Women led start-ups less likely to receive venture capital funding

When someone says ‘high-tech entrepreneur,’ the first thought that comes to my mind is not typically ‘woman.’ More often than not the first things are probably, ‘Mark Zuckerberg’ or (more generally stated) ‘men.’ This is because often times, companies started and run by women are overlooked or discredited by investors simply because women are at the helm. Now, this is not always an overt display of discrimination[1], but rather investors invest in what they are comfortable with; a practice called “pattern matching,” or “trying to invest in founders who remind them of other successful entrepreneurs”[2]. And even though high-tech start-ups founded and run by diverse groups are more likely to succeed[3], women led start-ups are far less likely to receive venture capital funding. [4]

The fact is, 40 percent of privately owned businesses are owned by women, but only about 10 percent of “venture-backed start-ups” are led by women.[5] In a report published by Illuminate Ventures, a venture capital firm that seeks out “innovative business ideas led by committed and talented teams,” the author found that not only were women-led, high-tech companies successful, they were also more “capital efficient than the norm.” The study found that the “average venture-backed company run by a woman” had similar “early-year revenues,” using an average of “one-third less committed capital.”[6] In a separate study sponsored by Dow Jones, start-ups with “five or more” women were 61 percent successful compared to 39 percent that failed.[7] However, research conducted by the Kauffman Foundation revealed that between 2004 and 2007 women started merely three percent of technology firms, and one percent of high-tech firms.[8]

These numbers are staggering, especially considering that in 2012 “an estimated 126 million women were starting or running new businesses in 67 economies around the world.”[9] Where is that statistic in the high-tech industry? Where are women venture capitalists? All of the shortcomings found in The Global Entrepreneurship Monitor 2012 Women’s Report can be attributed to status expectations and gender roles in business and in the technology industry. It is unfortunate, but true that these gender biases exist in modern business. Women should not be discriminated against (either overtly or covertly) because of their gender. Venture capitalists need to be more aware of the changing climate for business; it’s no longer an all-boys-club. As the trend obviously shows, if venture capitalists intend to make money in the years to come, it wouldn’t be such a bad idea to look to new, innovative, and women-led companies.

[1] Kelley, Donna J., Candida G. Brush, Patricia G. Greene, and Yana Litovsky. Global Entrepreneurship Monitor 2012 Women’s Report. Rep. The Center For Women’s Leadership, 31 July 2013. Web. 16 Sept. 2014.

[2] Chafkin, Max. “The Ugly Truth about Silicon Valley’s Diversity Problem.” Fast Company. N.p., 12 May 2014. Web. 5 Oct. 2014.

[3] Canning, Jessica, Maryam Haque, and Yimeng Wang. Women at the Wheel: Do Female Executives Drive Start-Up Success? Rep. Dow Jones and Company Inc., Sept. 2012. Web. 14 Sept. 2014.

[4] Gates, Lisa. “Do Women Have a Unique Genome for Startup Success?” Forbes. Forbes, Inc., 13 Jan. 2012. Web. 15 Sept. 2014.

[5] See footnote 4

[6] Padnos, Cindy. High Performance Entrepreneurs: Women In High-Tech. Rep. Illuminate Ventures, 1 Feb. 2010. Web. 15 Sept. 2014.

[7] See footnote 3

[8] Robb, Alicia M., and Susan Coleman. 2009. Sources of financing for new technology firms: A comparison by gender. The Kauffman Foundation.

[9] See footnote 1

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