Women Are (Finally) Turning the VC Funding Tide
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Last week, I attended the first global Gender-Smart Investing Summit, in London. Summit sessions explored ways to unlock barriers to deploy capital in a gender-smart way.
Meanwhile, back in California, All Raise, a group which was started by leading women venture capitalists and aims to double the number of female VC partners and increase funding to companies with female founders, held its own first summit.
This week in New York, Acumen will also host a first conversation on investing with a gender lens.
Why this sudden upsurge in events focusing on women and investment? Perhaps for the very first time, we are seeing noteworthy groups take serious action to address the persistent funding gap between women-led startups and their male-led counterparts.
In fact, this seems to be a watershed moment -- and a welcome one in the world of women entrepreneurs where I’ve been focused for the past 11 years through the EY Entrepreneurial Winning Women program.
Like the record number of women vying in this week's midterm elections for House and Senate seats and for governorships in multiple states, more women in investment are stepping up to transform the status quo and create solutions for ourselves. In this ecosystem, which encourages and supports entrepreneurship, various turning points have helped foster change. Here are some of the points emphasized at last week's summit:
Women entrepreneurs are now scaling businesses -- and doing well.
When I began working with women founders back in 2008, the landscape for women entrepreneurs was far less encouraging than it is today. There were fewer high-growth women-led firms and fewer programs that addressed the needs of women founders on the rise, particularly for funding.
That has changed, however, thanks in part to the women who have built enormously successful companies. A long list of founders has proved the business case for investing in women and often demonstrated that there are greater benefits to be had, as well.
The list includes Phyllis Newhouse, CEO of cybersecurity firm XtremeSolutions. Newhouse, who co-founded her nearly $150 million company in 2002. A military veteran, Newhouse is a powerful advocate for veterans. She's worked on behalf of homeless veterans and with Women Veterans of Social Justice, which addresses challenges faced by women in both the military and veteran communities. She has also partnered with actress Viola Davis in a new movement for women called Shoulder Up.
Tory Burch, who founded her billion-dollar namesake fashion company in 2004, is yet another entrepreneur paying it forward, with her Tory Burch Foundation. Launched in 2009, the foundation supports the empowerment of women entrepreneurs, with programs providing access to capital and entrepreneurial education, and to mentoring and networking opportunities.
Women are clearing a path for others to follow.
When Sherry Deutschmann sought funding for LetterLogic, the patient billing company she founded in 2002, banks rejected her and she couldn’t get favorable terms from local investors. Undaunted, she sold her household furniture and drained her 401(k) to launch the business from her basement. Fourteen years later, Deutschmann sold LetterLogic, to the private equity firm WestView Capital. At that point, LetterLogic had sales of over $40 million.
She then established her own angel investment fund, Sunset Ventures, which invests primarily in women-led companies.
Easier access to funding could have eased the way for these founders. But because of the successes they and other women have had, more financiers now believe women can build large, high-value companies; and more women who are interested in entrepreneurship believe it, too. This combination will almost certainly lead to more investments in female-led organizations.
The challenge: If more women gain easier access to growth capital, they too will need to remember to stick to their values, and support one another, which becomes ever more challenging in high-growth companies.
The VC funding statistics for women are grim, but they're now getting noticed.
Fifty-seven percent of all public U.S. companies founded since 1979 have been VC-backed, as have five of the top seven S&P 500 companies, according to Stanford University faculty research. Yet, according to the M&A, private equity and VC database PitchBook, just 2 percent of VC funding went to U.S. women CEOs in 2017.
The numbers aren’t much better even for companies that include at least one woman on their management team. Those companies got just 12 percent of VC funding.
External funding matters.
Although women like Newhouse, Burch, and Deutshmann have scaled businesses without VC funding, they are rare exceptions. Only 4.2 percent of companies founded by women have achieved sales over $1 million. And that number drops precipitously when you count only entrepreneurial women of color.
While these statistics are widely known today, the scenario they describe has not always been the case. Around the time we launched our Winning Women program, much was being written about the fact that women-led businesses did not generally grow as fast or as large as those led by men. Observers lamented this state of affairs, yet few seemed to recognize its causes or offer any solutions. Once the statistics made news, that coverage helped focus attention on the problem, including further scrutiny of the $330 billion U.S. venture industry.
We need to continue to push for more measurement and accountability in this space and to foster innovative thinking on what kinds of funding models work best for a diverse range of businesses. Traditional venture capital, and the returns it expects, are vital fuel for entrepreneurship in America. But, as we are seeing at the current gender-smart summits, traditional models are the not the only way to foster business growth.
We need to make sure we understand what is moving the needle and getting more funding to women; we need to double down on those efforts. At the same time, we must continue to create alternative funding solutions that match different kinds of companies and a variety of definitions of success.
Women need to put VC industry practices under a microscope.
It turns out women are not underrepresented only as a share of CEOs who get VC funding: They are also sharply underrepresented at VC firms.
Just 9 percent of U.S. VCs are women, and 74 percent of U.S. VC firms are all-male. The scant number of women VCs has clear implications for women founders. Data from Babson University’s Diana Project shows that companies with a woman in management are twice as likely to be funded by VC firms that have a woman partner.
Our organization also discovered that women face discrimination beyond a lack of funding. Harassment allegations like those leveraged against early-stage VCs like Justin Caldbeck, formerly of Binary Capital, and Dave McClure, formerly of 500 Startups, shed new light on bad behavior.
Both VCs resigned in disgrace after accusations of sexual harassment and even sexual assault reverberated throughout the tech industry in 2017. That process accelerated with the advent of the #MeToo movement, leading to the collapse of Caldbeck’s firm and to investor Reid Hoffman’s call for a “decency pledge.”
The more both men and women root out the unconscious and blatant bias, and call out bad behavior, the more the entrepreneurial ecosystem will actually nurture and finance the high-potential entrepreneurs among us and not just a select few.
Women need to step up with goals and a plan.
Awareness of the funding hurdles that women founders face is critical, but not enough. The numbers of women-led firms getting funded has barely budged in recent years. That is why it is so noteworthy -- and heartening -- to learn that professional investors, including the team behind All Raise, are banding together to help remake the VC-backed startup ecosystem.
All Raise has set clear goals. One is to double, in ten years, the number of female VC partners from 9 percent to 18 percent in U.S.-based, technology-oriented venture firms with more than $25 million under active management. Another is to increase funding to companies with a female founder from 15 percent to 25 percent of VC-funded companies in five years.
Still, despite the lists of top women in business that seem to be more ubiquitous, I have a bigger goal in mind. I aspire for the day when we no longer talk about “women” entrepreneurs or need a separate list to highlight their accomplishments. Instead, I envision a time when we will marvel at one list that features a gender-diverse group of entrepreneurs building exciting high-growth companies that are changing the world.
With efforts like those, I believe we will get there.