By Geri Stengel
Access to the American Dream shouldn’t be limited to young white men who drop out of colleges and wear hoodies. It should be available to women who have the business experience to build empires.
The way it used to be
Leonora Valvo is an example of what has got to stop. Even with a track record of starting and running two multi-million-dollar businesses in the travel and event industries, which she bootstrapped, it took Valvo 18 months to get past the 20-something male gatekeepers at venture capital firms to raise $2.75 million for etouches, a cloud-based events software company. Now, because she knows angels and VCs, she has more quickly raised money for her latest venture, insightXM, which uses big data to improve experiential events from the perspectives of all: the attendee, event producer and sponsor.
Unfortunately, Valvo’s experience has been common. VCs fund those who look and act like them. Since access to adequate capital to start and grow a company is critical, this has handicapped experienced women. Undercapitalized companies have lower sales, lower profits and generate fewer jobs. Yet, even though women-led companies deliver a better return on investment, these companies start out with 50 percent less capital than all male teams, according to Sources of Economic Hope: Women’s Entrepreneurship, a report by the Kauffman Foundation.
Opportunity knocks, but women are slow to answer
A new route to funding is opening up so entrepreneurs like Valvo won’t have to battle sexism and ageism.
Title II of the JOBS Act created a new funding source with the potential to level the playing field for women entrepreneurs: equity financing for companies that are publicly raising money. “Crowdfunding will enable qualified entrepreneurs, both men and women — and particularly women — to raise capital from their community of historic relationships (i.e., people who know, respect and trust them) in a more efficient and transparent manner than previously available,” said Douglas Ellenoff, partner, Ellenoff Grossman & Schole, a leading securities and crowdfunding law firm.
Yet, only 17 percent of companies that raise money publicly through crowdfunding have women on the founding team, according to Crowdnetic, which maintains an equity crowdfunding database.
Crowdfunding neutralizes gender differences
Paige Cattano and her cofounders are passionate about making it easier and less costly for local merchants to market. Wonder Technologies has developed patent-pending technology that enables credit cards to be used as gift cards by any merchant. Wonder successfully raised a few hundred thousand dollars from angels privately. Then it raised a follow-up round of capital publicly through crowdfunding.
Cattano read everything she could about pitching. Everything she read recommended an aggressive style, which was not hers, and probably not the style of most women.
Crowdfunding neutralized the stylistic differences of the initial pitch. With crowdfunding, you do a big push through online marketing, social media and networking to drive people to the crowdfunding platform, but your online marketing material (company description, bios and video) do the initial pitch. Honing their marketing message upfront was critical.
The crowdfunding campaign provided a methodical and focused approach within a concentrated period of time to work existing connections and their connections. The vast majority of investors — 90 percent — were people the Wonder cofounders knew or knew people they knew.
Women drive social conscientiousness
The best entrepreneurs scratch their own itch, said Paul Kedrosky, senior fellow at the Kauffman Foundation. User-entrepreneurs — that is, those who start a company to fill a need they have themselves — have a much higher survival rate than other startups, according to Kauffman Foundation research.
Amy Cross has an itch: She’s passionate about creating a fair and just world for women. She believes many women feel as strongly about social justice as she does. Women are the more philanthropic and socially responsible gender. Cross wants women to be an even more powerful force for good by helping them use their purchasing power (women make 80 percent of consumer purchase decisions) to buy products from companies that operate in women-friendly ways. BUY UP Index rates parent companies of consumers’ favorite brands in four categories:
- Gender diversity in the boardroom and C-Suite
- Workforce practices, such as maternity leave or flexibility and leadership programs
- Philanthropy and corporate social responsibility
- Advertising and marketing that portrays inclusiveness
She’s also developing an app so consumers can check corporate brand ratings when they’re shopping. Top-ranked companies can reach these activist consumers by making special promotional offers. A consumer can reach out through the app and send emails to companies with a poor rating, telling the company exactly why she will no longer buy its products. Cross is now seeking to raise money from her crowd as a way of demonstrating that consumers are willing to pay for her service even before the service is available.
Crowdfunding provides visibility, connections and loyalty
When an investor buys shares in a large company, it’s not a given that she will become an evangelist for it. All she wants is a return on her investment. She may or may not buy its product. But Cattano found that Wonder investors became the company’s best customers. They also became salespeople, spreading the word about Wonder gift cards far and wide.
Women are already proving that they have social capital that converts to real capital via another form of crowdfunding, rewards-based, which has been around for six years. Instead of getting shares in a company for your money, you receive a tangible item or service.
Women made up about 35 percent of the project leaders and 44 percent of the funders on Kickstarter in research conducted by Hebrew University, Kauffman Foundation and the University of California, Berkeley. Women had a 70 percent success rate in getting funded versus 61 percent for men, with further analysis showing that it was not the women’s more modest financial goals that accounted for their higher rate of success.
What’s needed for equity crowdfunding to achieve the success rates that rewards-based crowdfunding has achieved among women? Education.
Equity crowdfunding can be a game-changer for women, but only if women entrepreneurs know if it is appropriate for their companies and how to do it. Providing tools, insight and training is key. Help is on the way.
Geri Stengel is president of Ventureneer, a digital media and market research company that helps corporations reach small businesses through thought leadership. Her book, Forget the Glass Ceiling: Build Your Business Without One, provides women entrepreneurs practical advice for overcoming the barrier they face. Join her in her fight to fixi both sides — women entrepreneurs and investors — of the of women entrepreneurs equation: THE VENTURE CROWD: Everything Ventured, Everything Gained.