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Women-led businesses need more capital, says SMG prof
By David J. Craig
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Candida Brush Photo by Kalman Zabarsky |
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Venture capitalists want returns, plain and simple. So naturally, says
Candida Brush, they don’t intend to discriminate on the basis of
gender when deciding which entrepreneurs to finance.
No wonder their jaws drop when Brush, an SMG associate professor of strategy
and policy, explains to them that women, despite owning 28 percent of
U.S. businesses, receive less than 5 percent of venture capital funding
in this country.
“
Most venture capitalists are surprised to learn that the disparity exists,
in part because the National Venture Capital Association has never parsed
its data to look at gender,” says Brush. “The assumption
is that everybody has an equal shot at funding and that investment decisions
are based purely on the quality of business ideas. Any venture capitalist
you talk to will say he doesn’t care if somebody is purple, because
all he wants is a good deal.”
So why do women receive only a tiny percentage of venture capital, and
what can be done to fix it? Those questions are addressed in a recent
paper coauthored by Brush entitled Financing High-Growth Enterprise:
Is Gender an Issue? which appears in Critical Junctures in Women’s
Economic Lives, a book of symposium papers published this summer by the
Minnesota-based Center for Economic Progress. The report summarizes the
findings to date of the Diana Project, a multi-institutional research
and outreach effort formed in 1999 to examine the growth of women-led
businesses. The other authors are Brush’s fellow Diana Project
members Nancy Carter of the University of Saint Thomas, Elizabeth Gatewood
of Indiana University, Patricia Greene of the University of Missouri
at Kansas City, and Myra Hart of Harvard.
The disparity in access to private equity between businesses led by men
and those led by women, the paper argues, is largely the result of male-dominated
social networks that inadvertently keep women from meeting powerful figures
in the venture capital industry. By mapping the gender composition of
the industry in 2000, Brush and her colleagues found that women constituted
less than 9 percent of the people employed and only about 6 percent of
those who typically make the investment decisions. Because businesspeople
tend to deal with colleagues similar to themselves, they write, women
get locked out of “the social networks so critical to gaining access
to the financial resources, advice, coaching, and technical expertise” necessary
to bootstrap their young businesses.
The findings are based, in part, on interviews the Diana Project conducted
with dozens of women entrepreneurs and venture capitalists in the Silicon
Valley. “Women told us that they have trouble getting in the door,
and they have trouble finding the right people to talk to,” says
Brush. “That process is made especially difficult by the fact that
the venture capital industry is an extremely tight community, in which
a very large percentage of professionals went to a small handful of schools
and everybody seems to know everybody. Based on our case studies, I don’t
think outright discrimination against women is the major issue here.”
Helping women get better access to equity, the paper points out, would
benefit the U.S. economy and expand the venture capital community’s
investment opportunities, as well as help women grow their businesses.
To that end, the paper recommends that venture capital firms sponsor
forums to showcase women entrepreneurs and link them with potential investors,
track the performance of investments across the industry by gender, encourage
investors to seek out women-led companies, and encourage women to participate
in the investment process.
Brush admits, however, that “subtle misconceptions” exist
among some venture capitalists that may cause them to hesitate to seek
out women-led businesses. Chief among them is the belief that few businesses
led by women are in the “high-growth” sectors that venture
capitalists typically fund -- such as high-tech, software, telecommunications,
or biotech. Brush and her colleagues refute this in their paper, pointing
out, for example, that a series of forums organized since 2000 by Springboard
Enterprises, a nonprofit that showcases women-owned businsses to the
investment community, has spotlighted several thousand women-led businesses
in those fields, which has led to $408 million being raised for 26 ventures.
“We’ve systematically looked at this question,” Brush
says, “and
we’ve found that there is a substantial pool of women out there
who have corporate experience, technology expertise, and the drive to
run so-called high-growth businesses.”
Currently, the Diana Project is conducting a longitudinal study examining
how successful women entrepreneurs navigate the complex social networks
of the venture capital world. “We want to understand exactly how
some women get chauffeured through that network to find investors, whether
with the help of a lawyer, an accountant, a banker, or a friend,” she
says. “One interesting thing we’ve found is that women are
beginning to develop their own social networks for this purpose, but
we’re not sure yet if this new infrastructure is well-integrated
into the social networks of the larger venture capital industry, or exists
outside of it.”
One thing for certain, Brush says, is that as long as the economy is
struggling, women entrepreneurs will have difficulty finding venture
capital, perhaps more so than most business owners. “Since the
market crashed, venture capitalists have been sitting on a lot of uninvested
money, and when they invest in anything, it tends to be in companies
already in their portfolios rather than in new businesses,” she
says. “Because women have had difficulty getting into the VC networks,
I don’t think many women-led businesses are in those portfolios.”
17
October 2003
Boston University
Office of University Relations