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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

By Stacey Higginbotham

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  1. bootstrappinggirl Tuesday, August 10, 2010

    Perhaps women just prefer bootstrapping to venture capital.

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  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.

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  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.

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  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.

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  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.

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  6. [...] 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 [...]

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  7. 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.

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

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  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.

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    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.

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  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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  11. So here’s my vantage point.

    – I’m aggressive
    – I’m engineering/mathematically minded
    – I create no boundaries and identify with no one, merely with ideas, this culminates in a freeflow of ideas that’s unbounded, and ideas are the primary pathway of actualization of goals.

    Frankly, I have little in common with few and certainly nothing in common with traditional roles. I think venture based capital has the type of innovation-ready mindset and superficiality-blindness that is at the forefront of clearing paths so the opportunities are definitely there, it’s the people who aren’t reaching for them. Innovation sees no boundaries and ultimately you either possess the market need or you don’t, you inspire people, or you don’t. That’s the potential.

    I think Silicon Valley is exactly where diversity thrives, since diversity (variance) is the known entity of innovation.

    In American society there are indeed people who are of a different time, and eventually they will die off or become too senile to even be considered on the advisory boards, there are people alive who stick to traditional roles,but generally they are not at the forefront of the action of investment and with the passing of time they will fail to exist and so will stoicism. Silicon valley is full of people who are generationally very different, very bright-eyed, and those people dominate the landscape from my experience.

    Personally I don’t seek out support systems or relationships based on superficialities. I connect with people on the basis of ideas… there lies your highest likelihood of success. Support systems should be very specifically based on relevance to your bottom line, otherwise you are just wasting time with chitchat.. emotional support has it’s place and empathy is a release, but it shouldn’t be a distraction or feel like an end goal or break from momentum. I have never set foot in a women’s meeting I liked. I’ve worked at one woman-owned company enjoyed the CEO because she was understatedly aggressive and she was alert, people do need to change their nature if they are not adequately aggressive to be successful as it is a competition, if competitiveness is not in your blood you will have a hard time, the rest is social spillover, the American society isn’t sufficiently analytical and sufficiently aware of economics in order to be highly tactical, plus there is no inherent requirement for sky’s-the-limit success that’s placed on men, ravenous success is the requirement for men, women have no equivalent critical pressure placed on them in this society. I was raised in a family where my father and mother had an unspoken sky’s-the-limit approach toward me, constantly amazed by me (yes it is funny) and so today I still feel limitless, there were no role based pressures for starting a family, no gender-based biases, I answered math and physics problems in the summer break and there were no hidden messages except for taking responsibility for myself. Insecurity is the stopping point for all endeavours and insecurity arises out of established norms that propel the norms and inhibit the dreams of people and the possibilities that they envision, that’s simply cognition.

    The faster you define yourself as your idea, the culmination of your creative assets combined with your actions, the faster people forget the rest, smart people will get subsumed, stupid old or young lazy men will stare at your legs, but if you are smart what are you doing talking,interviewing,engaging with stupid people to begin with? Once you stop seeing, you start hearing.

    I think Silicon Valley is the most inspiring place in the United States as oppose to corporate meccas like WA designed for mediocre people to enforce the hierarchical status quo. I have found embrace in government sectors and admist the DC area which also are blind to superficialities and I’ve found appreciate engineering rigor and raw intellect. Places like IBM,Expedia, big corporate, that’s where the model breaks down and those cogs in the machine think exactly like cogs, they don’t and so assimilation…the roteness of factory-style brainwashing reverberates among their walls.

    I have never had a problem with captivating people with magnetism and energy, people are naturally drawn to it.. on days I lack it, I notice I inspire no one. We as humans are fundamentally energy.

    Some of the rawest engineering based talent comes from the former soviet union… there there is a representation of equality in the marriage structure, and in education (and engineering based workforce) and even with the perception and appreciation for raw intellect, why? In marriage, in relationships (the backbone of society and modeling), because both parties are analytical, and therefore the balance of power is a trade on equal footing since there is fair share commodity, mutual appreciation arises. There is a pop culture phrase “game recognize game.” (In other words when the language is the same, that’s where the connection is achieved, so everything starts with the communication medium and it’s up to you to adapt and know your audience when you are talking or not to be superfluous in communication.) Let’s also give Capital it’s due credit, and the various organizations that exist out there. These aren’t generally stupid people, and they’re driven people. I’ve contacted numerous firms and I do believe that a large part of it is class ties but at the same time these guys are numbers guys, they are strategic investors… you submit your business plan electronically and it gets reviewed. While we are out here assembling committees to fight the statistical discrepancies by setting up fundraisers and selling cookies to raise money for those groups and so forth, it still doesn’t hit the straight bee line to the investors mailbox… leverage your women’s groups in such a way where you target individuals who know how to create and review business plans, but fundamentally, spend your time reading literature, evaluating and analyzing it’s inherent sense and usefulness and taking courses to hone that trait, it will only increase your self-confidence. Loneliness doesn’t hurt for too long, just remember it, uniqueness is a strength in a world where there are seas upon seas of people, you want to stand out, but you don’t want to stand out and not have something smart to say for yourself.

    Silicon Valley is an open communication medium, I’ve met countless VC’s in my travels who were willing to invest money into ideas so I think it’s a misrepresentation of someone reading news articles and not really living it to conclude that there are no open channels (without the key door number 9 doesnt open, and door number 9 is a cryptographic implementation.) If you remain traditional in your approach you will not be progressive. If you are not progressive, you can’t hope to understand the market, assess your place or lack theorof and compete, you have to be dynamic, life is about change, face it, you will fundamentally change through what you learn and if you aren’t learning you aren’t progressive. Everything else is persistence, intelligence, so be smart and connect on your baseline idea, and think in terms of mathematical likelihood, lastly don’t be afraid to talk to people, put yourself out there, be natural, be motivated, be inspired.. the sooner you invest yourself fully in such a way, the sooner you wake up one day and you are in the center of it all, you just have to live it, and keep your eye strategic at all times.

    If you don’t know if you’re living it, you probably aren’t, to me this means being blind in your own way, if you stay focused, stay professional with what’s important to you, the world around you will fall in line accordingly, you yourself teach people how to respond to you, you take yourself seriously and engage those who also take themselves seriously and then there is little room for insecurity; you rest on your laurels, your networks, your identities, you may just overcomplicate things, introducing more complexity than is needed, so always measure how any given engagement effects you and before you seek help set goals to measure against, know the person you’re building.

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  12. This article is exactly what I needed to read and am fascinated by the comments.

    I am currently looking for 10 Silicon Valley female private investors/board members interested in taking a piece of the growing $125 billion dollar ever expanding wellness industry pie. I wish I could tell you more here, but this is a bit too public…

    Why not lunch, or I can offer you a complimentary yoga session along with guided deep relaxation, in return for listening to my pitch….:)??

    I look forward to creating another fast growing, dynamic, and female funded Silicon Valley company.

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  13. Is the entrepreneurial start up scene more favorable towards male vs female founders?…

    Yes, but what most people in the startup world seem not to understand is that whenever you have ONE process for getting from Point A to Point B, the people who get all the way to Point B are going to be homogenized. This is because all systems favor ce…

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  14. Is There a Female Funding Model? http://t.co/QRqCPpiN

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