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Here’s the Challenge, Here’s the Pitches, Open the Door…where are all the Women?

As an entrepreneur launching my first startup, I rarely think about the fact that I am a woman but it’s hard not to notice when I am usually one of just a handful of women in the room at most of the entrepreneurial events I go to. Take for instance, WebInno. It always seems like 80% of the attendees are men and only 20% are women. There are even less women who are actually up there demoing their companies.

It’s not just Boston. I noticed the same 20% trend as a participant of the First Growth Venture Network, a mentorship program for high potential tech based startups in NYC. Of the 14 startups participating in the program only 3 of them had female founders.  

That’s why it didn’t surprise me to learn that of the 425 applicants who applied to MassChallenge, only 18% were female. Because there were so few female entrants, only 15 of the 110 finalists are woman (see list of female finalists here). For those of you keeping track that’s 13%!

After learning that I was one of only a handful of women founders that applied to MassChallenge, I started wondering if the trend I was seeing was indicative of the rest of the nation.  A quick search revealed that it is: only about 20 percent of U.S. companies with $1 million or more in revenue are women-owned.

Why are there no Women?

I wanted to understand why there are so few women entrepreneurs starting high potential, high growth companies so I embarked on some research. While I came across several theories, I came to the conclusion that there are 2 main factors: 1) lack of access to capital and 2) few role models.

Less Access to Capital: According to the Center for Women’s Business Research, data shows that while about 41 percent of private companies in the U.S. are owned by women, only 3 percent to 5 percent of them get venture capital. The US Global Entrepreneurship Monitor says that women start ventures with eight times less funding than their male counterparts. I thought perhaps women were simply not seeking capital but then I saw this stat: women-owned businesses accounted for 21 percent of the entrepreneurs that sought angel-investment capital in 2009, but only 9.4 percent of those females were successful in their quest, according to a report published by Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire.

While there are several reasons why women have less access to capital, one factor is the scarcity of female venture capitalists. A quick look on TheFunded revealed that only 3 of the 95 venture capitalists on the 7/19 list of “Top VCs” were women.  Research shows that having female VCs does have an impact on women getting funded. According to Cindy Padnos of Illuminate Ventures, a venture capitalist, firms with at least one woman partner are 70 percent more likely to lead investments in a woman-run company than a VC firm with all male partners. 

Few role models: How many women can you name that have founded companies that have become household names? I don’t know about you, but I can count them on one hand.  In the tech space, at the highest level in the biggest companies, we have a handful of role models: Meg Whitman (eBay), Carly Fiorina (HP), Carol Bartz (AutoCad, Yahoo!), Marissa Mayer (Google) – great women, great leaders, instrumental in their company’s success but they didn’t found these companies. Women need more examples of women who have founded and led high impact companies to inspire them to build high growth companies.

Women Build Great Companies

So why do we need more women entrepreneurs anyway? The bottom line is that women led ventures ROCK. Here are a few interesting stats that show why:

•    Women are more Capital Efficient: Venture backed companies run by women have 12% higher annual revenues than those run by men using on average one-third less committed capital according to a study by British researcher, Library House.
•    Women create more Jobs: A Babson College study found that if female entrepreneurs started with the same capital as their male counterparts, they would add 6 million jobs to the economy in 5 years – 2 million in the first year alone.
•    Women do more with Less: Venture-backed start-ups run by women use, on average, 40 percent less capital than start-ups run by men and are increasingly involved in successful initial public offerings of stock, according to a recent white paper by Illuminate Ventures.
•    Women Fail Less often than Men: Despite having less capital, women-owned businesses are more likely to survive the transition from start-up stage to established company (Illuminate Ventures)

A New Wave

All that said, I do think we are on the cusp of a dramatic shift. A new wave of women entrepreneurs are quickly leveraging existing technologies to create new business models online that are disrupting industries. GILT founded by Alexis Maybank  & Alexandra Wilkis Wilison is a perfect example of this. GILT is one of the fastest growing companies in e-commerce history, and has made Flash Sales a household word. There are hundreds of competitors both in the US and worldwide that are all trying to capture the GILT magic for every conceivable niche.

Caterina Fake (Flickr, Hunch) is another favorite of mine. Flickr, the company that she co-founded completely disrupted online photo sharing, people’s perception of content sharing, and showed the hundreds of companies that followed that the freemium model can create a self-sustaining and capital efficient business. She’s now moving on to her second, big endeavor, Hunch, and has teamed up with some top tier investors and advisors.

These women and others, who are creating disruptive companies, and having successful exits are laying the foundations of a new generation of role models, and are tearing down the barriers that might keep women from embarking on building high growth, high return companies.

Look out world, here we come!

By: Monika Desai

About Monika Desai
Monika the co-founder and CEO of Open Runway, a social commerce platform that empowers shoppers and emerging designers to create and shop for women’s fashion (starting with shoes) through customization and community-voted design contests. Monika is a MassChallenge finalist in the 2010 competition. Monika is always looking to meet like-minded entrepreneurs. You can tweet her @monikaadesai or email her at monika@openrunway.com.
 

MassChallenge Announces Competition Finalists

110 entrepreneurs enter the final stretch of the world’s largest global startup competition, vying for their share of a $1 million prize pool for the most innovative, high-growth startups

Boston, MA – July 22, 2010 – Today, Massachusetts Secretary of Housing and Economic Development Gregory Bialecki joined John Harthorne, David Constantine and Akhil Nigam, the founders of MassChallenge, and MassChallenge sponsor Ken Morse, Founding Managing Director, MIT Entrepreneurship Center, to announce the 110 finalists in the world's largest global startup competition. The competition was designed to accelerate the development and success of high-growth, high-impact new businesses, while stimulating job creation across the Commonwealth and beyond. These finalists now enter the accelerator phase of the competition and in mid-October an expert panel will identify the winners of $1 million in prize money.

"We're thrilled to be reaching this critical stage of our pilot competition," said John Harthorne, CEO and founder of MassChallenge and a 2007 MIT $100K Business Plan Competition winner. "MassChallenge is a collaborative effort involving dozens of organizations all committed to igniting a global, startup renaissance and helping entrepreneurs win. The results of our competition will be immediate and far-reaching."

An initial group of 440 entrants from 26 countries and 24 states began the competition in April. An initial round of judging reduced the group to 300 semi-finalists, who recently completed in-person pitches to a large group of professional judges. This pool of semi-finalists, from which the 110 were chosen, are some of the brightest entrepreneurs in the world, working on an incredibly diverse spectrum of fascinating and innovative business ideas. These range from technology and media to life sciences, manufacturing and environmental efforts. The MassChallenge winners have the potential to go on to become some of the most exciting new companies the business world will ever see.

"What's exciting about MassChallenge is that it has attracted some of the most talented, exciting and innovative entrepreneurs to Boston," said Mayor Menino. "With the Innovation District we are creating a modern hub of knowledge, creativity and inspiration along Boston's Waterfront; a place where businesses can bring their most inventive new ideas to develop and thrive."

Of the 110 finalists announced today, 108 are from the US, one is from Russia and one is from Israel. 78% of the finalists are from Massachusetts, 84% are from New England, with others from various states across the country. 14.6% are in the Energy and Clean Technology industries, 46.4% are High Tech, 19.1% are in Life Sciences and Healthcare, 8.2% are Social Impact companies, with the final 11.8% from general business categories.

The final group of entrepreneur teams will work from ONE Marina Park Drive at Fan Pier on Boston's new waterfront to maximize networking and mentorship opportunities during the intensive three-month accelerator phase of the competition. During this phase, MassChallenge sponsors, partners and supporters will provide one-on-one mentoring and free resources, strategic advice, and targeted introductions to potential customers and funding sources as the finalists work towards winning the competition. Ultimately, between 10 and 20 winners will receive cash awards of $50,000 to $100,000 toward launching their high-impact businesses. These MassChallenge grants will be awarded to winners in October 2010.

With Fan Pier’s proximity to downtown Boston, Cambridge and the surrounding communities that are home to local innovation and corporate visionaries, it was a natural fit for MassChallenge to have their home base at Fan Pier. "Our new office building - ONE Marina Park Drive - is the perfect backdrop to host this global program and our amenities at Fan Pier will benefit everyone during their experience with MassChallenge," said Joe Fallon, President and CEO of The Fallon Company. "The elements that foster entrepreneurship are definitely all right here."

The State of Massachusetts pledged $500,000 through the collaboration of various aligned quasi-governmental organizations dedicated to bolstering entrepreneurship and innovation to help launch MassChallenge and keep the competition local, while helping to extend its reach world-wide. Additional funding and support was secured from multiple sponsors including Microsoft, the Winvest Group, the Deshpande Foundation, Mass Tech Collaborative, The Fallon Company and The Blackstone Charitable Foundation.

“These MassChallenge finalists further demonstrate the Commonwealth’s ability to ignite and excite the entrepreneurial spirit at an international level,  said Massachusetts Secretary of Housing and Economic Development Greg Bialecki. “This competition will further ignite entrepreneurial activity in Massachusetts, create long term, sustainable jobs, and move the state’s innovation economy forward.”

 A few years ago, three young enterpreneurs  looked at me with amusement across the table at Starbucks :  "We don't need a stockholders' agreement.  We've been friends since college and this venture has been our dream for a couple of years."
 
"It's not a destructive thing," I said. "It anticipates and solves issues in advance, setting expectations and keeping the partnership stronger."   After some discussion, the enterpreneurs agreed, and signed an agreement.  Only a few months passed when I received a call from one of the partners -  he wanted out.  His fiance was accepted in med school, and he needed a paying job, so he joined a major consulting firm.  In the process, he forfeited most of his founders' stock, enabling the remaining partners to offer some of those shares to a new recruit hired to "plug the hole" that the departing enterpreneur left. The stockholder agreement provided the roadmap, and the company survived with minimal pain.
 
This story has a happy ending, but  some  others do not.  Business partnerships, like marriages, start out with passion, but  sometimes end in disappointment. Denial of this possibility can lead to disastrous results.  It's far better to anticipate possible issues in advance and create a structure for resolving them in a constructive manner.  Here are some suggestions.
 
-- Make sure that all IP is assigned to the company.  Quite often there are ideas, trade secrets and even patentable inventions that are developed during the earliest stages of a business, as founders brainstorm about markets, applications, processes, etc.  The legal entity is generally formed later.  All founders - and anyone else involved in the venture, be it informal consultants, advisors and even girl and boyfriends who had access to IP - should sign an Assignment and Nondisclosure Agreement. Just remember: if anyone can prove that an invention was not properly protected as a trade secret - as in being freely discussed with friends and advisors - can invalidate ownership rights.
 
-- Develop a thoughtful equity allocation plan. Not all founders are equal.  Each brings different values to the table.  If one founder is perceived as getting more equity than he deserves (probably true for the finance guy in my story), the resentment will fester, and ultimately undermine the relationship. Look at long-term needs and capabilities, and apportion equity based on aggregate expected contributions.
 
-- Tie stock ownership to meaningful milestones. Some founders - such as the inventor of the fundamental technology - bring significant value to the venture at its very conception. Others bring capabilities  - such as finance, marketing - that might be more relevant in the subsequent evolution of the company.  Issue stock to all founders, but subject them to restriction ("vesting") based on the timing of the value creation expected by each founder.  Then, if someone leaves the venture before she contributes the expected value, her shares would be forfeited - and available to her replacement who will need to produce the specific value that his predecessor did not deliver.  For example, issue 30,000 shares each to the inventor and the finance person, but provide that the inventor forfeits 15,000 shares if she leaves within one year, whereas the finance person forfeits 25,000 shares.  Both founders must continue to build value after receiving their shares, but more of that value may be "on the come" for the financial founder than the inventor.
 
-- Incorporate reasonable two-way termination clauses in the Stockholder Agreement.  Both company and founders need to be protected against unexpected events: personal and financial circumstances that require a founder to move on; disappointing performance;  lack of compatibility among founders; or demands by angels or VCs that a heavy hitter be substituted for one of the original members of the management team. Proper safeguards, including both fair descriptions of various termination events and fair procedures to determine consequences, not only minimize conflict when someone departs, but also set a a constructive atmosphere for the enterprise.
 
-- Remember the impact of dilution.  If one founder leaves after a series of additional shares were issued to management, angels and even VCs, the percentage of equity that his forfeited shares represent is effectively redistributed to all other stockholders.  This might come as a surprise to the remaining founders, who may have expected the return of the forfeited shares all to themselves. There are solutions to this problem, though they're somewhat awkward.  Of course, keep in mind that any shares (or options) subsequently issued to the person replacing the departed founder would also come out of all shareholders' hide.
 
-- Don't reinvent the wheel.  All of these issues have been addressed and solved many times over.  While no agreement is perfect, a well-written set of documents reflects the accumulation of many years' worth of experiences, and balances simplicity (and cost) against covering each and every contingency, however remote.  Create a roadmap that's clear and accurate - but avoid specifying every possible sidestreet or detour.
 
No one expects a romance - whether in personal or business life - to end in conflict, though  some  do. And no one should create conflict by obsessing about the "what -ifs" of a possible breakup.  Thoughtful planning enhances and strengthens the relationship and avoids many of the pitfalls of a possible split-up.

By Gabor Garai. Gabor is a venture capital and emerging technology attorney practicing in Boston. He is chair of the Private Equity and Venture Capital Practice of Foley and Lardner, a national law firm that ranks #1 in BTI's survey for delivering superior client service and value. www.foley.com

The views expressed in this posting are those of the author and not necessarily those of Foley & Lardner LLP or its clients.

Difra Inc, a Boston-based start-up and MassChallenge entrant, joined Secretary Greg Bialecki and Mayor Menino, to unveil its seven-day installation: 'Cottage on the Greenway'. The purpose of the cottage is to display how Difra's new technology works. And as a nod to Innovation Month in Massachusetts, Difra Inc. was selected to showcase its construction technology and highlight the growing innovations in the City of Boston.

The 'Cottage on the Greenway' will be created using the Difra system, a computer-aided design and manufacturing software (CAD-CAM), as well as Difra products. Difra homes, in comparison with traditional home-building methodologies, can be assembled in hours, use only recycled and sustainable products, cutting costs by 25%. The design possibilities, time and cost savings, and the reduction in environmental impacts contribute to a system and product with the potential to revolutionize the home-building market.

The Difra system is the culmination of three years of research into automated construction by Difra's founder and CEO Lynwood Walker. The 'Cottage' will be built throughout the seven day showcase, and will be located on the Wharf District parcel of the Rose Kennedy Greenway in front of Rowes Wharf.

The seven person Difra team is lead by CEO Lynwood Walker, an MIT grad and originally from a small town just outside New Orleans. Other members include CFO and MIT alumnus Morris Cox and CTO Steve Hershman.

"What we have created is the next level of pre-fabricated housing, with endless design possibilities. We believe that in providing an unmatched range of design options in a cost effective and environmentally friendly way, everyone wins and we propel the industry forward. We are very excited that the capabilities of our product are being highlighted in such a public way," said Lyn.

We'd like to congratulate Difra, Inc on their launch and hope to share the success of many new startups in the months ahead!