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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