If women are to have an opportunity to lead high-growth companies, they need access to venture capital financing. For years, this has been a problem. However, the recent trend is encouraging: Companies with at least one female founder represented 13 percent of all VC deals through the first half of 2013 compared with just 4 percent in 2004.
I asked Ethne Swartz, chair of marketing and entrepreneurship at Fairleigh Dickinson University's Silberman College of Business, about this trend and what women need to do to ensure it continues. When I caught up with her, she was preparing her presentation for an event called Demanding a Seat at the Table--Strategies and Processes That Affect Women Entrepreneurs Who Negotiate Risk Capital, based on research conducted with Frances Amatucci and Susan Coleman.
Swartz cites three factors responsible for the sea change we've seen thus far and steps women and society at large must take to keep up the momentum.
First, how we got here:
- Education: In the 1980s, women started getting professional education. High-growth companies predominantly originate in scientific or technical fields, so training in STEM is essential, as is business school education. In the decades prior to the 1980s, women-owned businesses were restricted to the areas in which women worked due to prevailing social burdens--for example, retail, dance, translation services, and cosmetics and beauty.
- Social networks: In the 1990s, changes in the social networks of women entrepreneurs began. As women engaged more with men in school and subsequently in business, their social networks became more diverse. This was critical in allowing women to break into the heavily male-dominated worlds of growth-business management and, subsequently, high-risk capital financing. Participation rates by women as angel or venture capital investors still lag those of men and the latter change should not be overestimated. This huge disparity remains a challenge for women, despite some recent gains in the area of e-commerce.
- Women-focused groups and programs: In the 2000s, some farsighted individuals began to ask how there could be so many highly educated women in diverse social networks, and yet so few in leadership positions in growth companies. Springboard Enterprises is just one group that made a point of correcting this problem by teaching women how to negotiate high-risk capital and providing the education required to win a seat at the negotiating table.
We are now seeing the results of major movements over the last 30 years. Of course, these would not have been possible without the equality movement of the 1960s and the changes in the education of women that have marked the 20th century. Women today owe a tremendous amount to those who have gone before them, women who paved the road but did not get to see the final destination.
What about the next 30 years--how do women maintain the trajectory? Swartz, Amatucci, and Cole advocate using research outcomes that show the importance of knowing how to negotiate:
- Meticulous preparation: Negotiating for access to capital is a high-stakes game and before sitting at the table an entrepreneur has to be as well prepared as possible. This means understanding the mindset of negotiation opponents, and knowing the language of bankers, angel investors, and venture capitalists. Advance planning is essential and if the entrepreneur lacks the technical understanding of deal structures and company valuations, she has to build a team approach so that she can source that capability. Of course, it goes without saying that the entrepreneur should assemble a complete a set of documents, including a business plan, financial statements, deal structure information, and industry forecasts long before she even considers talking to potential investors.
- Know how to negotiate: Entrepreneurs must be brutally honest about their weaknesses in the area of negotiation and seek out training. Swartz adds that current research consistently shows that investors still appear to favor male pitches for funding; women entrepreneurs who were most successful in raising funding and retaining equity when they negotiated for venture capital used a male negotiator as part of their team. Clearly then, rationally, this factor should be considered when fielding a team to negotiate a very important deal.
- When raising risk capital, the industry matters a great deal. Swartz, Amatucci, and Cole found that women entrepreneurs who launched either biotechnology or internet-related firms had a greater likelihood of raising the funding they were seeking to build or grow their companies. These growth industries present the most attractive harvest opportunities and investors are therefore more likely to fund opportunities where clear growth paths and exits are evident.
And society as a whole needs to invest human, social, and psychological capital in women:
- Human capital: Women must obtain the skills they need in business and technical fields. Encouraging young women to pursue STEM fields has never been more important. We are in a scientific education boom and the highest growth companies will be those that can effectively apply new discoveries and rapidly monetize them. STEM disciplines are hard work, and obtaining advanced degrees in STEM takes great dedication. Women need to recognize that STEM got them this far, and the only way to continue is with even more STEM.
- Social capital: Women have benefitted from their untiring work in advocating for diversity in every facet of life. Diversity is required to keep social networks dynamic and current, and to maintain a pulse on the ever-changing business landscape.
- Psychological capital: Women must resist the temptation to become comfortable, lest they become content. Women must continue to seek stretch experiences and to stand on the edge, to keep reaching and challenging themselves.