Here’s a theory: Businesses founded by women tend to produce consumer-oriented products. Here’s another one: Consumer-focused companies make Boston-area investors—both angels and venture capitalists—uncomfortable. Conclusion: If you’re a woman entrepreneur in Boston looking for funding, you might have a problem.
The idea, courtesy of Jean Hammond, is a provocative one, to be sure. But Hammond has a good vantage point for observing the struggles of women-owned startups. Not only is she co-leader of the Boston forum for Golden Seeds, a Wilton, CT-based angel investor firm that focuses on businesses owned or managed by women, but she also has 20 years of her own experience in the high-tech industry. She served as the VP of U.S. Marketing of Spider Systems, a Scottish startup that specializes in network protocol software. In 1992, she cofounded Newton, MA-based Axon Networks, which was acquired in 1996 by 3Com for $65 million. She was founder and CEO of Burlington, MA-based Quarry Technologies, raising over $35M in venture funding. She has joined the boards of many of her more than 25 investments over the past 7 years, as well as serving on the board of The Capital Network, a non-profit helping entrepreneurs get ready to raise funds for their ventures.
Recently I spoke with Hammond about her idea, which she said had been simmering on the mental back burner for years, somewhat unnoticed. “I realized that some of the deals women were bringing weren’t being funded, but I didn’t focus on it that hard. I assumed over time it would even out,” she says.
But then last September, she helped open the Golden Seeds Boston office. Founded in 2004 by Australia native Stephanie Hanbury-Brown, Golden Seeds invests in women-led ventures that have the potential to become multi-million-dollar businesses. As Hammond starting working with the firm, she became more aware of what a few studies had already laid out: women-led companies receive less venture capital than those led by men. “I felt like, ‘Oh just a minute, I shouldn’t just be ignoring this. I should take a look at it,” says Hammond.
When she did, she realized that women tend to start companies that have products or services that touch the consumer. But traditionally, Boston has been a hub for high-tech, giving rise to companies with products designed for the military or for other businesses. And while there have been some local consumer-oriented success stories—think iRobot and ZipCar—they aren’t nearly as common as the high-tech hits.
“It comes down to a comfort level. If a venture fund hasn’t had any experience with successful, consumer-based companies, it’s harder for them to invest in the next consumer deal that comes wandering in,” says Hammond.
So it’s partly the history of the region, she says. But it’s also the nature of consumer businesses, which are exposed to buyer whim. “Consumers are unpredictable. We don’t know why hoola hoops take off and some other toy at the same time doesn’t. We don’t know what it is that makes consumers behave the way they do. So it’s just a different kind of risk,” says Hammond.
Boston-area investors’ discomfort with that kind of risk sent at least one soon-to-be high-flying, woman-led firm looking for out-of-state dollars. Boston-based Circles is a concierge marketing firm catering to time-starved professionals and expected to exceed $10 million in profits this year. When founders Janet Kraus and Kathy Sherbrooke were looking for angel money back in the late 90s, they had a difficult time finding it. Kraus says it was partly because she and Sherbrooke were young and inexperienced and were launching an industry that did not previously exist. But that wasn’t all. “We were starting a services business as opposed to a software business and it is generally difficult to raise money to start a service business or a consumer-like business, particularly in Boston,” says Kraus.
After about 18 months they did manage to secure an initial $1.2 million from New England angel investors. But when they were ready for venture money, they had to look beyond to Philadelphia, New York, and California. “Boston, back in those years, tended to invest more in application software and hardware-infrastructure stuff,” says Kraus.
But not everybody shares the view that it’s the type of companies that women tend to start that adversely affects how much funding they get—in Boston or elsewhere. Take Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire in Durham. In a recent study that looked specifically at angel investing, Sohl found that women entrepreneurs seek funding at lower rates than their male counterparts. But for those who do go looking for it, they have an equal chance of receiving investment.
“The problem is they are more likely to seek funding from people in their own social network,” says Sohl. “They look for it in women angels and there are fewer women angel investors,” he says.
On that point, Hammond agrees: “The single biggest problem for women entrepreneurs is introduction to the right people for the right kind of money at the right time,” she says. Because of studies like Sohl’s, she says, some investors are getting self-conscious and thinking more about investing in women-owned businesses. And more women are becoming investors themselves and reaching out to their peer group. But whether the numbers will change in a big way is still up for grabs, Hammond says.
“Investors are just human beings. They invest in things that they know they have made money in before,” said Hammond. “We don’t know looking forward if we’re seeing the beginning of a change.”