Year: 2015

In February, 800 female entrepreneurs gathered at the Female Founders conference hosted by Y Combinator. That’s certainly a promising sign, but the very existence of a separate entity dedicated to women is a stark reminder that men remain the overwhelming majority in the start-up scene.

The numbers speak for themselves; just 1.3 percent of privately held startups had a female founder in 2012, according to the Women at the Wheel: Do Female Executives Drive Start-Up Success? Dow Jones report. And out of 395 early-stage start-ups surveyed, 83 percent had no females on board.

The report found that the more developed the start-ups were, the higher the likelihood they had women on board – suggesting companies tend to add female executives as they go. But adding a plaster to patch up a wound doesn’t deal with the problem itself. To establish real, rooted gender parity, it must be there from the beginning. Quotas and other attempts at creating equality do little more than give the appearance of it.

Stereotypes and brogrammers
Perhaps the most notable factor holding women back from entrepreneurship is the fact the tech sphere – the area offering the most opportunity for start-up creation and growth – is still so glaringly male-dominated; according to a report by the data centre Telecity Group, only nine percent of chief information officers in the US were female in 2012. And according to Venture Lab, female tech start-up CEOs are outnumbered 20 to one.

That fuels the misguided perception of the tech world as first-and-foremost the province of men, forming a vicious circle that’s tough to break. Patricia Greene, Professor of Entrepreneurship at Babson College, agrees. “The culture and role models [in the tech sphere] are highly male based”, she says.

That’s ironic given that women, at least in the US, use social media sites more than men. According to Pew Internet, they dominate the user-base of big sites like Facebook, Twitter, Zynga and Pinterest – but they don’t found them. All four, like most of the other success stories – Snapchat, Instagram, WhatsApp, Tumblr and Spotify to name but a few – were created by men. Given the importance of social factors in influencing career choices, perceptions of the tech world need to change if more women are to enter it.

Cults like ‘brogramming’ don’t help; the concept, intended to give programming a cooler image by associating it with ‘bros’ and frat boys, is fuelling an already prevalent perception of coding as largely male-oriented. That hasn’t always been the case; according to historian Nathan Ensmenger, up until the 1960s programming was largely seen as ‘women’s work’. Now only 17 percent of computer science graduates in the US are women, according to Fast Company.

Encouraging more women to delve into tech at the education stage is of course central to achieving greater representation in the wider field. According to Greene, fewer females than males study in tech “because young women don’t see themselves spending their days the way they imagine they would if they were to work in tech companies”. A study by Penn Schoen and Berland (PSB) found that two thirds of teenagers had never thought about engineering as a career – and 74 percent of those that did had made the decision after learning about its economic benefits and how they could influence the world.

That suggests the importance of eschewing stereotypes and helping all young people understand the importance of tech skills, as Lydia Thomas, former CEO of Noblis and Co-Chair of the National Academy of Sciences, argues. “We have to capture women at a very young age”, she said in a Forbes report. “Women are not getting the emphasis in school. We need to encourage parents to encourage their daughters.”

Obstacles inside and out
It’s not just an apparent lack of interest in tech that’s holding some women back from launching successful start-ups. A Global Entrepreneurship Monitor (GEM) survey found that women were more likely to doubt their ability to start a business than men (especially in developed Asian economies such as Japan, where just five percent believed themselves capable). Women were also more likely to be held back by fear of failure, according to the report.

Dr Luz Cristal Glangchai, founder and CEO of VentureLab, which teaches entrepreneurship to young people, tells World Finance that confidence can be an issue. “As a college professor, I remember trying to encourage young women to go into technology and entrepreneurship”, she says. “But the girls in my classes felt intimidated. They would look to male classmates for answers even when their own experiences were superior.”

Glangchai believes this is rooted in early childhood experiences, and that role models can help combat the apparent trend. “We have noticed that many successful women CEOs and leaders in technology have all had some sort of ‘spark’ or mentor which gave them the confidence to believe they could accomplish anything”, she says. The GEM study suggests a similar concept; in Sub-Saharan Africa, four out of five women surveyed believed they had the skills to launch an enterprise – and half knew other female entrepreneurs.

But, as the GEM report recognises, even when it’s not a question of will, confidence or other inner hindrances, external barriers can block women entrepreneurs from attaining the same level of success as their male counterparts. Among the more subtle obstacles is the issue of funding; studies have shown female founders have a harder time getting venture capital (VC) backing than men, and it’s little surprise given the stark gender imbalance among VCs; in the US, women accounted for less than 10 percent of high-level VCs in 2012, according to the Kaufman Foundation.

That’s an unfortunate truth given that networks are of the utmost importance in obtaining funding and so achieving growth, at least according to Greene. “For [start-up growth], the factors are generally seen as money and network, with network actually being one of the major blockades for raising capital”, she says, adding that this is even more true for tech companies. “Tech businesses most likely need equity capital as opposed from other sources, and that’s where the network really comes into play.” While men continue to rule over the VC sphere, then, it seems they’ll simultaneously continue to dominate the entrepreneurial one.

As a female entrepreneur, Glangchai has said in the past that she experienced first-hand the prejudices that can greet female entrepreneurs in the science and tech sphere when she pitched the idea for her first company, NanoTaxi. “There were no women to pitch to… I tried not to show my femininity”, she told Women & Tech Project. “So I didn’t feel like I had to be more aggressive, but I did feel like I had to dress more like a man.”

Glangchai added that women in her field often have fewer opportunities to progress than men, not least because their ideas are sometimes shunned in preference for male-voiced ones. “There is some sort of weird, subconscious thing where the guys in the room, they don’t kind of notice you’re there”, she said. According to her, such discrimination can drive women out of tech and leadership positions.

Overhauling the model
It seems that in order to destroy these apparent prejudices, we need to go back to the beginning and challenge male-oriented business models. One way of doing that is by providing female entrepreneurs with greater access to resources – something a number of programmes (such as Astia, which has over 5,000 investors on board) are already helping to do. That marks a useful start in questioning the existing models, but there’s still a long way to go before they’re completely overhauled.

The efforts are clearly having some impact; the number of women in VC-backed companies is on the increase, and the likes of Hopscotch – a female-founded start-up that teaches children how to code – provide positive examples for others to follow. But such examples remain exceptions to the rule.

It’s evident that both men and women would benefit from having more women involved in the tech start-up scene; according to the Dow Jones report, venture-backed tech firms with a higher number of women executives have a higher chance of succeeding. For start-ups with five or more women on board, 61 percent succeeded. Given that some estimates put the average rate for Silicon Valley start-ups at just 10 percent, that’s significant.

It suggests that if the obstacles – whether interior barriers or exterior, cultural factors – can be overcome and the existing models upturned, a far higher number of female-founded start-ups could enjoy the types of colossal growth achieved by the likes of Facebook, Instagram, Spotify and fellow giants.

But those obstacles are ample, and more needs to be done to help knock them down and build new models that see real gender equality established from the start. Only then can men and women be seen as individuals in their own right rather than polarised, binary categories, and the future business world be characterised by true parity, from the roots up.

Crowdfunding sites have revolutionised the way people invest and how international companies seek out capital, with the World Bank estimating that the industry is set to bring in more than $93bn worth of investment by 2025. Most people who have taken part in the practice get involved in what is known as reward-based crowdfunding, where start-ups and entrepreneurs use websites like Kickstarter and IndieGoGo to pre-sell a product or service.

There is usually a tiered system of donation, with the highest entry point allowing backers to obtain a copy of the product if the campaign can raise the necessary capital. But if backers cannot stretch to the top tier of investment, they can still help to get the project off the ground in exchange for incrementally smaller perks, depending on how much money they are willing to part with.

Then there is equity crowdfunding, with the key distinction being that, unlike the reward-based model, investors receive shares in a company in exchange for the capital they put in. With both types there are massive risks involved. Start-ups are notorious for failing fast, and failing often. But that does little to deter the millions of investors from logging on and paying out, all in the hope of getting involved in the next big thing. But while both backers and investors share an eagerness to support fledgling companies to take flight, there is a clear distinction in the decision-making behaviour of the two – one where emotion and objectivity are exercised in unequal measure.

Falling short
When the right product comes along it can send people into a bit of a frenzy, with happy backers showering crowdfunding campaigns with money in an attempt to see their dream device or service made a reality. This is exactly what is happening to the Sondors Electric Bike that launched its quest for capital on IndieGoGo. It is priced well under its competitors at just $649, and the bike boasts some impressive stats for such a small price, helping it to raise nearly $4m – far exceeding its modest goal of $75,000. But when something sounds too good to be true, it usually is. This is why, despite attracting a lot of funding, it has also caught the attention of others in the e-bike industry that question whether it can really deliver on all of its pre-sale promises.

In an interview with Yahoo! Tech, Robert Provost, CEO of Prodeco Technologies, a company that sells its own line of electric bikes, accused the makers of the Sondors Electric Bike of making hugely inaccurate and false claims in their IndieGoGo campaign. “What they are claiming is highly suspect”, says Provost. “We’re afraid a lot of people who think they got a great deal will be disappointed with the bike.”

Apart from its very low price tag, the e-bike claims some impressive stats: a powerful 350-Watt motor capable of generating a top speed of 20mph and a lithium ion battery that can be charged in just 90 minutes, with enough juice to keep it moving for 50 miles – all adding up to make it an attractive offering to the market. But industry insiders are not convinced.

“I do question some of the [bike’s] specs”, says Court Rye, owner of the Electric Bike Review website and YouTube channel. “The lightest fat-tire electric bike I’ve ever reviewed and weighed myself is the Felt Lebowski, a $5,800 performance model built with 6061 aluminium alloy — it weighs just 48 pounds. Steel is much heavier, in my experience.”

To answer some of their doubters the team behind the Sondors Electric Bike have planned a number of demonstration days in order to prove naysayers wrong and display to consumers that their bike can do what they claim: “There has been a lot of speculation about the bike over the past few days and we want to assure you that it is real, it exists and it is quality”, reads an update on their IndieGoGo page. “We feel the best way to address this is to invite our backers, potential future backers and those naysayers out there to test the bike for themselves.”

The bike will need to perform well if it is to lower many a raised eyebrow over claims made about the bike’s range and top speed. Critics contend that with a rider in tow the direct drive motor is simply not powerful enough to reach such speeds and that 10 to 15 miles is a much more realistic range for a battery of that size. Electric-FatBike.com even went as far to imply that the people behind it are “overselling their bike to the point of fraud” and highlighting the inconsistencies in the company’s marketing campaign.

“In the photos and video they show people riding bikes that are prototypes with foot-pegs instead of pedals and using much larger motors than a 380-Watt system”, writes the reviewer. “They also advertise it as Direct Drive, but in the pictures the motor is clearly a geared hub. They talk about hydraulic brakes, but then show pictures of cable brakes. There is little to no consistency in the description and the pictures and videos.”

Great expectations
But even with his expertise, this reviewer still hopes that the Sondors Electric Bike will deliver, even admitting at the end of the piece that he would “rather give [his] money to a beach bum surfer with big promises than a CEO of a big company any day”. Many people seem to get so blinded by the possibility of getting their hands on the product of their dreams that they are no longer capable of exercising any kind of objectivity.

This proclivity of people to allow themselves to get caught up in all the excitement, means that entrepreneurs may inadvertently over stretch or make promises that will fall short in an attempt to acquire the necessary attention and capital they require. This vicious cycle becomes even more disconcerting because these sites do not offer refunds if it all goes south. Nor are the creators contractually obligated to refund funders, so long as they supply them with something. Whether it lives up to its initial billing, however, is irrelevant.

The world of videogames is a clear example of this vicious cycle in action. Peter Molyneux, a developer who once carried a lot of weight in the industry, has seen his reputation take a nosedive. After he successfully got his most recent offering, Project Godus, off the ground through Kickstarter back in 2012, the game is still yet to reach players’ PCs. This has naturally angered fans and led to him coming under huge criticism from the gaming community, as well as those who supported his campaign.

Adding to the irritation felt by supporters of the project, Molyneux recently announced that he will be shifting his attention onto a different project, leaving backers wondering if he has just decided to shelve the game for good. Molyneux is not the only developer to pull this type thing. Many consumers have had their excitement snuffed out by broken pre-release promises.

But to put all the blame on these entrepreneurs and would-be start-ups is simply not fair. The backers of these campaigns are just as much at fault for backing them in the first place. Both campaigns received well over their target amount. The sensible choice would be to wait and see, but the fact that people are unwilling to show restraint is indicative of their inclination to act on impulse. The criticisms aimed at developers like Molyneux taking too long and the likely complaints that will be levelled at the Sondors Electric Bike should it fall short, also provide evidence of the fact that many simply fail to comprehend the huge undertaking that is game development or the potential risks and manufacturing road humps that arise when bringing a prototype to the mass market.

Bigger stakes
Equity crowdfunding is a different story entirely. Users of sites like Crowdcube are not looking at the product or service in isolation – they are looking at the business as a whole. “Investors are looking for a strong idea that offers the opportunity to scale up, so there needs to be a really clearly defined market opportunity – a real problem that your business is solving”, says Luke Lang, Co-Founder of Crowdcube. “No matter who is investing, whether it is a crowd investor, an angel investor, or a VC. They’re all looking for the same thing: a strong team with decent levels of experience and a proven ability to exercise a successful business plan.”

Looking at companies from this perspective alters the types of businesses that equity crowd funders are interested in. Enterprises that are already up and running and operating with a decent degree of success – which are looking for the next round of investment to really accelerate growth – are particularly popular. “It is not to say that we do not fund startup businesses, but it is slightly more challenging for the entrepreneur”, says Lang. “But they need to be even more convincing that their business or idea is highly transformational or that they have spotted a niche in the market that they believe they can plug.”

“It just makes the investment pitch that little bit harder. I guess that is why our investors tend to edge towards the early stage businesses, as it lowers the amount of risk that they expose themselves to.” Christine Lomax is a London-based business advisor who has invested in four companies through Crowdcube and recommends that before investing in any business or start-up to do some thorough research behind the scenes.

“It’s better to be cautious if you feel sales projections seem sky high or you just feel they’re getting a bit too crazy; make sure people aren’t pulling figures out of the air”, says Lomax. “They should have a very transparent business plan and cash flow, with a good attention to detail – the figures have got to stack up.” Backers on IndieGoGo, however, tend to look strictly at the product or service and usually from the perspective of a consumer, not an investor.

Although understandable, backers of campaigns on reward-based crowdfunding sites might be better off exercising a little more caution, especially if the project has already reached its goal. There is always the opportunity to buy the product once the business is fully operational, and at that point any kinks or manufacturing potholes are likely to be smoothed out.

Over-funding could also inadvertently put the start-up in bit of a bind, as manufacturing is notoriously hazardous, with delays and mistakes a plenty. Excessive orders, therefore, can be more trouble than the are worth for an inexperienced entrepreneur.

Even tech behemoths like Apple struggle to get products out in time, so assuming a small start-up with little or no experience to hit all its targets and live up to the huge expectations that are placed on it by backers is demanding a lot.

Agency loss can occur if the principal and the agent do not share common interests. So as long as both parties desire the same outcome then everyone is happy. In equity crowdfunding this parameter is adequately met, as both investors (principal) and management (agent) seek to maximise personal economic wealth and, therefore, agency loss is minimised.

But in reward-based crowdfunding there is a problem: the principal is not concerned with maximising economic wealth, but instead, the principal simply wants a good or service in return for their investment. The agent on the other hand is seeking to maximise economic wealth. This reduction in common ground leads to agency loss and negatively impacts the relationship between both parties.

As equity crowdfunding rewards investors for choosing companies that can achieve long-term success, there is a tendency for people to gravitate towards companies that offer more than an impressive-looking product. Investors are looking to be involved over the long haul, and investors and management bond over a desire to make money. But just because backers on sites like Kickstarter do not have equity in the company, it shouldn’t lead to short-term thinking.