Recent studies have shown that small companies started by women, or headed by a woman, lag far behind their male-run counterparts when it comes to capital funding. According to experts, female-led start-ups receive less than 5 percent of the available venture funding, making the journey from idea to active, innovative organization a difficult one.
Janet Krause, a senior lecturer at the Harvard Business School, told the Financial Times that the flow of venture capital to female-owned start-ups has hardly improved from the trickle it has been for years.
“Women get funded by large amounts of money at a far lower rate than men do,” Krause said.
Among the many reasons for that low rate has been the inability of women to sell their ideas and describe a big-picture vision to venture capitalists. Krause said female entrepreneurs as a group must start thinking big. “To scale a business it has to be a big business idea from the start and women have to describe it as a big breakthrough innovation,” said Krause. “It’s telling the story in a way that creates the access to capital. You describe [the idea] at its highest potential.”
Despite the paucity of venture funding, there have been many success stories among women-led start-ups. Gilt Groupe, a shopping site offering daily deals, is one such success. It was seeded in the Harvard Business School; its founders had the advantage of a vital alumni base to tap. “It’s a huge network,” said Krause.
Columbia Business School entrepreneur-in-residence Clifford Schorer told Financial Times that, aware of the difficulties in obtaining traditional venture capital, women entrepreneurs have set aside more competitive instincts to form their own support networks, and in doing so have increased the visibility of female-run business. “Women in general form teams, partnerships and alliances with each other quicker than men do,” Schorer told Financial Times.
Not all women-owned start-ups go the venture capital route, or take advantage of peer networks, and yet have found a modicum of success. While at the Harvard Business School, Katia Beauchamp and Hayley Barna hatched the model for beauty product distribution that has grown into Birchbox, a now global beauty supply company that sells cosmetics via gift-box shipments to online subscribers. The two women used business school classes as the incubator for the start-up, and turned down venture capital offers when the business was in its infancy amid fears they would lose control of their concept. Seeing their business through its infancy “helped crystallise our approach,” Beauchamp said.
Eventually, the two women worked the boardrooms of Manhattan to find partners among notable cosmetic companies such as Nars, Keihl’s and Benefit. Birchbox now has $11.9 million in venture capital investment, and 300,000 subscribers.
Such successes have spawned an increase in the number of investment firms such as Golden Seeds, a New York-based venture capital company that works strictly with women-owned business. It has helped, too, that the Internet marketplace has led to a sharp decline in the amount of capital needed to launch a start-up, Schorer said.
“That’s been a tremendous equalizer and women in particular have benefited,” he said.
Dizik, Alina. Financial Times. “MBA Entrepreneurs Think Outside the Box for Beauty Business” March 3, 2013.