Startups Founded by Women Don't Get Enough Support

Female founders receive 2 percent of venture capital funding. Leslie Feinzaig and others says it’s time to slice the pie differently.
| FROM THE PRINT EDITION |
 
 

OPENING MINDS. Seattle entrepreneur Leslie Feinzaig knew starting a new company would be difficult but adds, “I didn’t expect it to be humiliating.”

This article appears in print in the November 2018 issue. Click here for a free subscription.

When Leslie Feinzaig set out to pitch venture capital investors on her new business, Venture Kits, the Harvard Business School alumna knew she faced a daunting task. She also believed her credentials and experience would make her stand out.

“I knew it was going to be difficult,” she says. “I didn’t expect it to be humiliating. I didn’t expect it to be so dramatically lonely and crazy-making. … I didn’t know I’d be called a ‘stay-at-home mom.’”

Venture Kits, which sells games that teach entrepreneurial skills, didn’t grow to the scale Feinzaig initially intended. Today, she’s busy leading the Female Founders Alliance, a group she established to help other women who have founded startups assist each other in securing funding for their businesses.

“I’m not a person of means and I bootstrapped [Venture Kits] as far as I could,” Feinzaig says.

Despite a strong résumé, the odds were stacked against her. Only 2 percent of all venture capital funding went to female founders in 2016, Fortune magazine reported last year, even though 17 percent of all startups were led by women. Additionally, two-thirds of venture capital money has historically gone to people with previously successful companies, says Edith Dorsen, founder and managing director of Women’s VC Fund II, a Portland-based firm that invests only in businesses that feature women on their management teams.

Female startup founders and their investors have different ideas on why this is and what to do about it, but they agree on some basic truths: While women aren’t necessarily shut out of the startup world by blatant sexism, they’re certainly held back by the realities of women’s lifestyles, how they’re perceived and a decision-making process in which those who have already gained success have easier access to investors’ cash, thus closing the startup club to those trying to gain a foothold.

All these realities contribute to an implicit bias that prevents women from drawing more money from the investment pool, Dorsen says. “Many investors have a fixed idea, whether they realize it or not, of who they’re looking for,” she observes.

To be sure, there are women who have been very successful at getting attention and raising money. Kristina Bergman, for example, who started Integris Software in 2016 to help companies meet consumer data protection mandates has already raised $13 million. Bergman worked in technical positions at Microsoft and elsewhere before becoming a venture capitalist at Ignition Partners, where she focused on cloud, big data and security startups.

“It’s easy for people to be prejudiced when they don’t know you,” Bergman says. “People are looking for patterns. They develop a gut feel that is different for each investor. Some of the patterns, like sexual orientation and gender, are red herrings. If [an entrepreneur] looks like [Facebook CEO Mark] Zuckerberg, they have an advantage.

Bergman’s experience helped her get around that bias. “Having worked in the industry, I had formed relationships,” she explains. “I knew who was a good person and a good investor. My conversations then were about the nature of my business.” 

Bergman recommends that entrepreneurs invest in relationship building so that when the time comes to raise money, the questions won’t be about them but about the business. “My experience is that, with the exception of a few bad actors, people may suffer from unconscious bias but [they] are basically good.”

She also suggests entrepreneurs look at a venture company’s portfolio. “They may say they invest based on merit,” Bergman says, “but if there are no women, there is clearly bias there.”

Still, for women who don’t have the technical expertise and the connections Bergman has, raising money remains a serious challenge. Now, a handful of women and men are working to lift up female founders and force a “market correction,” as Feinzaig puts it, which will bring more women into the startup arena.

• Feinzaig launched Female Founders Alliance to support women trying to launch startups. What began as a side project has grown to become her primary focus. “This was so badly needed,” she asserts. “We are all going through this. We don’t have a support system that we can really let our hair down with.” At the end of September, the alliance launched Ready Set Raise, an accelerator program that included a month of workshops leading up to a Demo Day at which female-led startups from around the country pitched to leading venture capital and angel investors.

• Janis Machala, managing director of Langley-based Paladin Partners, founded Emerging Growth Women’s CEO Group in 2015 after a long career in business consulting and executive coaching. The group meets once a month, bringing female CEOs together for mentorship, discussion and problem solving. Machala calls them “sisters around a table” who serve as each other’s de facto advisory boards and consultants. “When somebody’s melting down because they don’t think they’re going to get another $50,000 to fund their company,” she explains, “we buck each other up and say, ‘Yes, you’re gonna do this’ — then $400,000 gets raised.”

• STEM to Market, an initiative by the Association for Women in Science (AWIS), a Washington, D.C.-based organization, supports women in STEM fields and attacks gender inequities by training women in founding startups. The group hosts accelerator programs in Chicago, the Bay Area and Washington, D.C., to help them get their startups off the ground. Heather Metcalf, director of research an analysis for AWIS and project lead on STEM to Market, works with Seattle-based Jenn Clark, who focuses on outreach to the investor community and was a small-business advocate in the Obama administration. Clark acknowledges that some investors are resistant to change, but that the profitability of female-led companies will change minds. “It really is all about the money,” she says.

NOT TO BE (DIS)MISSED. Avni Patel Thompson started Seattle-based Poppy in 2015, connecting families and qualified child-care providers.

Data suggest systemic bias in the venture capital world may be one explanation for why only 2 percent of venture money goes to female founders. For example, women do significantly better with angel investors, who give 15 percent of their money to women. Surprisingly, the proportion of female-founded startups receiving funding has shrunk in recent years, even though the number of women venture capital funders has climbed to 7 percent, up from just 3 percent in 2014, according to Harvard Business Review.

Metcalf says implicit bias against women shows up at all stages of founding a startup, from the pipeline of women joining STEM fields to the way they appear to potential funders. “We see it playing out in varying degrees of explicitness,” she says.

Metcalf points to another 2017 Harvard Business Review study, which shows investors ask different questions of men and women who make pitches to them. The study revealed that investors ask men questions about promotion: how they’ll monetize their business, the growing market for their business and what milestones they plan to achieve. Women field questions that are more about risk aversion: how they’ll break even, how many customers they already have and how they’re dividing labor.

Put another way, questions asked of men prompt them to promote their businesses and their visions, while inquiries of women elicit responses focusing on possible losses or problems. That imbalance creates a gap in how much money founders of each sex can raise, the study says.

INCLUSION SPECIALIST. Heather Metcalf is a project lead with STEM to Market, which works to advance women in all technology fields.

There exists a chicken-and-egg debate among experts about where this gap comes from: Is it simply bias among investors or is there a difference in how men and women present themselves?

Another study supports what Metcalf, Dorsen and others say: Women sell themselves short when they pitch to investors, while men inflate themselves and their abilities. “Women equivocate and modulate,” Machala says. “When women present their financial models, they do it in a measured and rational way,” while men “shoot for the moon.” Women apologize up front for any perceived deficiencies they see in their own pitches, she adds. “As women, we’re so used to having to be perfect.” 

The solution isn’t to “fix women,” Metcalf argues. Ideally, investors and founders should meet in the middle — investors ought to become more aware of their personal biases and women can try to fight stereotype, for example, by challenging the nature of the questions investors ask them.

“Men need to be more understanding of implicit bias,” Machala says. “… Women need to do things like learn how to present in a way that doesn’t disempower them.”

Avni Patel Thompson, founder of the web-based child care company Poppy, came off a brand management and consulting career at Procter & Gamble, Adidas and Starbucks to join the startup world. After working for one failed child-focused startup, she learned from parents that their No. 1 need was child care. As the mother of young children, she knew the issue resonated with her and she wanted to find a solution.

“Even though people talk about sitters and nannies, people were really missing their ‘village’ — very few people actually have that,” Thompson says. “Most of us are well-connected online but don’t know our neighbors.”

Thompson developed Poppy in 2015, starting as a network of 16 families in Seattle’s Madison Park neighborhood. It has since expanded to 4,000 families across the city. She started securing funding with angel investors — people who use their personal money to support a company in the early stages of development — in Seattle, Silicon Valley and Vancouver, British Columbia. She says she suffered some pushback from investors in Seattle.

“I’m a nontechnical female,” she says of how her résumé was perceived. “Basically, a mom trying to build a babysitter app.” Thompson says some investors tended to dismiss her as a technology lightweight. Despite having spent a decade working in male-dominated industries, she confides, “I never felt like this.”

Her sex has only seemed to make a difference to people in the past three years as she developed Poppy, Thompson says. “I don’t have a lot of patience for that because I’m someone who runs my company knowing the numbers and knowing the business side of this.”

She often feels like an outsider. Sometimes at startup conferences, Thompson says, “You’re walking into a room and there’s nothing but guys there.” While she doesn’t blame men for her setbacks, she says they can be dismissive of her ideas if they can’t connect with the issues that hands-on parents face.

“I’m not used to being dismissed,” she says. “There’s something about the past of the tech world that presumes I’m not the CEO or I’m not the person who can keep up.”

Stephanie Sprangers founded Glamhive in 2015 after a 10-year career in startups. Her service connects celebrity stylists with customers seeking fashion or styling advice. The stylists serving clients on Glamhive also work for big-name clients like Angelina Jolie, Kristen Stewart and Matthew McConaughey.

Sprangers says securing seed funding isn’t hard because she’s a woman; she says it’s hard for anyone.

“As a salesperson, I never felt my gender had an impact on closing a deal,” she says. But she agrees that without a history of directing successful startups, it can be nearly impossible to persuade someone to share your vision.

“Unless you have a track record of success or come from certain schools,” she observes, “you’re not going to get VC funding when you don’t have proof of anything.”

The good news is there’s a growing body of evidence that the presence of female leaders in top corporate management positions correlates with increased profitability for companies, including a study by the Peterson Institute for International Economics that examined nearly 22,000 companies in 91 countries. Meanwhile, Credit Suisse says female CEOs bring a 19 percent higher return on equity and a 10 percent higher dividend payout. And a 2007 study by Catalyst, a global nonprofit that advocates for women in the workplace, says adding three women to a board of directors will increase the company’s return on equity by an average of 46 percent. A 12-year study on 80 female CEOs showed they produced equity returns for their shareholders 226 percent better than the S&P 500, according to Quantopian, a Boston-based crowd-sourced investment fund.

“For many reasons, women make terrific entrepreneurs,” says Dorsen, who notes that they’re “detail-oriented, collaborative, prudent with money, very resourceful and creative.”

Metcalf adds: “A lot of evidence shows that when women are involved in leadership roles, [companies] have greater performance financially, but also improved decision making, innovation, performance and smarter ‘group intelligence.’”

In getting her business off the ground, Feinzaig recalls cold-calling hundreds of motherhood bloggers and begging them to try Venture Kits, her product for teaching entrepreneurship to young children. Their response was overwhelmingly positive. But securing the money from angel investors or venture capital firms to scale the company was another endeavor altogether.

She aced pitching competitions, but when it came to actual investments, she was often dismissed by men and women alike. “When it came to fundraising,” Feinzaig says, “I don’t think I had a single experience that left me feeling accomplished.” She says one influential investor told her, “You’re so charming.”

“I’m not charming,” she insists. “I’m investable!”

Feinzaig took her frustration to Facebook, where she started a group for women who shared her experience. “I just needed someone to compare notes with,” she says. That effort evolved into Female Founders Alliance. The moral support among women is helpful on its own, but the alliance’s primary mission, Feinzaig says, is to help women earn money.

Feinzaig says the startup world is an insular group, and often one’s big ticket to venture capital success is a track record of achievement with previous companies. For women trying to get started — even those with an illustrious education and business or tech careers — it’s hard to break in.

“If you have a bunch of guys who all work for the same companies and got money from the same three investors,” Feinzaig says, “that homogeneous network reinforces itself.”

Throughout this year, alliance members have helped each other secure venture capital funding, given each other advice and made introductions to important people who could give them a leg up. “Out of my failure,” Feinzaig notes proudly, “something that was born is going to change the world.”

Feinzaig says there’s better awareness today of the investing gender gap and she takes comfort in efforts to bring together groups of women and the rise in the number of women earning degrees in tech fields. But she doesn’t see the change happening quickly.

That’s why she wants to help women where she feels it really counts — getting them investors through the alliance. This, in addition to greater transparency, will correct the market, she believes. “The women who are being invested in today are going to make a massive amount of money,” Feinzaig says. “All these women who couldn’t break into the club have a ticket via FFA.”

Female entrepreneurs have a growing group of allies among both men and women in the investing world. Jonathan Sposato, chairman of GeekWire and PicMonkey, is an angel investor who, since 2015, only funds companies with at least one woman on its founding team.

“I just got really frustrated seeing there were a bunch of brilliant ideas an entrepreneur would pitch … but it was very clear to me after a while that they weren’t getting much traction at large,” Sposato says of his experience with female founders.

Sposato thought it made good business sense for him, given the studies about return on investment in female-led companies.

“It’s not just a fair thing to do, but it’s a smart thing to do,” says Sposato, who counts Poppy and Glamhive among his most successful investments. “There’s so much value that you can unlock in American business if you simply pay attention to all of the amazing ways that women make great leaders, entrepreneurs [and] colleagues.”

Women’s VC Fund II invests in companies with women in senior management. Dorsen, a Harvard MBA, started the fund after she saw too many venture-worthy entrepreneurs being overlooked and undervalued by investors. Eight of the nine companies her fund has supported were founded or cofounded by women. And given the momentum behind women at the moment — from organizations like Feinzaig’s and Machala’s to the #MeToo movement — Metcalf believes progress is nigh: “We’re in a moment right now that has a lot of positive momentum. Things are ripe for change.”

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