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By Leah Kinthaert
A handful of studies now suggest that we may see a mass exodus of women from the corporate world who have decided to chart their own C-Suite paths by founding their own companies. These women are deciding to – as Dr. Monique Johnson recently articulated so aptly – “move out in order to move up”. For example, data from the consulting firm REAL shows that: “among millennial female entrepreneurs, nearly 90 percent left their job in the corporate world to start their own business… 45 percent said that they were underpaid, 43 percent believed that they were overlooked for a promotion”. In 2016, Deloitte researchers asked 7,700 millennials if they expected to still be at their companies in 2020, only 16% of them said yes. Millennials are set to make up 75% of the workforce by 2025, so this is significant. Add to that research about women who now “have equal, if not slightly greater, ambition than men” to move into top roles ranging from VP to the C-suite” but statistically are not finding these opportunities in their corporate careers. Geri Stengel compiled several eye-opening stats about the growth of female founders back in 2016 – and this one may be the most compelling: “Companies run by women are entering the middle market ($10 million and $1 billion) at rates eight times businesses in general.”
Although women only received 2.3% of total capital in 2018, it’s growing. Female co-founded companies got $500m in 1st Q 2008 compared to $4.5B in 1st Q 2019. Pitchbook tells us that: “More capital was invested in companies founded or co-founded by women in 4Q 2018 than in any other quarter in the past decade.” A well-publicized study from last year that found that when women applied for investment, they received less funding compared to the average male founder, but made double the revenue. “The future is female” is no longer just a feminist political slogan, it has become investment advice.
Melissa Withers, Founder of Rev Up Capital had this to say to Pitchbook about investing in female founded companies, and I think the prediction she makes can be applied to more than just VCs, but to the corporate world in general: “We won’t just copy the boys’ playbook. Those who cling to the old models and ignore this shift will lose more than money—they’ll lose mind share, talent and access to the best of the best!”
I interviewed VCs, business consultants and female founders to ask them if they too anticipated any sort of mass corporate exodus of talented women. I also asked them what predictions they had for female founders over the next 10 years. The group includes: Trish Costello, Founder and CEO, Portfolia; Elizabeth Yin, Co-Founder, Hustle Fund; Cynthia Jaggi, Co-Founder & Partner, Living Economy; Klaudia Bachinger, Founder & CEO, GrowWisr; Kati Schmidt, Founder, Piña Colada; Anna Anisin, Founder, Formulated.by; Lindsay Tabas, Product-Market Fit Expert & Startup Coach, LindsayT.com; Nathalie Molina Niño, Founder BRAVA Investments, Author LEAPFROG, The New Revolution for Women Entrepreneurs; Allyson Kapin, Founder, Women Who Tech and Jenny Abramson, Founder and Managing Partner, Rethink Impact.
Nathalie Molina Niño, Founder BRAVA Investments and Author LEAPFROG, The New Revolution for Women Entrepreneurs answered my question “Will there be a mass exodus of talented women from the corporate world?” with a resounding “Yes”. Molina Niño explains: “I don’t have to wonder, we’ve already seen it. In 2009 US the recession impacted most people, but it hit women of color hardest. It represented one of the greatest losses of wealth in recent history and the demographic that was hit hardest is now the single most entrepreneurial group in the nation, women of color. Necessity breeds ingenuity and women of color lead the way here. Whether it’s an exodus or mass layoffs, the result is the same, women leave places they aren’t welcome and become entrepreneurial. And when they do, they bring innovation and huge potential for economic growth. Growth that, but for a financial system that’s driven by irrational bias rather than maximizing value, would be the largest source of wealth and economic growth this or any other country has ever seen. Women, especially women of color, have been stymied by a system that works against them, so I for one am excited about what the exodus from corporate means. I think it’s the first sign that competent women, having learned and lived within the large organizations that did not serve them, are leaving to build their own. And do it right this time.”
Allyson Kapin, Founder of Women Who Tech hints that an exodus of talented women from the tech world in particular is certainly not far-fetched: “Today’s generation of women are strong, vocal, and want to work in a supportive culture where they will thrive. If women are not getting what they want from the corporate tech world they will either lean out of tech altogether and move into a different sector or launch their own startup where they can build their own product and culture. Having women lean out of tech means the tech world misses out on game-changing innovation.”
Jenny Abramson, Founder and Managing Partner of Rethink Impact had this to say: “At Rethink Impact, as a female-led, institutional-scale firm dedicated to investing in women, we spend a lot of time thinking about these issues, in particular, female entrepreneurs getting less than 3% of venture dollars. We created the Fund both to make an impact on an issue that, unfortunately, hasn’t changed in more than 20 years and because we fundamentally believe in the business opportunity. Firms who go from 0% to 30% female leadership see a 15% increase in net revenue; the data is similarly compelling as it relates to capital efficiency and valuations. We believe this is about diversity (not just gender diversity) at the top driving better decisions, hires, and beyond.
Movements are taking off in ways they haven’t before. The #metoo movement, TimesUp and AllRaise have had a significant impact and exposed flaws in the VC community which has, in turn, created opportunities. You frequently hear about a firm that’s never had a female partner, now promoting women to the partner level. Ultimately, venture is a pattern recognition business, especially at the earlier stages where less data is available on a company, so VCs often invest in the companies that look like them. Having women in senior roles at VC firms matters. In fact, female VCs are 2X more likely to invest in a female entrepreneur (vs. a male VC).
Another way to look at the future of this industry is to see where the money is going. Two-thirds of all US wealth is expected to be controlled by women in 2030 and millennials are expected to inherit $59 trillion between now and 2060, which could be the largest intergenerational wealth-transfer in history. Both millennials and women tend to care more about the makeup of the companies that they support – in terms of where they work, where they shop and where they invest their money (for example, more than 70% of women are reported to consider social or environmental impact as important to investment).”
“I am optimistic about female entrepreneurship in the next 10 years” says Kati Schmidt, Founder, Piña Colada. “Why? Because data shows that the representation cannot be much worse. Secondly, there has been an awakening in the startup world with more VCs discovering the need for diversity in their portfolios as well as a grassroots movement of female-led organizations and co-working spaces aimed at empowering each other. The same trend can be viewed in the corporate world. Successful women are tired of sacrificing their career and work-life balance. They want both or will decide to leave the hamster wheel.”
Cynthia Jaggi, Co-Founder & Partner, Living Economy agrees with this optimistic view: “Over the next ten years, female founders will continue to be on the rise. We will continue to see increases in the percentage of capital raised by female founders, as we become increasingly represented among those making the investment decisions (for example, currently only 8% of partners at the top 100 venture firms are women according to Crunchbase’s Women in Venture report).”
“The trend here is clear – the entrepreneurial landscape is shifting” expounds Anna Anisin, Founder, Formulated.by. “Though the barriers to starting a business remain high for women, we can expect more and more female founded businesses in the next ten years. And fortunately, the next wave of female entrepreneurs will be able to better take advantage of the recent cultural shift towards gender diversity and inclusion. With VC funds now earmarked for this, there are now better resources for getting a business off the ground. And the proliferation of female-first spaces (which I wrote about earlier this year in Forbes) provides a layer of support to new female entrepreneurs when they need it most.”
Trish Costello, Founder and CEO of Portfolia advises me to take a harder look at the data. Costello cautions: “The study you quoted ‘that when women applied for investment, they received less funding compared to the average male founder, but made double the revenue’ is the average, and the data is overlooked by the (mostly) male VCs as it doesn’t fit their view of what they think is true from their past expertise. But VCs work on ‘outliers’ not averages.”
“The stats about female co-founded companies you quoted getting ‘$500m in 1st Q 2008 compared to $4.5B in 1st Q 2019’ are true but incorrectly interpreted. You’re looking at raw numbers not percentages. The % of VC funding has not changed, but 2008 was in the midst of a recession, and 2019 is in the midst of a roaring economy. You must be smarter on your data so you come to better conclusions. There has been no meaningful change in the % of VC funding to women in the past 30 years — but when we’re in the middle of a bubble it can masquerade as such.”
Elizabeth Yin, Co-Founder Hustle Fund also warns me about jumping to conclusions using data: “So, it’s interesting regarding that stat about the total capital raised in 2018 and the percentage that went to female co-founded companies. In some sense, it’s actually a lagging indicator of the past 7 to 10 years. When you think about it, the bulk of funding dollars in any given year is largely skewed towards late stage investments. And that builds on a precedent from about 7-10 years back. So the funding stats that people tout are a reflection of the female-founded companies that received seed funding many years ago.”
Yin continues: “I think the right way to track progress is to look at the seed stage funding landscape today. In 2018, 20% of seed funding went to companies with at least one female co-founder. This number comes from Crunchbase. And, I actually think the 20% number is even an underestimate, because a lot of female founders tend to be more successful in raising money from the newer micro VCs or Angels and via crowdfunding, and the bulk of those funding dollars are not reported on Crunchbase for whatever reason. Just as one data point, if you look at my own firm Hustle Fund, 35% of the companies we’ve backed as a firm (77 startups in total to date) have at least one female founder. However, if you look at our Hustle Fund Crunchbase profile, only 16 companies are reported, and none of the ones reported have a female co-founder. So I do think there are more startups with at least one female co-founder being backed these days, and I’m quite optimistic for the future.”
Klaudia Bachinger, Founder & CEO, GrowWisr recounts her own experiences trying to raise capital. “What we see in German-speaking startup space, is that right now less than 10% of tech-based, highly scalable businesses are founded by women. It therefore does not surprise me too much that studies show women receive less funding while making double the revenue. I think we have to be careful to not confuse VC suitable business ideas with those that have a completely different funding path. But at the same time, I do know what it feels like to being told from institutional investors that our business model doesn’t seem to be scalable. (Which obviously is a misperception if you look at our market size and user growth.) And, I also know angel investors who advise against female founders and key hires because of the risk of pregnancy. The good thing here is, the further you get, the less you’ll have to deal with these discriminating judgements of certain investors. It’s just the numbers that count. What I hope for the future, is that there is more understanding for female founders among early-stage investors and an increase in female investors.”
Women often face sexist treatment and unwanted advancements from male investors. So it’s not surprising that 38% of female founders seek out female investors. Researcher Sahil Raina found that VCs with “female partners improve the chances of success for the female-led startups they finance” suggesting that those VCs “are either better at selecting women-led projects, or better at advising them, or both.”
Positivity and slogans aside, starting a VC backed company is not for the faint of heart of any gender. Trish Costello, Founder and CEO, Portfolia: “You should only attempt to start a VC backed company, if you have a passion and unique understanding of a space that is transformative. For a long while you will make less money and work harder than you ever will in a corporate environment. Now, if they’re starting a small biz, or a consulting operation that’s a different animal, but founding fast-growth companies is the professional sports of business.”
The sobering idea that the Founder grass is not greener is backed up by recent analysis which tells us the female founder experience may actually be worse than the experience many women leave behind in corporate jobs, with “particular barriers exist(ing) for women in entrepreneurship beyond those already faced in related fields.” But barriers can and will be broken, and at least one of the women I have spoken to in this three part series on Female Founders for LeadersIn have used those barriers as another tool in their toolbox to succeed. Leah Fessler very articulately summed up the situation in Quartz last year: “there’s power in realizing how hardship engenders iterative improvement, and ultimately, superior success.”
Cynthia Jaggi of Living Economy, Klaudia Bachinger of GrowWisr and Anna Anisin of Formulated.by all share a belief that the corporate world will have to adapt to the winds of change to retain women. Bachinger explains: “With talented women leaving the corporate world, companies will have a drastic increase in costs for sourcing and retaining talents throughout the entire enterprise. People want to work for socially and environmentally responsible employers and will always prefer those who embrace diversity. Furthermore, companies will see a decrease in innovation and creativity in teams, and as a result are likely to experience a decrease in customer happiness and retention due to products and services ignoring the needs of female customers. This is probably one of the main reasons why female entrepreneurs leave their jobs – they are not empowered to implement their own ideas for new products.
If company leaders want the ‘mass exodus of talented women’ to stop, they need to understand gender-based differences, embrace diversity, offer a more flexible and family-friendly working space, and, most importantly, create a collaborative and empowering environment up to C-Level.”
“As female talent migrates from the corporate world, we can look to the companies they found to focus on tackling challenges related to climate change and inequity”, says Cynthia Jaggi. “They will do so with solid revenue models and diverse, collaborative teams leading to better problem solving and higher profitability, as over a decade of research shows that female leadership leads to increased financial results. As female leaders we will continue to take our role as mentors seriously. As we chart our own path we will support the next generation in doing the same. If the corporate world wants to retain this talent, they will have to adapt and demonstrate greater support for women’s contributions.”
Allyson Kapin has a similar viewpoint: “In the next 10 years, the startup sector is going to continue to see a rise in the number of women-led and diverse startups. This is absolutely critical for innovation. If we’re going to solve the toughest problems facing local and global economies we need diverse founders at the table developing and launching products.”
Kapin continues: “To be clear this is not about altruism. It’s about solving problems facing society that will also generate trillions of dollars in returns for investors. The data shows that gender diverse companies are more like to outperform by 15% and racially diverse companies are more likely to outperform by 35%. Studies also show that women-led tech startups generate a 35% ROI when venture backed compared to startups run by all men.”
Using innovation to solve the “biggest issues facing this world” was the idea behind Women Who Tech’s Women Startup Challenge which began in 2015. Kapin explains why the Challenge was created: “When women launch their own startups, they face a lot more barriers than men raising funding. Currently only 2.2% of investor funding goes to women-led startups, a number that has not budged in the last two years. Also, according to our Women Who Tech survey conducted in 2017, about 44% of women founders said they were harassed. These challenges are the primary reasons we launched the Women Startup Challenge – to disrupt a culture and economy that’s made it exceedingly to difficult for women to raise capital.”
Anna Anisin believes that we will begin to see organizations create special initiatives to attract female candidates. She breaks down what we might see happen in the future: “Women may be leaving the corporate world to start business, but other women also join it every day. It’s not easy to be an entrepreneur and many lifestyle choices become next to impossible when you move into that role. So there will always be women joining the corporate workforce. But companies definitely don’t want to lose top talent, and they will eventually need to grapple with the underlying forces pushing talented women to leave corporate life. We can expect to see more generous benefits to women to help close this gap as well as expanded diversity and talent seeking initiatives in blue chip companies.”
“Women no longer want to tolerate corporate policies and environments that have held them back for years” says Jenny Abramson. “The good news is that men don’t want to tolerate these policies either. They want flexibility to have the lives and balance they deserve and to be the parents they want to be—and they know it makes them better at their jobs anyway. Therefore, companies that want to attract and retain the best talent are required to rethink how they structure work days and what kinds of flexibility and resources they provide. Whether that means partnering with companies like Werk.co (the first and only people analytics platform that helps companies build flexible cultures through data to ensure that all employees have the flexibility they need to be productive and, in parallel, increase their employer’s Net Promoter Score), giving employees benefits like FutureFuel.io (a fintech platform providing student loan repayment as a benefit to enable employees to tackle the more than $1.5T of student debt that is collectively owed in the US (Brookings, 2018)), or offering Spring Health (a mental health services platform serving employees at self-insured companies, helping them feel better faster), top corporate leaders are transitioning their businesses into places that allow people to bring their best selves to work. The combination of these changes and more examples of female-led companies seeing great success (think about recent female-led unicorns from Glossier to Rent the Runway to PagerDuty) are a great recipe for keeping the best talent, male and female, in the workforce. Of course, this is good for families and the economy, given the fact that the US economy would grow by 19% if women were to participate in the labor force at the same rate as men.”
Lindsay Tabas, Product-Market Fit Expert & Startup Coach, LindsayT.com offers several statistics to back up the idea that female founders are indeed the future of innovation. “These research reports about the abysmal amount of money female founders are unhelpful and lead the conversation down the wrong path. For women to lead the way, we need to work from our strengths instead of focusing on our weaknesses. For each of these negative signals, women hold strengths that inspire faith in me that they are the future of innovation: Women are more capital efficient which looks like a really good thing given the unpredictable economy; women-led private technology companies achieve 35 percent higher ROI and 12 percent higher revenue than startups run by men, according to the Kauffman Foundation; and lastly companies in First Round Capital’s portfolio that were founded by women outperformed companies founded by men by 63 percent.
Many women are not technical and that’s OK because they tend to start businesses that address a human problem versus building technology for the sake of technology. You no longer have to be technical to understand how technology solves a problem.
Women are incredibly coachable and open to feedback. In a 2018 study, researchers looked into imposter syndrome across all genders. They found that ‘female students with high imposter feelings responded to harsh feedback by increasing their effort and showing superior performance’. These women were unaffected by anxiety when accountability increased. Coachability is an important character trait when I evaluate startups for angel investment.
I believe we need technology that truly supports people so we can all design ourselves into the future. To that end, my primary mission is to ensure nontechnical founders (mostly women!) sell and design the right product before spending too much money building the wrong one.”
Trish Costello of Portfolia emphasizes that the female investor is essential for the growth and success of female founders. Costello explains: “Women for the first time EVER own the majority of wealth in America. The only way we’ll see change in fast-growth entrepreneurial ventures led by women is if women begin investing. If we can activate those women as investors, we’ll see change; if not, no change. Same with politics and other areas that require utilizing our money to activate power. VCs bring in small numbers of women partners, and when things turn down, they’re the first ones out. We’ll see no real change in financing women through the traditional systems of investing. These are small insular private operations that are mostly immune to outside influence. We’ll only see change when we change to own the opportunities and put up the wealth to fund them. As you might imagine, this is the mission of Portfolia.”
Nathalie Molina Niño shares Costello’s sentiment: “Women are already starting more businesses than men in the US, and 8 out of every 10 of those are women of color, so I’d say the future has a very real potential of looking bright. However, I am not holding my breath waiting for the existing banking and venture capital ecosystem to wake up and smell the vast economic potential that’s sitting there being left on the table. The data has been there for decades, unequivocally pointing to the fact that investing in women-led businesses improves investment returns, and yet the investment behavior hasn’t changed in any meaningful way. The only way the dial is going to move on this issue is if we take matters in our own hands. That means ensuring that the investors writing the checks look like the untapped, underestimated (to use Arlan Hamilton’s term) entrepreneurs that aren’t getting funded today. More women and people of color rising into the ranks of Venture, PE and banking is how this issue gets relegated to the embarrassing chapters of old history books.”
Female Founders: Will Their Ascent Change the Corporate World As We Know It?