Why a Women’s Economy Will Win
With women-owned companies reaching $1.8 trillion in revenue in 2018, the business case for investing in women makes itself.
When I worked on the advertising side of media as a creative director, part of my job was contracting talent for production. Our hiring needs would vary based on the advertiser and the concept, but new talent meant new paperwork, so my management encouraged me to work with vendors who were already in the system.
Following #AskHerMore, the viral movement calling out sexist reporting on the red carpet, I was producing a campaign for a major beauty brand. Hiring our typical camera guys to shoot a beauty campaign about women speaking their minds just didn’t make sense. This was work for an all-women crew. But in nearly a decade of working in advertising, there were virtually no women photographers in my direct network. I couldn’t find an available female photographer in time and, with self-loathing, I ended up hiring a guy I’d worked with in the past. After that, I vowed never to come up empty-handed again. A few months later, I started The Why Women Project, a talent collective of creative women for hire.
From commercial shoots to the boardroom, talented women often get left behind in the business world — particularly in the C-suite. In the last decade, some of those women have stopped waiting for their turn to lead — by becoming a fast-growing segment of entrepreneurs. So why are women-founded startups only seeing 2.2 percent of venture capital, and what’s being done about it?
To explore the funding options available for women entrepreneurs, I talked to two VCs who are investing in women, and the CEO of iFund Women, an alternative crowdfunding platform.
In the process, I discovered an ecosystem that provides critical support to ventures like mine — and the many factors that impact this new women’s economy.
How a women’s economy leads to parity and profit
Women start 1,821 new businesses in the U.S. per day, according to the American Express-commissioned 2018 State of Women-Owned Business Report. In 2018, 47 percent — nearly half — of all women business owners were women of color, the highest-accelerating segment of women entrepreneurs from 2007 to 2018.
Some of these women — language I’m using to include cis- and trans-gender women, as well as non-binary people — are creating what I’ll call a women’s economy, a not-totally-new but growing ecosystem of women doing business with each other. I know this because I see it every day, because I’m building one myself — and so are the women in my community. A women’s economy is the powerful idea that more women thrive when they work with and give their business to other women.
The ideal women’s economy thrives from a constellation of key players, including businesses, vendors, VCs, and consumers. Male allies can participate in all categories. It works like this: When women-owned companies like Unbound and Shiffon Co. partner with my company, Why Women, they’re entrusting a women-led team of creatives to tell a piece of their brand story to an audience of women who deeply resonate with their products. The resulting ecosystem is a network of women starting businesses, hiring each other, shopping each other’s brands, and ultimately, funding women-led ventures.
Filling the VC gap for women
An emerging women-powered ecosystem of businesses and consumers should offer all the ingredients for a women’s economy to thrive, right? Well, not exactly. Remember, just 2.2 percent of venture capital went to women-led businesses in 2018, and for women of color, that number is even smaller.
Lack of credit for a business loan can be a roadblock for early entrepreneurs — particularly black women business owners. The Federal Reserve System compiled a Small Business Credit Survey of minority-owned businesses in 2016 and found that black business owners’ greatest financial challenges were access to credit or funds for expansion, at rates roughly double those of non-minority business owners. With all these challenges, where can women go to get their businesses off the ground?
Karen Cahn is founder and CEO of iFundWomen, a crowdfunding and coaching solution specifically designed to help women-led businesses fundraise. I met her at the women’s co-working space The Wing after iFundWomen approached me about using the platform to crowdfund The Why Women Project. Cahn says crowdfunding isn’t just an alternative funding model. For most entrepreneurs — the majority of whom will never receive VC funding — it may be the only funding option.
From the Federal Reserve’s survey of small businesses, more non-minority owned companies report receiving full financing than minority credit holders who are approved. What’s more, significant numbers of minority business owners feel discouraged from borrowing at all because they believe they won’t be approved. Black business owners are less likely than Hispanic, Asian, and white business owners to apply for credit, according to the survey.
“You can either run up your credit cards, try to take out a bank loan, which is very hard to do [without proven profitability], or try to raise a round of venture capital, which is extraordinarily hard to do. So there’s really no other option for a debt-free way to fund the early days of your startup,” Cahn says in favor of crowdfunding.
The U.S. VC market raised nearly $100 billion last year, with women entrepreneurs receiving—here’s that number again—2.2 percent of that capital. With the staggering growth and economic impact of women-owned businesses — 9.2 million jobs created and $1.8 trillion in revenue — investors should be sprinting to fund more women and gender-diverse founding teams. But equal access to capital is still a massive barrier for women-owned businesses, as well as equal access to counseling and training, according to multiple sources, including the 2014 report (the most recent) from the Senate Business Committee on Small Businesses and Entrepreneurship. Interestingly, Boston Consulting Group found that startups with women founders ultimately deliver higher revenue than those with male founders — and still receive less than half as much VC funding.
After using other rewards-based crowdfunding services that didn’t offer fundraising strategies or coaching, Cahn, a former Google head of sales, collaborated with a small team of women to develop iFundWomen.
“There’s no magical money elves on the other crowdfunding platforms,” Cahn says. “When people do a crowdfund, they pull a number out of thin air. They don’t know how they’re going to get there. And the failure rate is higher.”
Pouring their learnings into the product over two years, Cahn and her team came to offer more than crowdfunding alone on their platform. iFundWomen’s coaching covers pitching, a network audit, an incentive strategy for donors, and marketing, including video production for a crowdfunding campaign.
The lack of access to community is a further barrier to successful fundraising, says Cahn. I know that from experience. If I was struggling to find funding as a female founder with white privilege, what do founders without privilege and community access do?
Tap who they know. For entrepreneurs who don’t or can’t access venture capital, Cahn says a strategic way to crowdfund is to project a number based on your professional and personal networks and how much you know you can raise with their support. This kind of mentorship is what iFundWomen’s coaching clients pay for.
Profit, privilege, and inclusion
Black Women Business Startups, a report from the Federal Reserve of Kansas City, surveyed 34 black-owned businesses in seven Southern and Western U.S. states whose female founders reported an array of positive and negative motivations for starting a business. On the positive side, passion and opportunity; on the negative, poor treatment, feeling undervalued at work, and general workplace dissatisfaction.
John Henry is a venture capitalist for Harlem Capital. The minority-owned firm prioritizes funding early-stage companies founded by women and people of color, including startups like Blavity, a digital media company serving news and culture content to black millennials, and Aunt Flow, a tampon supply partner of corporate brands giving employees access to menstrual products for free.
Henry cites the spending power of the audiences his firm’s portfolio reaches: minority and women consumers. “Every year there’s more and more capital allocation going toward groups that have previously been ignored,” he says.
“Women and minorities are the majority of the population and we are controlling the spend, especially as we become the largest segment of the working population,” he says, noting buying influence in the corporate workforce and household.
Harlem Capital’s investment in women-owned businesses is at 45 percent at the time of this publication. The firm’s staff is 50 percent women, and while Henry and his three other partners are men, he says he would like to bring on a partner who is a woman.
“The business case for it is the capital allocation is increasingly going toward women, so it’s either you get on board, and bring on women VC partners, and increase your investments in women proactively, or you don’t and you get left behind,” Henry says of the upward growth of women-owned businesses. “It’s not only not slowing down — it’s accelerating.”
Opening the doors to new talent and first-time founders
Stacy Cumberbatch is a principal with Quake Capital Partners, a seed-stage fund and accelerator program named by Crunchbase as the Number-Two Seed Investor in Female-Founded Startups in Q2 2018. Quake’s Los Angeles office, where Cumberbatch is based, invests in 40–50 percent women-led or gender-diverse companies. In her role, Cumberbatch handles deal sourcing, helping to steer investments in companies like the female-founded City Grows, or companies like Trainers Vault and Fleeting, which were founded by men of color.
She attributes Quake’s diversity to a vetting process that goes outside the norm for how deals are accepted and evaluated. Cumberbatch says that while investors at the seed stage commonly weigh a founding team’s experience and credentials first, Quake ranks traction as the highest decision criteria. In other words, they don’t blindly reward seed-stage startups who are already in The System. In theory, prioritizing traction over prior experience allows new talent and first-time founders in the door.
“This really provides a more level playing field where founders are evaluated by the metrics of their business above anything else and opens up our pipeline of investment opportunities beyond just who may know us or can get a referral,” Cumberbatch said. “Everyone has to apply online to be considered and our application leads with traction-indicating questions to advance to the next round.”
Another success metric that sets Cumberbatch’s firm apart for inclusion? Women and diverse staff in leadership roles from managing partners to associates, across all Quake’s locations, which also include New York and Austin.
“That also reduces any biases in our selection committee beyond what our thesis may account for. For any VC that wants to increase their investments in diverse and untapped markets, I’d say providing that access and engaging with those communities via talks and deal sourcing differently to include niche initiatives or accelerators would be key,” Cumberbatch said.
Driving the women’s economy forward
In the beginning, it takes conscious effort to establish a women’s economy. To build an infrastructure that truly supports women, you might need to create a new system — from scratch, designed to include women, starting from the top. This is the part people say is “hard” — what they mean is it’s extra work. If you run a business, or you’re in a position with hiring influence, you’ll make purposeful hires that deliberately include women. For that to happen, you’ll need to first go the extra mile to vet job candidates who represent a diverse range of women. You’ll take the additional time to seek out, hire, or shop with women-owned vendors for professional and personal purchases. If you’re one of 11 percent (recently up from 9 percent) of women VCs in the U.S., you’ll need to take the extra steps to vet and invest in gender-diverse and female-founded teams.
This will be a commitment because the talent pool might be smaller, the vendor options fewer. But including women will get easier the more you do it, because when women are in positions to hire or make a purchase decision, they’ll think of your business.
Once women-led startups fundraise and get off the ground, Cahn says, they go on to hire women, her own company included. If we all participate, the virtuous cycle thrives.
“Women make 80 percent of the household purchases in the United States. … we decide what gets purchased. We are the economy. We drive the economy,” Cahn said. “The script is already flipped on our buying power, we’re the ones that are buying all the stuff. Now we’re trying to flip the script on who is profiting on the stuff that we’re buying.”
When women create systems designed to benefit women, they get what they’ve always been seeking in their careers: higher levels of leadership, flexibility, and the empowerment to do business with women whose visions they believe in.
Cristina Cala is a writer and the founder of Why Women, a member community and creative collective of women for hire. Her career spans a decade in media, advertising and tech with previous roles leading content and teams at Time Inc., Condé Nast, career startup Ladders, and in daily news. To join the women’s economy, support The Why Women Project on iFundWomen.
Original art and infographic by Molly Knutson.
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