Show Women the Money!

Women drive the world economy, controlling in excess of $28 billion in annual consumer spending according to the Harvard Business Review. Logic might lead to the conclusion that women founders would be well-suited to build businesses to appeal to this massive marketplace. Yet recent reports indicate this is not the fact.

 Are Female Founders Coming Up Short on Venture Funding?  

The massive global economic firepower of women has not translated to funding for female-founded start-ups. According to the New York Business Journal “Even though the total number of female-founded startups in Silicon Alley continue to grow, the amount of investment they receive is just a fraction of the total amount of funding available to male-founded companies.”

 The Wall Street Journal reported that nearly 17% of New York City companies receiving venture capital investments in 3 Q 15 were founded by women. But those startups received $122 million out of $1.4 billion in total funds, less than 9 percent.

The Wall Street Journal also reported a similar situation in the Bay Area where in 2015 of the 204 startups in that area that received series A funding last year, just 8% - 16 firms – were led by women. This number declined by 30% from the previous year according to new data.

There is a similar situation in Boston according to the Boston Globe, which reported that none of the major venture capital firms in Boston has ever hired a woman to to sit at the table and be part of the team that approve deals. 

The situation is even more grim for Black Female Founders, who receive basically zero venture capital according to a story that appeared earlier this year on techcrunch.com. For example, of all venture deals from 2012 to 2014, only 0.2% (24 of 10,238 deals) went to black female founders. 

On average, black female-led startups raise just $36,000 of outside funding, according to the report. There are only 11 startups founded by black women that have raised more than $1 million in VC funding.

Is there a good reason why female founders are coming up short when it comes to raising venture capital?  In short, no.

Women-led companies perform three times better than the S&P 500

Last year Fortune Magazine reported on a study developed by Quantopian, a Boston-based trading platform based on crowd-sourced algorithms, that pitted the performance of Fortune 1000 companies that had women CEOs between 2002 and 2014 against the S&P 500’s performance during the same period.

The comparison showed that the 80 women CEOs during those 12 years produced equity returns 226% better than the S&P 500.

Of the women CEOs tracked over those years, the two best performers were Mindy Grossman at HSNi, parent of the Home Shopping Network and Debra Cafaro at Ventas, a healthcare and senior living real estate investment trust. Both women, still CEOs of their respective companies, increased the initial investment by more than 500%.

Guiding Lights for Female Founders

There are a number of women at the forefront of championing women-led entrepreneurial ventures, including Deborah Jackson of Plum Alley and Jessica Eaves Matthews – according to inc.com “innovate” blogger Kelly Hoey.

Inc. also cited Jeanne Sullivan as a leading venture capitalist who backs women founded ventures. Jeanne has 30+ years of investing experience, and was a co-founder of StarVest Partners, a venture capital fund created in 1998 with $400 million under management.

Forbes described Sullivan as “one of the women VCs changing the world – grooming the next generation of female entrepreneurs” and she serves on the board of the NY Venture Capital Association (NYVCA). She’s dedicated to helping women entrepreneurs, in what is still a male dominated world for most tech startups. 

At a Manhattan Chamber of Commerce event last year “Funding your passion + Financing your business” Jeanne offered some sound advice to founders seeking to fund their start-ups:

  1. Get the meeting: Identify who wants what you have: sector / stage / geography / you. Never go in cold. Get introductions from law firms, accounting firms – build and use your network.
  2. Get the story out of your mouth: Articulate and package the business model. Provide use cases. Use the “eyebrow” test – try to raise the eyebrows, get them intrigued.
  3. Tell me about the business of the business: Include the go to market plan, how you will build the business. Lay out the functional skills you will need to hire – as soon as you get funded. Stress your unique advantages.
  4. Know your Financials (cold): Gross margin, capital needs of the business, estimated valuation, be a careful curator of other people’s money. Get the smartest outsourced financial person possible to show you the way, bring them to the meeting.
  5. Follow up – and negotiate – appropriately: Business wins, key hires, fund raising, if they hear some other investors are coming in they will follow. The thing that may set Jeanne apart from many others in VC community is her approachability. Talking to many NYC-based VCs makes one feels like being in the beholden presence of royalty

Jeanne’s Twitter stream is well worth following @gianna212.

Based on these data points and trends, women entrepreneurs clearly represent an under-funded and unrealized opportunity for savvy investors. It’s clear that the economic landscape is prime for seeing many of these female founded start-ups to go from acorns to might oaks, or unicorns as the case may be.

 

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The World’s Largest Investment Opportunity.

It would seem that startups founded by women, that target women, would be flourishing in the current economy. But sadly, this is not the case. Despite the massive economic opportunity women represent, and the advantages that women founders bring to the table in terms of empathy, insights, business acumen and emotional connectivity with other women.

 Women Drive the World Economy

 Back in September of 2009 The Harvard Business Review reported that “Women now drive the world economy.” The HBR estimated then that women controlled $20 trillion in annual consumer spending, and that figure was likely to rise to $28 trillion by 2014.

In terms of yearly earning, they cited $13 trillion in total female income projected to grow to $18 trillion by 2014, far overshadowing China and India’s combined GDP. A staggering set of statistics indeed.

The HBR went on to make the following observation: 

“Women feel vastly underserved. Despite the remarkable strides in market power and social position that they have made in the past century, they still appear to be undervalued in the marketplace and underestimated in the workplace.”

Where the Opportunity Exists:

According the HBR data, women offer a tremendous source of opportunity, as they make the purchase decision for:

 94% of home furnishings

92% of vacations

91% of homes

60% of automobiles

 51% of consumer electronics

 The Female Economy: Women control a lion’s share of consumer spending, controlling 85% of overall consumer spending in the US alone.

Leading Areas of Opportunity

 The HBR went to on identify six business sectors that represent the greatest potential for growth, places where women are likely to spend more or simply trade up. These sectors represent vast potential for savvy female entrepreneurs.

Food: Represents one of the largest opportunities. Women still do most of the grocery shopping and meal preparation. It’s an important budget item for consumers, one that can be adjusted but not eliminated. This is a category ripe for further disruption – from digital coupons to making supermarkets more experiential and curb-side service.

Fitness: In the US the market for diet foods is growing 6-9% each year, and it’s worth about $10 billion. The US health club industry generated $14 billion in annual revenue. Opportunities for innovation including wearable devices that monitor performance to fitness gear and ways to women-only / no-frills fitness chains like Curves. 

Beauty: Products in this category promote a sense of well-being in women, yet research indicates that women are fundamentally dissatisfied with beauty offerings. There appear to simply be too many choices. And male senior managers at cosmetic companies often seem to miss the mark with what they offer women. Recent innovations in the sector include spray-on nail polish to compacts with a built-in LED light ring, that can also charge your smart phone.

Apparel: Including accessories and shoes, is an industry with plenty of room for improvement, especially when it comes to fit and affordability. Trying on close can be an exercise in frustration. Recent innovations in this sector include phone charging pants to conductive fibers and smart watches. There is explosive growth in “athleisure” clothing estimated to generate $35 billion in sales or 17% of the US clothing market in 2016.

Financial Services: May be the industry least friendly to women, and one in which innovative companies stand to gain the most if they can adapt their approach. Despite the great recession the private wealth market in the US is expected to top $22 trillion by 2020, with half of that amount in the hands of women. Yet women are still subjected to poor service quality from financial services companies, which presume men to be their primary target customers. Opportunities abound in use of technology to provide faster and better services – as exemplified by the rise of “robo-advisory” firms such as like Betterment and Wealthfront as reported by Barron's last year. 

Health Care: The HBR reported that health care is a source of frustration for women, those in middle age in particular. They resoundingly reported dissatisfaction with their hospitals and doctors. Pain points included waiting time in doctors’ offices and lab results, as well as scheduling and keeping appointments for their families and themselves. The Advisory Board has identified business opportunities in this sector in terms of increasing access and convenience. The explosive growth of urgent medical care centers in the US is a great example of a disruptive business changing the health care industry for the patient experience good.

These data points and trends point to the vast business opportunities that are available to women founders, focused on creating products and services targeting women. The economic stakes are massive by any measure. The challenge for women founders will be to marshal the human, financial and social capital necessary for starting and sustaining three entrepreneurial ventures. 

These three types of capital are interlinked, and women tend to be less likely than men to have access to them all. As a result, women may be less able to take advantage of the opportunities that are available to them. Changing this situation and finding ways to empower women to succeed as founders is clearly the challenge at hand.