Venture

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 atHSNi, 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.