In 1973, fresh out of college and with a double major in business and math, Ann Winblad started as a systems analyst at the Federal Reserve Bank of Minneapolis. Despite concerns about her student loans, after thirteen months she decided her current environment lacked the challenges that she needed to thrive. “My dad was a high school basketball coach, so we were always doing competitions. Who could run around the yard fastest. We each had our own little personal stopwatches,” she explained. “Unfortunately, my energy level is quite a bit different than the people at the bank.” Her solution: “I just resigned one day. I decided, ‘I’m just going to write my resignation letter and just start my own company.’” This, plus a $500 loan from her brother, was the start of Open Systems Incorporated, a financial and accounting software firm.
Believing in her ability to write software, she convinced three friends to go on sabbatical or quit their jobs and join her. First they won the proposal for the Student Accounting System for the state of Minnesota, which provided base funding. The team designed the school system software during the day and their own at night, negotiating free access to the computers of a local computer reseller in the evenings. Unfortunately, the reseller lacked evening air conditioning. “If you’re in Minneapolis today,” she said while speaking to us one summer day, “it’s about a hundred degrees. And my three guys decided that the best way to stay cool was just to strip all their clothes off. And unfortunately, the office manager came in that night, and she really didn’t understand this whole naked programming concept, so we were banned from using their computers.” Winblad was faced with a new dilemma: raising money to buy computers.
Making a list of all the banks in Minneapolis and St. Paul, Winblad set out to raise capital. After receiving eight prompt “No’s,” she stood on the steps of the ninth and last bank and decided to switch up her strategy. “I could know exactly when they were going to say ‘No,’ so at home I’d practice crying in front of a mirror. So, when the guy would start saying ‘No,’ I would burst into tears. And the last bank, when I did that, he goes, ‘We’ll just take care of you, just stop crying.’ And they loaned us the $25,000 we needed for all those computers.”
She read her audience and gave them what they wanted: vulnerability. It was a strategy some would consider controversial, but it worked. Next, she needed skilled employees for cheap. For their first programmers, she negotiated, saying, “How much do you spend on food per month?” Based on their response, she would offer to pay for all their food if she could deduct that sum from their salary. She said, “I’d already figured out how to qualify anyone for food stamps in the state of Minnesota. So, for a year, we hired our programmers with a package that was salary and food stamps.” Again, Winblad wasn’t afraid of unusual methods to make her company viable.
Six years after its founding, Open Systems sold for $15 million, thirty thousand times Winblad’s original $500 investment. From Winblad’s story, the level of creativity and tenacity necessary for an entrepreneur to be successful is clear. A startup team needs to want it so badly that they are willing to go the extra distance 24/7 for as long as it takes. In this case, it involved some unusual and even controversial methods—coding without air conditioning (or clothes) and crying in front of potential investors.
During the seventies, when Winblad founded Open Systems, software companies were a new concept. Apple and Oracle were just two of the pioneering tech companies founded during that decade. Today, the market is more established and saturated, causing investors to have assumptions about who fits their idea of an entrepreneur. Although entrepreneurs can prosper from a more streamlined process, it can also lead to biases toward those who do not fit the typical mold: a preconceived profile of education, background, gender, race, and/or class. Babson’s 2012 Global Entrepreneurship Monitor report found the median capital of male entrepreneurs is $30,000, relative to female entrepreneurs, whose median is less than $8,000.[1] There are serious barriers that women face when applying for various types of capital—deficits in technical knowledge, connections to financial networks, and an overall lack of confidence.
One consistency since the seventies is the benefit of a STEM background when raising funds. According to Heidi Roizen, the operating partner at Draper Fisher Jurvetson, most venture capitalists are attracted to companies where there is the opportunity to dominate a market. Today, startups often have very technical underpinnings because this creates a barrier to entry for competitors. Loretta McCarthy, managing director of Golden Seeds, said, “Many of the companies that we see have some sort of technology as a core part of their solution. So the more women who have working knowledge of technology, the more we will see.” Here the overlap of how a lack of women in the fields of STEM creates a deficit of female entrepreneurs is clear. Oftentimes women enter STEM fields later on in life, again creating a different background than many of the men with whom they are competing for funds. It is not only lack of access to capital sources that is barring women from funding, but also the lack of female investors.
From the Center for Venture Research, “In 2005, women represented 8.7 percent of all angel investors; as of 2012, this number has grown to 21.8 percent.” And in 2011, only 12 percent of venture capitalists were women.[2] Only 22 percent of U.S. startups have one or more women on their funding teams.[3] And a 2012 study found that women are almost twice as likely to discontinue their business due to an inability to secure funding. Difficulty in financing is the most often cited reason women in the United States discontinue their business (25 percent cite this reason, compared with 14 percent of men).[4] According to Deborah Jackson, cofounder of the Women Innovate Mobile (WIM) Accelerator and a member of Golden Seeds with more than twenty years of experience in raising capital, this lack of women on the investment side has hurt women’s access to capital. “If you really look at how money is allocated and given to early-stage companies, it starts with who has the money,” she said. “The fact of the matter is that men control the flow of capital to early-stage companies.”
Funding entrepreneurial efforts through venture capital and getting access to larger scale investments have been the greatest pitfalls for women who, without access to this network, lose access to investors. The investment process, at its core, is about belief—belief in the vision of the founder, belief the founder will prevail and solve unforeseen challenges, belief that the founder will build and grow the company no matter what it takes, and belief that the idea can turn into a competitive and profitable company. “Men pick up the phone to open a door for one of their buddies,” added Jackson. “If you have a door opened or you are part of a club, you get opportunities that someone from the outside has a hard time getting.”
Women have tried to overcome this through investment organizations focused on women and ones that seek to connect women-led firms to capital, such as WIM, Golden Seeds, Belle Capital, Phenomenal, Women’s Capital Fund, 37 Angels, and Women 2.0, to name a few. These programs are a great starting point to build women’s access. But women’s groups cannot, and should not, be the only sources of capital open to promising female-founded companies.
Oftentimes funding capital also comes with access to the necessary network that will help a startup grow. McCarthy spoke about how Golden Seeds helps companies not only raise capital, but expand the relationships of early-stage firms: “These entrepreneurs frequently really struggle with opening doors in various corporations that they would like to call upon to sell their service or product. So we put a lot of thought into how we can be helpful after we have made the investment. This might include just using some of our members to help them think about their business plan. We also frequently think about what are the introductions that this company should have now.”
This lack of network goes deeper than snagging an initial pitch. It expands to receiving advice for the development of a business strategy and introductions to help obtain clients.
[1] Donna J. Kelley, Candida G. Brush, Patricia G. Greene and Yana Litovsky. “Global Entrepreneurship Monitor: 2012 Women’s Report.” Babson College. 2013.
[2] Jeffrey Sohl, “The Angel Investor Market in 2012: A Moderating Recovery Continues,” Center for Venture Research, April 25, 2013.
[3] “Startup Outlook: 2013 Report,” Silicon Valley Bank, 2013.
[4] Donna J. Kelley, Abdul Ali, Edward J. Rogoff, Candida Brush, Andrew Corbett, Mahdi Majbouri, Diana Hechavarria. “Global Entrepreneurship Monitor: 2012 United States Report.” Babson College and Baruch College. 2012.