Tag: female entrepreneur

Wave of Change in the VC Sector

Every day many venture capitalists invest in startups with the hope that it will be yet another unicorn. Venture capitalists are a type of investors who are also futurologists. They invest in new businesses with an anticipation that it will turn out to be the next Facebook or Uber and their investment will multiply several times.

A perfect example of such investment is the one made by Mark Tluszcz in Skype. In 2001, he invested $2.5 million and now is worth $250 million.

Investors have the chance of winning big or losing all of their investment. Tluszcz also shared his experience stating that 50 percent of the startups they invest in, end up as a failure; 20 percent of these investments only make as far as returning their investment money and another 20 percent increase their stake three times. It is the remaining 10 percent that makes it big, he added, and keep the venture capital (VC) firms going.

 

A Wave of Change in the VC Sector

Keeping all of this in mind, it is an undeniable truth that VC firms have undergone massive changes over the last two decades.

In the UK, the amount of investment by venture capitalists has increased from £453 million to £1961 million between 2011 and 2016. A number of these firms are filled with entrepreneurs who are passionate about building a business and not just a career.

 

Lack of Diversity

Despite all the changes, there is still a lack of diversity in the sector. Debbie Wosskow, a VC investor who was once an entrepreneur, came face to face with the harsh reality that 95 percent of all the investments made by venture capitalists go to male-led startups and most of these investments are made by male venture capitalists.

According to a research in Harvard Business Review, when it comes to female entrepreneurs, the focal point of venture capitalists is always toward potential losses, but with male founders, they look at it from the perspective of potential gains. Regardless of what the reason is, things have started to change in the VC sector.

 

Wind of Change — A Step Toward Revolutionizing the VC Sector

According to a venture capitalist, Suranga Chandratillake, said that those who present their ideas before a group of investors have to sell their idea of making it big. He further said that investors need a convincing idea that has a potential to generate good profits and not a presentation that just talks about becoming another unicorn like Uber. Investors need to see that entrepreneurs are not just into organic growth; in fact, they should be willing to take risks of revolutionizing the entire sector with a proper plan and potential to bring the right people in their team.

 

Self-awareness — A Trait of Successful Entrepreneurs

Another venture capitalist, Jillian Manus, believes the best ideas come from those startups where one partner has a sales and operation background whereas the other one is into technology. They come together as a team to sell their idea along with a well-devised plan of how they will achieve their goals. She added that a founder must be honest with exciting ideas as the most important question she asks the entrepreneurs is to tell how they failed. Those who say they have never failed are either hiding the truth or they lack self-awareness.

To secure an investment, a founder of a new startup should show that they have learned from their mistakes and be honest about it as it enables them to identify a problem ahead of time. All in all, venture capitalists do believe that honesty is the best policy when it comes to investing in new startups, because if an entrepreneur needs a venture capital, he or she must tend to scale up and expand their business quickly.

Women Still Struggling in the World of Technology and Innovation

Although, it seems as if things are moving in a positive direction for female entrepreneurs, there is yet a lot to be done. Women have made accomplishment in every field, but they are still facing a number of challenges, especially when you talk about the increasing number of female startup owners and their ability to get funding.

David S. Ricketts, the senior innovation scholar at the Technology and Entrepreneurship Center at Harvard, said that this is the number one challenge they face when their businesses are experiencing growth.

 

Challenges Faced by Women Entrepreneurs in the IT Sector

Female owners of IT companies have to come across various obstacles when they try to raise capital from venture capital firms. This holds true in case of the Silicon Valley and tech hubs in Amsterdam, Berlin, London. Not only does it adversely affect the progress of women entrepreneurs, but it is also bad for the technology sector, because restraining their leadership and talent hampers the overall growth and impede innovation. Moreover, the gender gap is rapidly increasing around the world, with 90 percent of the venture capital going to male entrepreneurs and only 10 percent retained by female founders. In addition to that, only 10 percent of the strategic level positions in tech companies are occupied by women.

According to the report by the National Women’s Business Council, women invest half the amount of capital invested by men in the startup businesses. It was further mentioned in the report that firms with female founders usually get far less equity financing from venture capitalists and angel investors as compared to companies with male owners, i.e., 14.4 percent vs. 3.6 percent.

Furthermore, only 1.8 percent of the women ask their close family or friends to raise capital as opposed to 9.2 percent men.

 

Female Entrepreneurs in the European Market

A similar trend has been observed in the European market as well, wherein, the IT sector is on the boom, yet the percentage of women leaders is a lot less as compared to men and only a small percentage of venture capital is allocated to startups led by female entrepreneurs. The United Kingdom (UK) is the second biggest startup hub after Berlin. 86 percent of the startups in the UK that receive venture capital funds are owned by men. Whereas, the percentage of angel investment secured by men and women is 56 percent and 44 percent respectively. Unfortunately, even in the IT sector, the distribution of capital is not based on merit.

With such funding constraints, women owned startups in the UK only represent 15 percent of the entire sector. They either revert to self-funding or seek crowdfunding opportunities to survive in the long run.

 

Female Entrepreneurs Generate More Revenue than Male Founders

It is worth noting that female owner companies earn 12 percent more revenue as compared to companies run by men in the IT industry, and their return on investment is 35 percent higher than the firms owned by their male counterparts. If they are given appropriate support, not only do they give better performance, but also make exceptional achievements. This holds true for women living in any part of the world.

 

How Can Female Entrepreneurs Contribute to Better and Sound Economy?

According to one estimate, if women in the UK, who wants to have their own startup companies, get the right support, they can instantly generate more than 300,000 new businesses and create more than 400,000 employment opportunities. Moreover, female-led businesses can contribute to innovation and better quality products with great consumer satisfaction.

 

The U.S. Firms, such as Backstage Capital and Kapor Capital, and the UK firms like Albright are some of the prominent examples of women-led capital firms that have proven to be the game changers in the venture capital (VC) community. To let the innovative and productive ideas flowing in the IT market, VCs should open the doors to give female-led companies a head-start, because it is possible that the owner of the next big unicorn is a female entrepreneur.