Week
of April 5 - April 9, 2004
Welcome
to the National Dialogue on Entrepreneurship and e-News, an electronic
newsletter sponsored by the Kauffman Foundation of Kansas City for
followers of the entrepreneurial economy. Through e-News, we bring you
short summaries and analyses of various trends driving the innovation
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Bookmark it and stay informed about the latest entrepreneurship news.
Easter arrives next week and we won’t be publishing next week, but look for us in your in-boxes on April 19th.
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The Diana Project: New Report on Women and Venture Capital
For several years now, five leading entrepreneurship researchers have been examining the relationships between women entrepreneurs and the venture capital industry. The initiative, dubbed the Diana Project, is led by Candida Brush (Boston University), Nancy Carter (University of St. Thomas), Elizabeth Gatewood (Indiana University), Patricia Greene (Babson College), and Myra Hart (Harvard Business School), and is supported by the US Small Business Administration (SBA), the Ewing Marion Kauffman Foundation (NDE’s sponsor) and other leading organizations.
Last year, the Diana Project researchers released a report that examined the status of high-growth women entrepreneurs. This earlier research found that the overall numbers of fast-growing women-owned businesses are skyrocketing. Between 1997 and 2000, the number of women-led firms with more than 100 employees grew by 44%--1.5 times the growth rate for all firms during this period. Yet, despite this robust growth, few women entrepreneurs were succeeding in accessing new venture capital investments. Instead, women entrepreneurs were more likely to bootstrap their firms using credit, loans, and other informal investments.
As a follow-up to this earlier research on women entrepreneurs, the Diana Project researchers also examined the role of women in the venture capital industry. These findings were released last Friday in a new report entitled Gatekeepers of Venture Growth. The news is not good for advocates of high-growth women entrepreneurs as this new research shows that few women are succeeding in becoming leaders in the venture capital sector. The researchers contend that low industry participation rates are one factor contributing to the low levels of venture capital investing in women-owned businesses.
Overall, the venture capital industry is overwhelmingly male. During the period of this research (1995-2000), women held only 9-10% of senior management positions in the industry. The proportion of women in the field actually dropped between 1995 and 2000, despite a large overall increase in the industry. Only one-quarter of venture capital firms now have management-track females on staff.
These numbers also make it difficult for one to rise on the management track. Most women managers are clustered in entry or mid-level positions, and these women are substantially more likely to leave the industry. In fact, women are more than twice as likely to leave the industry when compared to their male counterparts. The bottom line? Fewer women enter the industry, and fewer women make it to the top.
Firms with women partners have attracted more women entrepreneurs to their firms, even though the partners are not actively seeking out women-owned firms. Women venture capitalists report that gender does not influence investment decisions, and the data bears this out. There is no major difference in the performance of venture-backed firms based on the gender of their owners.
To its credit, the venture capital industry is seeking to change these trends by encouraging more women to enter the business. Programs such as the Kauffman Fellows Program, which trains young leaders for careers in venture capital, have had a big impact. But, the real path to success in venture capital comes from having been a successful entrepreneur. As more women succeed in building great businesses, more women will also succeed in becoming leaders in the venture capital industry. Thus, programs like the Kauffman Fellows initiative must be supplemented by more comprehensive efforts to support women-owned entrepreneurial ventures.
To access the Diana Project report, Gatekeepers of Venture Growth, visit
www.kauffman.org
To learn more about the Diana Project, visit http://www.esbri.se/diana.asp
To learn more about the Kauffman Fellows program, visit www.kauffmanfellows.org
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