How homophily hurts high-growth entrepreneurship

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Homophily refers to the tendency for people to form connections with others like themselves. This tendency has been found to occur broadly across age, race and political inclination. Homophily has also been found to influence many types of relationships ranging from personal friendships and marriage to business-related work advice and support. No surprises then, that homophily also affects Venture Capitalists (VCs) in their hiring behaviors as well as in funding of high-growth entrepreneurs. In fact, recent research by Gompers & Wang (2017) identified patterns of homophily-based hiring by VCs and homophily-induced information flows. Both of which have resulted in fewer women choosing to be high-growth entrepreneurs or VCs.

The real issue is not blatant sexism, but rather a marginal preference for a male vs. female candidate which results in more male VC partners and more VC funding for male high growth entrepreneurs. At the VC firm level, a small bias towards hiring someone of the same gender may seem trivial but the cumulative effect results in persistently low representation of women in the VC industry. In other words, ‘individual’ preference in the ‘white’ male dominated VC industry translates into a continuing trend of ‘white’ male dominated VC firms in spite of the presence of suitable candidates that are women.

Ample evidence captures this trend: Of the top 100 VC firms in the US, only 7% of the VC partners are women and only 18% of funded companies were founded by women in 2016.

Why does it matter?

At the personal level homophily may feel like the right thing to do but in reality interferes with rational judgement of individual or business merits. Moreover, homophily can result in unintentional glass ceiling effect consequences for those individuals such as women, who are not already well-represented in the VC community.

The negative effects of gender homophily have been identified elsewhere including among US physicians in referring specialists to Medicare patients. In this case, since most referrals are still made by male physicians, biased referrals lower demand for female specialists. Since specialists tend to earn more than primary care physicians, this behavior significantly contributes to the average gendered earnings gap among physician specialists.

The simple solution in both cases, for VCs and physicians alike, would be to increase the numbers of women at the decision-making level. However, at a more fundamental level, in order to counter the persistent effects of homophily, increased exposure to diversity as well as increased availability and use of metrics and assessments would allow for ‘choices’ to develop based on a broader range of criteria that go beyond superficial similarities.

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Getting it Done: Barbara Kasoff – Champion for Women’s Business Advocacy

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Even when public sector institutions commit to policies that include a gender perspective, the knowledge and capacity are often lacking to ensure that women will be able to benefit from the specific initiative or intervention. More involvement is needed to better understand how high level policies can be activated to benefit women. Women’s organizations can play a key role in this process.

WIPP (Women Impacting Public Policy) is an excellent example of a women’s organization that filled the gap between policy and practice needed to facilitate the development and growth of women owned businesses (WOBs).

Co-founded by Barbara Kasoff in 2001, WIPP elevated the visibility of women business owners in the US using 3 key strategies:

  • Information & training
  • Advocacy & lobbying
  • Coalition-building

Information & Training: WIPP educates WOBs on economic policy and current legislative initiatives that impact business health and growth. For example, in 1994, a US government procurement target was set so that 5% of annual spend for US government contracts should be awarded to WOBs. However, in spite of this policy, very few WOBs were able to bid and win government contracts. WIPP educated and provided training to WOBs regarding the procurement bidding process.

Advocacy & Lobbying: WIPP’s legislative strategy is to have the greatest possible impact for WOBs. WIPP representatives regularly meet with members of the US Congress, the White House and federal agencies to educate and lobby for legislative reforms.

It was only through years of concerted effort by WIPP, to educate WOBs on the application process as well as to lobby US government officials to modify contract requirements that the 5% annual women-owned small business procurement target was met in 2015. However, the third key strategy, Coalition-building, lay the groundwork for the other two strategies to succeed.

Coalition-building:  From the onset, WIPP had a clear, strategic vision. Instead of acting alone on behalf of its own members only, WIPP formed a coalition of 79 women’s business organisations that represents over 4.7 million business women to create a unified and powerful voice for WOBs based on a platform of common economic issues such as US procurement policies and access to capital.

Barbara Kasoff served as WIPP’s President for 9 years and most recently served as WIPP’s President Emeritus. Her message was simple: If you don’t like the way government regulations affect your business, get involved. She led by example, facilitating billions of dollars in US government contracts to reach growing numbers of WOBs.  We are grateful for and benefit from her visionary leadership!

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Effective Business Environment Reform: A Gendered Perspective

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In developing countries, projects or interventions tend to address the needs of women at the base of the pyramid or micro-business owners. In contrast, very few initiatives focus on the gendered effects of the regulatory, business or investment environment on business women with small or medium-sized businesses (SMEs). Though there is evidence that equal legal rights increase women’s business ownership[1], there is insufficient evidence on which business and investment reforms have the greatest impact on women’s business activities. Moreover, little is known as to which efforts can support the process of Business Environment Reform (BER).

A number of initiatives are underway in developing countries to include a gendered perspective in BER. However, given that these initiatives are still in the early stages of implementation, lessons can be drawn from advanced economies such as the US that developed in the process of gendered business reform.

Two concrete best practices are highlighted below

1. Women’s Business Centers: A one-stop shop for women entrepreneurs

Though it may seem gender neutral on the surface, the timing, location and content of business support services are inadvertently tailored to the needs of men. In several advanced western countries, women’s business centers (WBCs) have been introduced to address the specific needs of women. WBCs offer specific benefits for women:

  • The entire experience is much longer than a single classroom-based course, and can be said to be more “relational” than “transactional”.
  • The locations are more “women-friendly”, often providing child care and offering courses at varying times, to meet the needs of women who are balancing the demands of jobs and family responsibilities.
  • The client experience is more holistic, going beyond classes about writing business plans to include one-on-one counselling, peer roundtables, individual or group mentoring, and discussions of work–family balance. Often exercises or sessions focus on building self-esteem and ‘entrepreneurial’ confidence of women, many of whom lack business role models or previous managerial experience.

For example, in the US, the Office of Women’s Business Ownership provides partial funding and management oversight to over 100 non-profit organisations that provide entrepreneurship training and technical assistance primarily to women. Each Women’s Business Center (WBC) tailors its services to the needs of its individual community.

2. Women’s Advocacy is essential to ensure implementation

Even when public sector institutions commit to policies that include a gender perspective, the knowledge and capacity are lacking to ensure that women will be able to benefit from the initiative or intervention. Through the involvement of their members and through targeted advocacy, women’s organisations can increase the visibility and success of these interventions.

An example of the specific role women’s advocacy can play in gender-focused business development comes from the US. In 1994, a target was set that 5% of annual spend for US government contracts should be awarded to Women Owned Businesses (WOBs). However, it was only through years of concerted efforts by Women Influencing Public Policy (WIPP), to educate WOBs on the application process and lobby the government to modify their contract requirements, that the 5% annual target was finally met in 2015. A critical component to its success is that WIPP does not act alone, rather, it brings together a coalition of 78 business organisations to advocate for common economic issues such as procurement policies and access to capital.

What these two best practices illustrate, is the need for national government involvement to support women’s business centers as well as active coalitions of women’s business organizations to ensure reforms are effective.

Overall, gender-neutrality in BER is rare. Therefore, as a rule of thumb, no intervention should be assumed “gender neutral” simply because the differential effects are not obvious —activities should be assumed to disproportionately benefit men unless analysis has informed gender-sensitive design, confirmed through sex-disaggregated results measurement. The focus for interventions should be on business reform and investment activities as these often seem to be gender neutral when in fact they are not.

For Further information:

Gender and Business Environment and Investment Climate Reform for Bangladesh by Aidis, R. (2017), report commissioned by UK DFID.

Gender Dimensions of Business Environment Reform: A Guide for Policy Makers and Practitioners (2010) by Simavi, S., Manuel, C. and Blackden, M., World Bank.

Business Environment Reform and Gender, Business Environment Working Group (BEWG) (2016) by Miles, K., Donor Committee for Enterprise Development (DCED)

[1] Source: Women, Business and the Law Report (2014). Based on 94 economies for which data is available.

 

 

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Trump and Women’s Entrepreneurship in the US: Gender, Elitism and Privilege

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Donald and Ivanka Trump

To date, Trump’s biggest influence on his ideas regarding women entrepreneurs has arguably been his entrepreneur daughter Ivanka Trump.

Trump may also base his notions of women’s entrepreneurship on his own experiences as an entrepreneur.

In this regard, both Trump and his daughter’s entrepreneurial success was strongly influenced by their father’s privileged position.

In Donald Trump’s case, he was able to capitalize on the ‘Trump’ name as well as enjoyed a loan of $ 14 million dollars from his dad.

For Ivanka Trump, her rise to entrepreneurial success was strongly facilitated by Donald Trump’s success as both a real estate mogul and as a television celebrity in ‘The Apprentice’.

There is no question that both Donald and Ivanka are savvy and talented entrepreneurs. But both also benefitted from their ‘status’ in starting and growing their businesses

Donald and his daughter Ivanka fit the characteristics of ‘Privileged Entrepreneurs’ – based on  the ‘Melting Middle’ typology of the six main types of entrepreneurs. Privileged individuals experience less entrepreneurial impediments due to their elite or celebrity status. For example, privileged entrepreneurs have access to networks and resources due to their social status and family connections. Entrepreneurs in this category are not less capable than other entrepreneurs rather in addition to their personal skill and talent, they enjoy privileges which allow them to ‘function’ above the normal limitations of the existing institutional environment. In this way, they often do not encounter the same regulatory barriers and have access to key resources such as financing, contacts, connections and insider information not readily available to the unprivileged.

Examples of privileged entrepreneurs are often found among the siblings, in-laws and children of the ruling elite.  Both Isobel de Santos and Valentin de Luz Guebuzza are examples of women entrepreneurs that enjoy this type of privileged status. Isobel is the daughter of Angola’s President and Valentin is the daughter of Mozambique’s President. For both Isobel and Valentin, their elite status greatly reduced or even eliminated gendered impediments to business startup and growth.

In Ivanka’s case, before joining the family business, Trump worked for Forest City Enterprises. Later she developed her own brand and introduced a line of jewelry (the Ivanka Trump collection) which was launched at her first flagship retail store called Ivanka Trump on Madison Avenue. Ivanka is principal of Ivanka Trump Fine Jewelry and she is also Executive Vice President of Development & Acquisitions at The Trump Organization. She has further released her own line of Ivanka Trump Lifestyle Collection which includes fragrance, footwear, handbags, outerwear and eyewear collections. Prior to her father’s presidential campaign, Ivanka’s estimated net worth was $150 million.

So what does this mean for the future of women entrepreneurship in the US? If Ivanka Trump becomes the ideal for women’s entrepreneurship then like in many developing and emerging economies across the world, we will see privileged women continue to translate their status and business acumen into successful businesses. However, our entrepreneurial ecosystem as a whole will suffer greatly, as unprivileged women entrepreneurs continue to face gendered barriers to access to capital, networks and visibility needed to start but grow their businesses.

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She Started It — a film about entrepreneurs that happen to be women

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She Started It – a film about entrepreneurs that happen to be women

Is a film that highlights resilience, perseverance and grit of five entrepreneurs. Their companies, approaches and backgrounds are different, but they share one thing in common, they are young women pursuing their entrepreneurial dreams in a male world. As the viewer watches each story unfold, they get a rare glimpse into the female perspective.

Watching a feature length film where are all the main entrepreneurs are women, is in itself,  revolutionary.

Thuy (28), an entrepreneur from Vietnam is shown pitching her startup GreenGar at a 500 startups event in Silicon Valley. Her business idea seems exactly matched to what investors would want – a technology based whiteboard app that allows for online and remote collaboration and already have  millions of downloads

But Thuy fails to get funded… even after refining her pitch and pitching a second time

Thuy’s response?  If Plan A, Plan B and Plan C don’t work, there is still 23 other letters in the alphabet!! Thuy will not stop until she succeeds….

Eventually, Thuy must shut Greengar down and return to Vietnam. Several months later, she starts another app based company Tappy in Vietnam that gets funded and is acquired by Weeby.co in Silicon Valley.

In Stacey’s case, she already has had phenomenal success on her first business, Mysharedcloud.com which she started together with her brother Scott while being a high school senior. Mysocialcloud is a web application that allows users to store their website login information in an online cloud. Mysocialcloud was acquired by www.Reputation.com in 2013.

The film chronicles Stacey’s new startup www.admoar.com  and the conflicts she experiences as her parents pressure her to finish college first. In one poignant scene, Stacey’s mother emphasizes the importance for Stacey to finish college and also to produce some grandkids… but none of this pressure is applied to Stacey’s 2 year older brother Scott, who during the entire exchange, sits quietly nearby…

The film was screened by World Bank’s multi-donor program InfoDev  as part of Global Entrepreneurship Week. In a panel discussion following the film, Sheena (25) founder of Sheena Allen apps, a successful female entrepreneur from Mississippi also featured in the film answered questions.

Sheena was asked if a woman entrepreneur should be herself or ‘take on the entrepreneurial uniform’ when pitching to investors, Sheena responded, that women need to do both.

Women should be themselves but must also not fall into the feminine stereotype of coming across as ‘nice & needy’ since investors want to see confidence.

Sheena explained that women often portray themselves as ‘needing money’ for their businesses which conveys  ‘weakness’ rather than ‘strength’. In contrast, men entrepreneurs tend to convey confidence in pitching giving more of the impression that ‘I don’t need your money and it would be your loss not to invest in me’

Another issue discussed during the panel by both Thuy and Sheena was the fact that VCs tend to look for patterns of success before making an investment and women are at the disadvantage since they don’t fit the stereotypical success pattern of a young man in a hoodie.

An obvious improvement would be to increase diversity amongst Venture Capitalists by hiring more women and minorities in traditional VC firms. Already there is an increase of women’s participation as VCs in micro VC firms focused on seed and early stage investments.  But less so for large VC firms focused on later stage investments.

Researchers could also help increase the likelihood for women entrepreneurs to get funded by male VCs through research that identifies success patterns for women entrepreneurs based on rigorous analysis of existing funded company metrics.

To host a film screening or view a calendar of screening locations, see: http://www.shestarteditfilm.com/

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Making women business owners visible: World Bank’s Doing Business Index adds gender


international2The World Bank’s Doing Business Index (DBI)
has helped reduce burdens for business development worldwide. Since its creation in 2004, over 600 reforms have been recorded for easing the requirements for starting a business and 443 reforms for tax-related issues. For example, in the Philippines, paying taxes involved 48 payments 10 years ago but have been reduced to only 28 payments in 2016.

But in spite of its successes, the DBI has had one glaring blindspot: it never considered that women and men may encounter different barriers in doing business.  For the first time, the recently launched 2017 Doing Business Index includes a gender dimension in four of the 11 topics sets: Starting a businessregistering property , enforcing contracts and labor market regulation.

To date, The World Bank is the only business related index to include gender directly in its rankings and scores. The World Economic Forum’s Global Competitiveness Index, The Heritage Foundation’s Economic Freedom Index and Corruptions Perceptions Index do not.

What do the 2017 gendered DBI results show?

In terms of Starting a business, the overall regional results indicates few differences. The greatest difference found is for number of procedures for women (8.6) and men (7.9) and time (days) for women (20.9) vs. men (20.2) in the Middle East and North African region. But in both cases, the difference is less than 0.1.

Greater gender differences are found for registering property. In a number of countries unmarried or married women do not have equal ownership rights to property. The final country scores given for this measure ranged from -2 to 0, with higher values indicating greater inclusiveness of property rights.  Swaziland, is an example of a country penalized for gendered differences in ownership rights for both married and unmarried women.  As a result, Swaziland’s score is -2.

A gendered component is also included for enforcing contracts. The specific issue addressed is whether a woman’s testimony carries the same weight in court as a man’s. A score of -1 is given to a country where the law subscribes a lower value to a woman’s testimony and that of a man.

Including a gender dimension is a tremendous step towards realistic country assessments. Given the Doing Business Index track record of instigating reforms, identifying the gendered bottlenecks is a critical first step to reducing and removing them.

Full gendered inclusion in all of the Doing Business Index’s 11 dimensions needs to be the final goal. However, in addition to supplementing existing dimensions with a gendered dimension, the DBI may need to expand the issues addressed to fully incorporate gendered issues. Only then will we begin to create a realistic perspective of doing business in specific country contexts.

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Women and Gender Lens Investing – Measurement Matters!

There is growing interest among investors and wealth management funds in the US to identify gender oriented investment opportunities.

Especially given a recent article in Fast Company which uncovers the nasty effects of gender bias on investment decisions. Aided by the growth of new investment platforms it is becoming clear that when data, not humans, guide funding, women receive more VC investments. In other words,  too often gender bias interferes with rational judgement,women entrepreneurs receive less funding and ultimately the losers are the investors themselves and the economy.

How do we know if a VC firm is addressing gender? Unfortunately, existing measures of gendered impact are often vague and implied rather than based on concrete data. For example, VC firms may say they fund companies that support gendered balance yet without a standard measurement, there is no ability to compare their claims to other VC firms in an objective way. This results in a lack of transparency and comparability that limits the ability to distinguish between VC firms portfolios in terms of their gendered impact.

To fill this  knowledge specifically for early-stage gender oriented VC funds in the U.S., ACG Inc is participating in a Kauffman Foundation  funded project together with True Wealth Ventures  through George Mason University. The pilot study aims to provide a roadmap for how to standardize metrics for women’s leadership in venture capital funded portfolios that could be used not only to inform investors but also to compare and track performance.

To find out more see the recent blog by Sara Brand posted on Women Effect.

Blog reposted from www.acgimpact.com

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