Innovation Old vs. New

This week my husband and I had one of our conversations about innovation. I see innovation blooming all over in early-stage companies that aim to improve our experience and offer a new generation of products incorporating technology. My husband was a Global Research Director at a major Wall Street firm, so he has an excellent viewpoint on public companies, the markets and the full range of investment products. I worked on Wall Street, too, but as an investment banker helping companies raise capital in the public and private markets.  Now, I live in the completely different world of the startup ecosystem, where people are creating new technology, products and businesses.

Our conversation started off as it does many times. I was talking about an example of an early-stage company doing something that is done by a big corporation – only the small company is using technology and can do what that they do better, cheaper and faster. We then delved into a discussion about the merits and value of old line business and new transformative companies.

A few weeks ago, I saw a post from Blackrock’s Chief Investment Officer about the new mega trend of public companies buying back their shares. CB Insights picked up on the article and made some powerful points about when companies cannot find auspicious opportunities to deploy their capital, they buy back their shares in the public markets.  When it comes to innovation, start-up companies can move faster and experiment and iterate until they find the solution or the right model. Having worked in both established corporations and with early stage companies, I would put my money on start-ups for fast and big innovation.

This cartoon captures for me what I believe is happening.

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There are new entrants into every industry that are decentralizing the services and delivery of goods. Not every company will make it, but each company offers a movement forward on the innovation path. No company jumps in and creates a new direction. Innovation happens in small increments, often with different companies contributing to the evolution.

This is a time of explosive innovation and change that can only come about with adequate capital to the most promising founders and ideas. This is a call to action for women to found companies to invent and offer products that we really want. This is a call to action for men who are founding companies to include women in your founding team–especially if your products are for women.  And it is a call to investors to consider what it means for gender and other types of diversity.

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Solving Silicon Valley’s Gender Imbalance

AngelList, founded in 2010, is a new way to use the internet to fund companies. Founded by Babak Nivi and Naval Ravikant, AngelList provides a service to both investors and entrepreneurs. Entrepreneurs can easily upload information about their companies and can be discovered by investors in Silicon Valley and elsewhere. Investors can find new opportunities easily and invest in companies.

AngelList exemplifies the power of what can be done online and can potentially disrupt the closed network of venture capital allocation. AngelList has expanded its services to things like job postings, syndicates and more. Syndicates are often led by a person with a track record and considerable early stage investing acumen. They allow for less known or less experienced investors to invest alongside bigger names.

Plum Alley has been closely watching the progress of AngelList in the last three years. We are highly supportive of its mission to provide more transparency to the closed, elite world of venture capital, to lower fees and to better align compensation with performance.

AngelList has the potential to transform the entire landscape of early stage investing. Its business model is still in formation and the platform is experimenting with a compensation model that is radically different from the 2% management fee and 20% carry (upside) that have made traditional VCs very rich.

We were curious to see how AngelList is impacting the flow of capital to companies with female founders and gender diverse teams. AngelList is growing rapidly, so the numbers are a moving target. We acknowledge that complete information is not readily available on all the companies and the investors who are registered on the platform. We analyzed the data that was available for the year of 2014. While the numbers may have shifted a little bit from the date of our research, we believe that our conclusions would still hold true today. Here is what we found when looking at companies, investors and syndicate leaders by gender.

Companies funded on AngelList

We were able to find information on 212 of the 243 startups that were funded through AngelList in 2014. Out of these companies, 86.3% have all-male founders. Only 11.8% have gender-diverse founding teams, and 1.9% have all female founders.

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This means that out of those who receive capital on AngelList, at least 90% are men. We find this data puzzling because we know that there is a huge number of women entrepreneurs and females starting companies who need capital.

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While we are disappointed to see the data, we know that activity on AngelList simply reflects the dominant demographic of players in Silicon Valley. We all need to look deeper to find out what causes a low representation of women entrepreneurs who get funded and women who invest in early stage companies. The number of smart ideas and companies is endless, and only limited by access to capital. As platforms emerge to provide more efficient and new ways to obtain capital, we all need to do our part to make sure the opportunities are equal for both genders and all other groups.

A Gender Breakdown of Investors on AngelList

On the investor side, things were not much different. Out of the 216 most active angel investors whose data we were able to access, only eight are women and 207 are men. (One angel position is occupied by a couple.)

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This means that at least 95.8% of the active investors on AngelList are men. This too is disappointing.

Women control $11.2 trillion of investable assets in the U.S. alone, yet $5 trillion goes unmanaged. This amount of capital can have a major impact if more women are activated as investors.

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We know that women have the money. They are looking for transparent investment opportunities that are consistent with their values and will provide a return. They value meaning and purpose and are willing to take risks that they understand.

Syndicate Leaders by Gender

In 2014, there were 135 active syndicates on AngelList in our sample. Only nineteen, or 14%, are led by women.

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It is important to recognize that a few enlightened leaders on AngelList are actively seeking women investors and to fund female and diverse founding teams. 500 Startups offers a dedicated syndicate for female founded companies called 500 Women. Our belief is that female founded companies represent an untapped source of outstanding companies with massive potential. The industry must be careful not to segment the market into men only investing in men and women only investing in women.

Conclusion

In our sample, the vast majority of companies seeking capital on AngelList have all male-teams, and more than three quarters of the site’s investors are men.

In many ways, the record of funding on AngelList is similar to the funding record of the top VC’s in 2014 that we have written about before. If you are a woman entrepreneur looking for funding, would you consider AngelList?

While AngelList is using technology to improve access and transparency, and reduce fees, there is more the industry needs to do to open the doors for women entrepreneurs and gender-diverse teams. We must fund great ideas and companies from women and diverse teams that have equal merit to all-male founded companies. To spur innovation and job creation we need all worthy entrepreneurs to succeed, and those who are in a position to support must do so.

The solution to changing this gender imbalance rests with both women and men. First, we need the industry to acknowledge the problem. Then, we encourage everyone involved in allocating early stage capital to support all efforts underway to level the playing field. It’s a winning solution for all.

As for women, Plum Alley and others are initiating meaningful ways for you to participate and invest. It is time to put your money behind your beliefs, fund women entrepreneurs and participate in the wealth creation taking place.