows that Massachusetts for some reason has an amazing 27 percent of its venture-backed startups founded by women (the data also provided information on California and New York).

Aside from wondering what’s behind the Massachusetts anomaly (is it the academic environment, a smaller sample size, the health insurance?), the data and a story from peHUB yesterday about the formation of Illuminate Ventures, a female-focused venture capital firm had me thinking more on the issue of women and startups, an issue many of our readers know I care deeply about and have some big opinions on.

peHUB writes that as part of founding Illuminate, managing director Cindy Padnos did the research on women entrepreneurs and found:

  • Firms that are owned or led by women are the fast[est] growing sector of new venture funding in the U.S., growing at five times the rate of all new firms between 1997 and 2006. One portion of the white paper compares the growth of high-tech companies led by women to the growth of similar companies led by Indian immigrants to Silicon Valley, 30 years ago.
  • Firms where women hold top management positions get higher returns on investment (35%) and return more money to shareholders (34%) than firms where the management is all male. Mixed-sex firms are also more innovative.
  • Despite their success, capital is still a bottleneck for women entrepreneurs. Woman-led companies with more than $1 million in revenue are twice as likely as male-led companies to get debt capital rather than equity capital.

Coincidentally, I have a good friend named Carla Thompson who is starting a company dedicated to connecting women entrepreneurs, and who recently set out to raise a small amount of capital (just under $50,000). She chose to tap her network for the money, and is asking for debt rather than an equity investment (although at the end of the year investors can convert their debt to equity) to get her company, called Sharp Skirts off the ground.

She told me that she wasn’t ready, nor did she want, to spend the time seeking venture capital from “white men in lofty towers” to get her business going, so she found a way around it for now. She said that approaching her network, seeking a small amount, and enabling people to contribute smaller chunks of money to the cause helped her raise one-third of her needed funds in approximately an hour after she sent an email, and represented a more community-driven way of fund raising that made sense for her business.

Her story, plus some of the Illuminate data, other efforts to support female businesses, and the lack of women getting venture capital, has me wondering if there’s a better model for funding female companies, or if women tend to form companies that are better suited for raising debt as opposed to venture capital. Or is the trend simply a result of venture investors being blind to female entrepreneurs and then those spurned entrepreneurs doing what they do best — finding an alternative when a roadblock pops up?Thoughts?

Related GigaOM Pro Content (sub req’d): What the VC Industry Upheaval Means for Startups

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By Stacey Higginbotham

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  1. bootstrappinggirl Tuesday, August 10, 2010

    Perhaps women just prefer bootstrapping to venture capital.

  2. The biggest take-away from the report was the second infographic you have posted showing that all-female and all-male teams raised similar funding rounds, while mixed gender teams raised larger amounts of money. We’re encouraging the inclusion of women in founding teams of startups, because there is a business case for diversity in the seemingly WASPy world of Silicon Valley startups. As Padnos states in her whitepaper, women are a good business case for venture capital.

    Nothing’s changing overnight. It’s a number’s game, and women are now just finally putting themselves into the game — I’m borrowing Carol Realini’s words from her interview with Mike Cassidy. She sold one company, took another public and is currently working on her third, which she’s raised $140M for in five years. I encourage all women to think bigger and go for venture capital over debt capital. We’re not going to change the statistics if we don’t put ourselves in the VC game full force, both as VC-seeking entrepreneurs and female VCs.

  3. Is it time for a female funding model?

    I think it is. Create a robust, scalable model in which women throughout the age spectrum and life stages can vigorously participate. That includes moms. Infuse it with star power from the VC, tech, and corporate spheres. Have a really smart, charismatic woman lead it.

    Then open it up to everyone. I bet more than just women will show up. And that’s good for everybody.

  4. A typical quote from a valley VC is “I invest in the individual, not the initial business model”. So it isn’t unexpected that male VCs are more likely to invest in entrepreneurs who remind them of themselves, or remind them of previous entrepreneurs with whom they’ve invested successfully (which means other Men). I don’t think it’s a conscious exclusion of women though.

    It’s great to see the stats for women owned businesses from peHUB, but it also made me wonder about the average size of these women owned businesses. Valley VCs like BIG opportunities with ENORMOUS returns (because size DOES matter). Couple that with the reality that most women are socialized to keep their dreams and their egos in check, especially when interacting with men, and you have a situation that results in many women entrepreneurs being outside the norm of many investment profiles.

  5. This is great news for women!
    No, seriously. I mean, would you write an article decrying the fact that not enough women are getting jobs in auto factories?

    Venture capital is a dinosaur. Wealthy insiders trying to get even wealthier by selecting the next group of insiders. IN a world where gateways are being torn down and barriers to entry are none, the VC funding model is a relic. If women have difficulty getting VC funding, and they’re really serious entrepreneurs, then they’ll find a work around, like you friend. Use social networks, crowdfunding, location-based services that cater to women only, for example. Ultimately, they’ll take the lead in innovative funding methods and be the better for it.

  6. Is There a Female Funding Model? #female #entrepreneurs | RSS Lens Wednesday, August 11, 2010

    [...] Her story, plus some of the Illuminate data, other efforts to support female businesses, and the lack of women getting venture capital, has me wondering if there’s a better model for funding female companies, or if women tend to form companies that are better suited for raising debt as opposed to venture capital. Or is the trend simply a result of venture investors being blind to female entrepreneurs and then those spurned entrepreneurs doing what they do best — finding an alternative when a roadblock pops up?Thoughts? via gigaom.com [...]

  7. Karen Lea Aasand Thursday, August 12, 2010

    I’ve been in discussions for last 6 mo.’s to start a Woman run Private Equity fund, providing funds to woman run businesses in Media, soliciting funds from Women. I love men but the reality is as Alisa states regarding men being more comfortable with what they are familiar with. Women hold large amounts of wealth and are not presented with investment ideas in a way that considers their sensibilities, education, concerns, etc. Men are welcome although the focus is women. FYI I think the venture capital model may be going through a paradigm shift. If you want to help contact me.

  8. Pemo Theodore Sunday, August 15, 2010

    I recently video interviewed Cindy Padnos about women entrepreneurs & venture chemistry http://boss.blogs.nytimes.com/2010/06/09/women-and-technology-and-myth/

  9. Stacy, Very happy to trip on your post (via Gina Ashe…thank you Gina) as I am going live on our local NPR station (WBUR in Boston) to discuss this very topic in three hours! (Doing my homework and probably should not be writing this comment just now.)

    I have to admit the MA stats do not ring particularly true to me and I expect a statistical blip is behind them. (My own company, Daily Grommet’s Series A this year could have been a factor! There was a little flurry of female CEO funded companies in Boston recently.)

    But…if this same study were released a year or two from now and showed MA still had a huge proportion of funded female founded companies, I would not be surprised. Why? 1)We have great local role models and 2) we are recently really getting much more active in pulling together the female CEOs in Mass. to trade intel and help each other. This can and will make a big difference to our collective success in raising capital.

    I also believe the nature of an internet startup (the subject of this study) has changed so fundamentally that the new consumer internet success factors actually favor women. Finally, I don’t believe we are better suited to a debt based model…we just went there when people through up venture investment walls.

    1. Jules, so happy to see you on the blog. I still recall your beautiful business cards and our chat about female entrepreneurs at SxSW. I do wonder at the sample size in Mass. but maybe the times they are a changing.

  10. Jules Pieri, CEO Daily Grommet Tuesday, August 17, 2010

    Oops…I meant “threw up walls”. Not “through”. Someone should take away the pen I won in a spelling bee.

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