Venture capital eludes women more
USA Today
SAN FRANCISCO — Get Real Girl's action dolls could out-hustle Barbie anytime. They include Nakia the basketball player, Skylar the snowboarder and Claire the scuba diver — all equipped with uniforms, backpacks and cool gear. There's not a pink sports car or party dress among them.
But while the dolls are unconventional, the company's search for investors has been painfully familiar for a business run mostly by women.
Although the startup has raised $3.5 million from individuals and family investment money, its hunt for $2 million more has been fruitless. Get Real isn't high-tech. Its cash needs are too small for many investors, who have grown skittish since the dot-com meltdown.
Thousands of female entrepreneurs face the same problem every year, with potentially disastrous implications for the U.S. economy, according to experts and new research.
Although women create 70 percent of jobs at privately run companies and own 26 percent of all companies, they received only 4.4 percent of the most important source of investor dollars last year — venture capital. That percentage has been flat or down since 1997, while overall venture capital has soared, says the research group VentureOne. It has tracked the gender-specific data for only four years.
The low venture capital financing rate, in part, stops woman-owned firms from becoming corporate powerhouses churning out innovations, jobs and tax revenue. And it has largely pigeonholed female entrepreneurs in Old Economy sectors such as retail instead of hyper-growth industries like tech.
"The future of the world is going to be women," says Mark Hee-
sen, president of the National Venture Capital Association, conceding the low venture capital. "Venture capitalists don't ignore tsunamis and this is a tsunami."
Venture capitalists play an indispensable role in the U.S. economy. Their investments, made on behalf of institutions and wealthy individuals, are the financial oxygen turning tiny startups into the next generation of Microsofts. Last year, they pumped a record $72 billion into companies, VentureOne says.
Venture capital money packs three times the punch of corporate research-and-development dollars, because venture capitalists are better at finding viable businesses, experts say. They also give entrepreneurs access to lawyers, accountants and marketers who help startups prosper.
But the slowing economy has sent venture capital investments plummeting more than 50 percent from a year ago, putting even more pressure on startups led by women.
Few blame the venture capital gender disparity on raw discrimination. "I don't care if the entrepreneur's name is Sam or Susan," says Heidi Roizen, a managing director at Softbank Venture Capital in Silicon Valley. "I care about: Have they done it before? Are they credible? Can they come in and defend their business case?"
The "have-they-done-it-before" criterion is a high barrier, and the pitfalls for women start early. Here are some of the thing that entrepreneurs and experts say are behind the small number of women's firms financed by venture capital:
• Educational ghettos. Women are less likely to start companies in fast-growing industries like tech because they often don't have relevant backgrounds.
Women receive 12 percent of all doctorates in engineering — the degree that often leads to tech research favored by venture capitalists. They earn just 39 percent of master's degrees in business. As such, their startups are less likely to be found in tech. About 72 percent of companies owned by women are in service and retail vs. 57 percent of all firms.
And their companies are disproportionately small.
• Financial frat houses. Compared with men, women know fewer entrepreneurs — the people most likely to refer business deals to venture capitalists.
About 50 percent of men personally know an entrepreneur vs. 37 percent of women, according to a study last spring by Babson College and the Kauffman Center for Entrepreneurial Leadership.
• Women rarely working as venture capitalists. Women make up 5 percent of partners at the nation's top 40 venture capital firms, says the Center for Women and Enterprise in Boston, which helps women get financing. Lydia Marshall, CEO of student loan financing company Versura, says she met no more than five women at the 40 venture capital firms she contacted.
• Fudge vs. facts. Some women are more conservative when they forecast revenue and cash needs, making their startup plans look weak compared with those by men, says Andrea Silbert, founder of the Center for Women and Enterprise. Making matters worse, cautious venture capitalists often cut revenue projections in half anyway, she says.
• Soccer mom syndrome. Women have more child-rearing responsibilities during the prime years — age 25 to 44 — when entrepreneurs start companies. Some venture capitalists may be reluctant because they worry women will have children and leave business. Silbert says she has heard that concern from several venture capitalists, but "nobody will ever go on the record."
