Women start more businesses than men overall but much fewer high-growth ones. A female VC ponders why.
By Song Pak (Senior Vice President, Revolution)
Between focusing on my day job at Revolution, a venture capital firm in Washington, D.C., and raising a young family with my husband, I have not spent much time thinking about why women founders are underrepresented in high-growth entrepreneurship. But, a few weeks ago I was asked to speak at an event hosted by Google focusing on inspiring, engaging, and connecting the next generation of female entrepreneurs.
In preparing for my talk I started reflecting for the first time in years on what young women can do to increase female participation in an ecosystem critical to the country's economic competitiveness.
First some positive news – women own nearly 40% of U.S. businesses and are expected to start around half of the 9.72 million new small business jobs created by 2018. In the past 20 years, women have started businesses at a higher rate than men. And, of the 500 largest companies, women now lead a record 18 of them.
But in high-growth entrepreneurship, the story is different: according to the National Foundation for Women Business Owners and Wells Fargo and Co., women-owned businesses receive 2% of the money invested by venture capital firms. Few female startups grow to $1 million in revenue every year. And majority women-owned businesses do only 27% of the revenue that their male counterparts take in.
Why does it matter that female founders are underrepresented? Nearly 40 million jobs were created by startups over the last three decades, with high-growth startups contributing the vast majority. For the U.S. economy to continue innovating and growing, a healthy entrepreneurial sector is critical. Take for instance a recent $20 million investment by our Revolution Growth Fund in Lolly Wolly Doodle, the North Carolina social commerce apparel company founded in 2008 by first-time entrepreneur and mother-of-four Brandi Temple. Brandi, along with her team, are reimagining just-in-time manufacturing and social commerce to build a successful company with strong growth potential. Lolly Wolly Doodle is adding jobs in North Carolina, supporting the local community, and playing an important role in Revolution Growth’s portfolio. To strengthen the economic recovery regionally and nationally, we need more women following in Brandi’s footsteps.
To be fair, many women (and men) juggle their professional aspirations with raising children – which is commendable - and helps reveal at least part of why there are fewer women in high-growth entrepreneurship. However, while women are earning half of the nation’s bachelors and masters degrees, they are earning only 18-20% of the nation’s engineering degrees. Clearly, our education system needs to do a better job of encouraging women to pursue what has been traditionally a male-dominated field of study.
So what can female entrepreneurs do to make inroads in and around high-growth entrepreneurship? Here are four suggestions:
Female founders who are pitching their idea or company to investors need to study especially hard. The reality is, when a male founder botches an answer or is confounded by a hypothetical during a pitch meeting, he often gets a pass. When a woman makes a mistake, or hasn’t thought through an answer, a question is raised whether she has the chops to grow the business. And it’s not just about preparing – it’s about being prepared – to meet and pitch around twice as many VC firms as our male counterparts to secure comparable funding. So while anyone seeking angel or venture backing needs to buckle down and do their homework, I think this is even more critical for women.
Last year, at about the same time, two of my colleagues let me know they were planning to ask for a raise. The male colleague planned to ask for a significant pay bump, knowing he’d end up somewhere between his ask and his current pay. The female colleague planned to ask for what she wanted and believed was reasonable. She felt uncomfortable asking for more, whereas my male colleague didn’t blink – that’s just how you negotiate, he told me. He’s right. That is how you negotiate. Women need to do a better job aiming higher and asking for more – they shouldn’t feel uncomfortable or unreasonable.
Although there are plenty of exceptions, men are less sensitive about failing. If a startup doesn’t succeed, the entrepreneur knows he’ll dust himself off, and move on to the next challenge. Women, on the other hand, tend to worry more in my view. Will they be judged by a loss? What will they do next? If women embrace failure less as a setback and more as an opportunity to pivot – and that means pivot closer to an eventual success – I think we would see more female-led high-growth startups. Thomas Edison had the right outlook: "I have not failed," he said. "I've just found 10,000 ways that won't work."
Often times men and women with equal experience and skill-sets have different expectations, and thus, varying aspirations in terms of high-growth entrepreneurship. When a man with the same degree from the same school, with a similar resume, believes he can start business Y or join startup X – then ladies, you should believe it for yourself, too. In my view, this confidence gap is largely due to the imbalance of role models: male entrepreneurs can look up and aspire to be the next Bill Gates, Warren Buffet, Tony Hsieh, or Mark Cuban. Yet would-be female entrepreneurs have fewer success stories to emulate (although this is starting to change). As more women start and scale successful businesses, there will be a multiplier effect as the next generation witnesses their example.
My 9-year-old and 11-year-old daughters have heard about "Leaning In," and the older daughter starts a math and science magnet program in the Fall. I’m hopeful that in the next few years we are going to see a jump in the number of females in high-growth entrepreneurship, as adjustments are made by women, men, venture capital firms and our education system.
And when it happens, the startup economy of the U.S. will be better for it.