U.S.-led studies show companies with women founders are returning 78 cents per dollar of investment compared to 31 cents for men. With this in light, why did women only receive 2.2 percent of venture capital funding in 2017? Some of the reasons include deep-seated bias and systemic oversight ignore the data that favor investment in female entrepreneurs.
To challenge this status, Epicenter is bringing this information to light and is actively investing in and supporting women in an effort to level the landscape and to see greater returns. Epicenter is establishing itself as the front door to the entrepreneur ecosystem in Memphis, ensuring that entrepreneurs have equitable access to the networks, ideas, people, capital and customers they need to launch and thrive.
Leslie Smith, CEO of Epicenter discusses with Digital Journal the gender funding gap for women and other key topics about encouraging people to develop their business ideas.
Digital Journal: How successful are companies founded by women compared with men?
Leslie Smith: In general, companies founded by women outperform those founded by men, even though the average women-led startup receives less than half of what the average male-led startup might receive in investments. A recent Forbes article (March 2019) illustrates this with several data-driven examples:
The business case for funding female founders is simple—female founders outperform their male counterparts. A recent study from Boston Consulting Group evaluated 350 companies that had been part of the MassChallenge program. The study revealed that, for every dollar of investment raised, female-run startups generated 78 cents in revenue, whereas male-run startups generated only 31 cents. As we might expect, women outperformed their male counterparts despite raising less money ($935K versus $2.12M).
This data is consistent with several other studies. Data collected by First Round Capital, for example, found that the female-founder companies it had funded performed 63% better than the all-male founding teams it had funded. Adding even more credence, research from the Ewing Marion Kauffman Foundation found that women-led teams generate a 35% higher return on investment than all-male teams.
Women-owned companies are outpacing men-owned companies in the following: Number of businesses created, growth in staffing, and growth in revenue. A recent report ‘The State of Women Owned Businesses,’ commissioned by American Express, notes that as of 2016, it is estimated that there are now just over 11.3 million women-owned businesses in the United States. This is a 45% increase since 2007. American businesses only increased by 9% overall during the same time period. employing nearly 9 million people and generating over $1.6 trillion in revenues. Employment figures by women-owned businesses has increased by 18%, while overall employment figures have decreased by 1% during this time. Women-owned firms have seen revenues have increased by 35% from 2007 to 2016. U.S. firms measured 27% increase in revenue during that same time period.
DJ: Why is the public perception sometimes different to the reality?
Smith: For decades, the measures of success for startups have been tied to venture outcomes rather than business outcomes. There’s also a pervasive societal stereotype perpetuating the misconception that white males are the most likely to start and build successful businesses, in spite of data that demonstrates that women are doing so in matched numbers and with greater success. One way to rewrite that narrative is to lift up the stories and successes of diverse founders from across the country so that we can dismantle inaccurate stereotypes and encourage a broader understanding of the economic and societal impact of the companies being built across the country by women and invest in them as a measurable and meaningful segment of the U.S. economy.
DJ: Why is an inclusive culture important for both businesses and society?
Smith:Society is made up of diverse humans with myriad skills to contribute. Inclusive economies, those who value all contributors and whose benefit accrues to our entire community, are both just and growing economies.
DJ: Why do women founded companies receive less in terms of funding?
Smith:Financial Institutions and venture capital firms are largely founded and run by men. Studies show that venture capital firms with women partners are more than twice as likely to invest in companies with a woman on the executive team. Also, venture firms with a woman partner are more than three times as likely to invest in companies with women CEOs. However, roughly 94% of investment decision makers are male, 85% of investors are male, and greater than 70% of banking CEOs and executives are male. So clearly, whether gender bias in decision-making is intentional or unintentional, the outcomes make clear that it is playing a role.
In order to remedy the disproportionate funding, investors must acknowledge the problem and take actions to make corrections for the inherent bias (i.e., engaging more female investors, utilizing data-driven investment strategies, etc.) that exists in the investing ecosystem.
DJ: Are there any other barriers or cultural factors at play?
Smith:The historical underestimation and exclusion of women and people of color from economic opportunity has to continue to be dismantled in order for us to build an economy that thrives to the benefit of all society. This means we have to recognize systems of discrimination and execute strategies to rebuild them with a different set of expectations, which include participation by women in economic opportunity that mirrors their percentage of the population and in ways that their contributions are valued in ways that are equal to, not less than, their male counterparts.
DJ: Why was Epicenter founded?
Smith:To be a regional entrepreneurship network hub, coordinating network resources to help new and emerging businesses. To serve as a single point of accountability/carry forward best practice throughout the entire ecosystem. To connect entrepreneurs to resources, attract talent and assets, and to collect, measure, evaluate and amplify the impact of these activities more broadly to lift up entrepreneurs and create a more vibrant Memphis.
DJ: What activities is Epicenter engaged in? Are there any notable successes you can share?
Smith:In 2020, we are celebrating our fifth year entrenched in the work of growing a thriving entrepreneurial ecosystem in Memphis. A few key examples of our collaborative work in 2019 are:
The Patents2Products deep science entrepreneur postdoctoral fellowship, a partnership between the University of Memphis and Epicenter, was imagined in early 2019 as a way to create more science-based startups in Memphis. Since its launch, four scientists were recruited, and the program began its training phase in February 2020. The cohort is diverse both in its makeup and its pursuits, as 50% of its scientists are women, and 75% are non-white, all working on solving problems in the fields of post-operative care, treatment autoimmune-related skin conditions, enhanced fluorescent microscopy, and non-surgical sterilization.
We deepened our relationships in multiple Memphis neighborhoods and formed partnerships with organizations like Power Center CDC and the Consortium MMT to deliver CO.STARTERS, which trains participants on startup fundamentals such as customer discovery, marketing and messaging, sales, and break-even points, across the city.
In the fall of 2018, Epicenter helped launch a podcast hosted by, produced by, and featuring Memphis entrepreneurs. Grindset unpacks the journeys taken by entrepreneurs to explore how they became successful, where they failed, and why they kept going. The show features interviews with companies of all types and sizes while having a focus on women founders and founders of color, and it serves to broadcast Memphis entrepreneurs’ stories to a nationwide audience.
As we create more access to capital in the Memphis area, we developed the Friends and Family Fund, a non-dilutive fund that leverages the founder’s resources and fills gaps in traditional “friends and family” networks. In 2019 six companies received $137,629 of investment from the Friends and Family Fund. These companies generated more than $500,000 in revenue , and the companies were also able to access more than $200,000 in additional capital
There was a 40 percent overall increase in customer counts across the six portfolio companies and 100% of the companies represented are Women- or Minority-Owned (WMBE) Businesses.
