Palo Alto Weekly

Cover Story - May 28, 2010

What ceiling?

Women carve out a place in Silicon Valley's startup arena

by Aimee Miles

In the summer of 2007, 22-year-old Ooshma Garg was in position to make a critical decision. Having recently graduated from Stanford University with a bachelor's in biomechanical engineering, she had accepted an offer for a stint at a top-tier financial-services firm as an equities-trading analyst.

But several weeks into her internship with the firm, Garg decided to do the unthinkable — she packed her bags and walked away, leaving behind a flabbergasted cohort of peers and advisers.

Garg had spent the previous year laying the foundation for a startup that she had conceived her junior year in college, when she served as co-president of Stanford Women in Business, a pre-professional organization that offers networking and mentorship resources for undergraduates. Noticing that diversity recruiters in law and engineering sectors didn't have a centralized place to connect with groups like hers, Garg decided to create one.

On her own time and dollar, she began researching her market, drawing up user interfaces and work-flow models for her website, and showing prototypes of her product to potential customers — all while keeping up with classes.

Garg hired a web developer and marketing director, and by the time she graduated from Stanford, she had high hopes of securing three subscriptions from law firms who took a leap of faith and considered paying for a product that hadn't launched yet. But she hadn't yet received the funds, and, uncertain of whether her plans would really take off, she found an internship that would supply her with a steady income through the end of the summer.

"I wasn't sure if the checks would come in," she said, "and I was encouraged to take a job that would set me up for a very stable and lucrative career. But a few weeks in when the revenue was confirmed and in my mailbox, I left my internship."

That move, as Garg puts it, "caused quite a stir." She promptly caught a flight from New York to Stanford, sublet a graduate student's apartment and began working out of coffee shops with a team of three. Behind her was a position at a prestigious firm that could have fast-tracked her corporate career; ahead were the murky, capricious waters of Silicon Valley's startup space.

"I'm leaving for what some people see as risky, but what I feel was my dream," she recalls thinking.

Garg launched Anapata in August 2008, and, two years later, the company is still afloat. Clients include law firms Wilson Sonsini Goodrich & Rosati, Fenwick & West, WilmerHale and Dechert.

Sipping coffee at a café in downtown Palo Alto, Garg, who has an air of boundless enthusiasm, discussed possible plans to scale beyond her current customer base once Anapata has developed a proven revenue model. She still devotes 80 to 100 hours a week to the firm, and does the majority of coding for Anapata.

Silicon Valley is a beacon of hope to this breed of entrepreneur — young, energetic, tech-savvy, and brazenly ambitious. But with women-founded, venture-backed startups accounting for just 8 percent of the total, it's clear that women in the valley's high-tech sector who channel that potential into high-growth, scalable companies are statistically the exception, not the rule.

That trend has recently begun to correct itself. The ranks of up-and-coming female founders who rival Garg's promising arsenal of credentials, self-confidence and headstrong entrepreneurial ambition are slowly swelling — women-led or women-owned firms represent the fastest growing sector of new venture creation in the U.S. — and a host of emerging Silicon Valley startups with a stake in the tech industry have a woman at the helm.

One is Wild Pockets, which streamlines the process of creating online games for developers. Shanna Tellerman began nursing the idea of a next-generation gaming platform while pursuing her masters in entertainment technology at Carnegie Mellon. Tellerman thought the concept might have potential beyond academic research, and after earning her degree in 2005, she stayed on at Carnegie as an employee and continued to refine the prototype.

A visiting investor took notice and told her the product might be commercially viable. Tellerman founded Wild Pockets (then Sim Ops Studios, Inc.) in Pittsburgh in 2006, without any funding or a business person on board.

"I knew nothing about fundraising, and zero about startups in general," Tellerman said.

Six months later she and her teammate managed to secure $100,000 in early seed money from a state-funded seed capital group as the American economy began to spiral into a decline — a tuppence compared to the $2 million they had initially bargained for.

At the time, that seemed like a setback, but Tellerman now thinks it gave her a unique opportunity.

"It's a lot better not to take on a lot of capital at the start and grow a little more organically and figure out your path," she said. "It was smarter money."

The turning point didn't happen until two years ago, when Tellerman attended separate events hosted by Wired Magazine and Tech Crunch, which "blew open the door," she said.

The venture capitalists she had encountered in Pittsburgh had been "a little more institutional in their thinking," and Tellerman found the culture in Silicon Valley far more hospitable to a young female entrepreneur with lofty aspirations and limited business experience.

After conferring with advisers who understood the industry, the company rebranded and widened the scope of its product, opening an additional office in San Francisco. Wild Pockets, now in the beta stage, offers a free web-based 3D design platform, game assets, file hosting and other services throughout the development process.

Looking back on the past four years, Tellerman says there are quite a few things she would have done differently — but she had to learn them on her feet. She credits her willingness to make mistakes as one of the traits that helped her through the growing pains of launching and leading a startup.

"There's a hundred decisions you make at every moment," Tellerman said. "You just have to move fast, be willing to try an idea, get it out fast, execute fast, get feedback fast...even if (the product's) not as polished as you want it to be."

"It helps being on the younger side and not knowing what you can't do," she said.

That reckless pursuit of an improbable vision, negotiated on a steep learning curve at high risk — the quintessential startup experience — might very well have ended in failure for Tellerman or Garg, and could go that way yet.

It's a risk that Shaherose Charania, CEO of Silicon Valley-based networking organization Women 2.0, is encouraging more and more women to take.

Charania, who studied business at the University of Western Ontario, co-founded Women 2.0 in 2006 after relocating to the Bay Area from Toronto, Canada. Her first glimpse of Silicon Valley came when she was vying for a job with Google. The company brought her to Mountain View for an interview, but ultimately told her they wanted an engineer for the position.

"I was gutted," she said. "But I had seen the Valley."

Charania decided to stay, and worked for awhile in telecommunications before trying her hand at startups. Breaking into the tech arena without an engineering background was challenging, and she wondered why she wasn't meeting more female role models who had already charted the territory. Women were certainly participating in the startup space, but there wasn't much interaction between them, and they didn't have a consolidated networking infrastructure to bring them together.

Charania also saw that quite a few women engineers weren't considering startups for a number of reasons.

"I kept meeting these really smart technical women who were working at big companies and weren't taking the chance because they were scared, or they didn't know how, or they didn't have a network," she said.

"It was a boys' club, and guys were funding their friends. We said, 'let's make a girls' club.'"

The founding team of four began a grassroots-style recruiting campaign, cold-calling venture capitalists (primarily women) to see if they would be interested in attending meet-and-greets with potential female founders. They were.

Over time, Women 2.0's casual networking events evolved into a structured program that now offers workshops, entrepreneurial instruction and annual pitch startup competitions. Charania has seen the pioneering startup ethic gain traction with a growing number of women as Women 2.0's membership has soared to more than 15,000.

She estimates that less than 5 percent of women founders in tech are female. A wealth of research in the past decade has probed the cultural, socioeconomic and psychological underpinnings of the disparity, and a number of contributing factors have been cited as reasons for women's under-representation in the high-tech startup arena — ranging from early-stage socialization to family obligations.

Whatever the reasons, Charania's goal is to get more women to do tech startups — which Women 2.0 defines as any company that has a technologist on the founding team. But statistically speaking, with the number of non-technical corporate women vastly outnumbering those with computer science experience (the National Science Foundation reports that women occupy only 27 percent of positions in all sectors of employment for science and engineering), finding a female co-founder who fits the bill is highly improbable.

The majority of pitches at Women 2.0's pitch startup competition are from male-female teams; seldom all-female and almost never female single founders.

Whatever the cause, women account for just under 5 percent of tech startup founders, Charania said.

She names a lack of technical expertise as one of the major factors that keeps women from entering the startup space. It's a common issue that would-be entrepreneurs bring up at Women 2.0 networking events — many have business experience, but assume they're not qualified to lead a high-tech startup without an engineering background and have trouble finding a technically inclined co-founder who can fill that void.

"The myth is you have to be an engineer to be a founder, and that's simply not true," said Cindy Padnos, a venture capitalist whose recent whitepaper on the contributions of female entrepreneurs in the high-tech sector has been circulated internationally. "Every team building a company in the tech space has to have a great technologist as part of the team, but it doesn't necessarily have to be a CEO or a founder."

Padnos is founding managing director of Illuminate Ventures, a firm that invests in early-stage high-tech start-ups — with a special interest in supporting teams that are inclusive of women. She estimates that out of the five women-led startups she recently invested in, only one had a female founder with a technical background.

"I think it's a barrier that women impose on themselves and that investors may impose sometimes as well," Padnos said. She points to a number of prominent businesswomen leading tech companies as counterexamples.

Still, many entrepreneurially minded women don't enter the startup space until later in life, when they've amassed a corporate resumé that lends weight to their credentials, Padnos said. She was one of them.

"I worked in the corporate world, in management consulting, and as an executive in a startup before I started my own," she said. "I did feel that I needed to gain that level of experience and credibility. (But) it was still tough raising capital."

Anapata founder Garg, who had financial experience and a degree in biomechanical engineering but limited programming skills when she launched her own startup, says that her rudimentary knowledge of computer science didn't scare her away from pursuing a web-based startup. But she found that teaching herself the programming languages PHP and CakePHP allowed her to direct product development with more precision than she could have done otherwise.

"You need to understand the core components in the product space that you're building," she said. "Now I can anticipate how long it takes to fix something or add a feature, and I can review code."

Aihui Ong, a former software engineer who runs the female-focused consulting firm EdgiLabs, saw an opportunity to improve the odds for women who face the same challenges Garg had dealt with by offering targeted management and development solutions. Most of the women who find her service have already ascended the corporate ladder, she says, but many aren't familiar with programming.

Ong hadn't originally planned to build a firm that concentrated on products for and by women, but after talking to female friends who were struggling in the startup space, she recognized a pattern of similar challenges that confronted them, which included pitching female-oriented products to male VCs and finding good developers to implement their vision. Since EdgiLabs started in 2007, Ong has guided projects ranging from e-commerce sites to a social networking community for ex-pats, and directs Women 2.0's startup pitch competition.

Most of her clients are willing to invest their own money to build a prototype before applying for funding.

"The pattern that I see is ... a lot of (female founders) know what they want, they have good savings already, they spend $100,000 of their own money before they pitch," she said.

Research by the Kauffman Foundation and the Women's Business research center shows that women have traditionally had more difficulty accessing equity capital than their male counterparts, which may account for their willingness to spend their own savings or go into debt when financing their startups — but the reasons behind the disparity are difficult to distill with absolute certainty.

The numbers are less opaque — 4 percent of women who own firms worth $1 million or more gain equity funding compared to 11 percent of men who fit that category. That gap is especially apparent at the venture-capital level, where in 2006 less than 7 percent of VC-funded companies had women founders. Their representation in the IT sector was consistently lower until recently.

Padnos points to a factor known as "pattern recognition" — a mental process that experienced VCs use to identify promising investments, both consciously and intuitively, based on their past successes.

Pattern recognition is also built on the scaffolding of personal life experience, which varies according to a number of demographic factors, one being gender.

Nazila Alasti saw that firsthand when she founded Jooners, a Palo Alto-based company that helps activities coordinators manage their volunteer base using online guides and templates, in 2006.

Despite having technical knowledge and business expertise paired with an insider's perspective of the venture-capital world (she'd spent a couple years working there), Alasti anticipated an uphill climb in securing funding for her business concept, which drew largely from her experience as a mother coordinating school activities.

Her instincts were correct. None of the VCs she pitched to made an offer, "mainly because we had a hard time convincing (them) that this is a big enough market," she said. "The subject matter and organizational complexity wasn't something that too many VCs knew about."

Instead, Alasti made do with more modest funding from a core group of angel investors. She changed the business model for Jooners to a subscription-based service and retained 40 percent of her nationwide user base, largely composed of parents with elementary and middle school-aged children. The willingness of a relatively large proportion of users to pay $20 a year for a previously free service demonstrated the viability of Jooners as a business idea contrary to doubts, Alasti says.

Padnos believes that the growing presence of female VCs and angel investors could change the funding prospects for women like Alasti. Research has shown that the rates at which female entrepreneurs receive equity funding is much higher with firms with women partners — either because women investors are more likely to understand female-oriented pitches, or because women investors and entrepreneurs are more likely to seek out and connect with one another (a principle known as homophily).

Women angel investors, most of whom became independently wealthy through their own entrepreneurial endeavors, now account for more than 15 percent of the population of angel investors, according to the National Center for Research on Women. But women make up only 7 percent of investing partners in venture capital, where the investor turnover is much lower, and the cash flow is significantly higher.

That could be a problematic factor, Padnos argues, given the unparalleled level of functional and financial expertise that VCs offer, and the substantial volume of research showing that venture-capital backed firms tend to outperform and grow up to three times faster than other companies.

At the same time, research has shown that a lack of access to venture capital hasn't hindered female founders from starting successful companies — in fact, they're achieving similar or higher revenue performance in the early stages of their businesses while expending less capital.

Experts and industry insiders seem uncertain as to why.

"It's a chicken-and-egg question," Padnos said. "Are they more efficient because they can't gain capital or more efficient because that's their nature? I can't tell you."

Katie Nittler, who serves as COO of Astia, a nonprofit committed to accelerating female leadership in high-growth businesses, argues it's the latter. It may have something to do with the fact that women are less likely to cede control if they don't have to, but other factors are involved.

"I think there's a natural tendency in women to be more efficient ... they're not making such rash decisions on money," Nittler said. "Women tend to put themselves in debt in the beginning, which points to the fact that they aren't paying themselves as much as (men) are," she said. "Men don't spend their own money, they spend others' money. And if they fail, they do it again."

"My philosophy is, you shouldn't take funding unless you need it," said Garg, who has been bootstrapping for three years. So far, she's brought in and spent the equivalent of an early angel round of funding.

"The clients I work with already left the corporate world. They don't want to give up control (by accepting VC funding)," said Ong of EdgiLabs. "People in this stage are like, 'If I want to give up control, why don't I just go back to the corporate world?'"

Not all women buy the idea that there's a gender bias in funding women in venture capital. Many female entrepreneurs find that being the only woman in the crowd works to their advantage by making them more memorable to investors: "I think in many ways being female has opened doors," Tellerman said. "I think you're a little more memorable when you don't look like 90 percent of people who walk through the door."

Female investors have also dismissed venture capital's exclusionary image as an antiquated stereotype that overlooks a strong tradition of meritocracy.

"I think people want to look for discrimination and I just don't see it that way. ... VC is very performance oriented," said Sonja Hoel Perkins, a managing director at Menlo Ventures. She's funded a number of tech companies with women at the executive level, but not as many with women founders — a fact she attributes to lifestyle choices women make that keep them away from the startup space, rather than discrimination at the investment level.

One of those factors, Perkins says, may be related to family planning, which can deter women from aspiring to the upper echelons of venture capital (Perkins herself says it's very doable; she has a 2-year-old and knows other women VCs with larger families) — a trend that may be mirrored in the entrepreneurial arena.

Ong has seen that trend manifested in the founders she routinely works with. Most of the women she's helped are married, but none have children. Although she says children and startups "shouldn't be mutually exclusive," she admits they aren't conducive to one another.

She's now working on her second startup, an online foodie community called Lovewithfood. A startup, Ong says, is a "24/7 time commitment."

"The first couple of years, it's hard not to think about it all the time," she said.

"If you ask me, would I have kids now, no, I wouldn't — I wouldn't have time. ... Doing a startup is like having a kid, so I feel like I already have one."

For others like Alasti, the issue was reversed — her decision wasn't about whether to have kids while doing a startup; it was about whether to do a startup while raising kids.

Alasti, who studied electrical engineering at Cornell and went on to get an MBA from Stanford, already had two young daughters by the time she founded her company. She had worked on two other startups prior to Jooners and had a sense of what was feasible given her time commitments. Having young children didn't dissuade her; in fact, it gave her the idea for her company in the first place. Having her daughters watch her build something from the ground up was a positive experience, she says.

Alasti was also quick to adapt to a lean business model out of necessity when she founded Jooners, and found it to be a healthy exercise in financial management.

Now four years into her business, she no longer has any immediate plans to raise venture capital. "I don't think we'll ever need it, frankly," she said. "I've been fortunate enough to be in very well-funded start-ups and I've seen money wasted, and my goal was to be as frugal as possible and we've made our angel money last a very long time."

The ability to sustain an early-stage startup with limited spending power may prove a boon to founders of tech startups in the coming years, Women 2.0's Charania says, as VC funding in the technology sector, which peaked at the height of the dot-com boom in the late '90s, has trickled off due to the economic downturn and the availability of cheaper development technologies.

"They don't need VC funding," she said. "They're small tech companies that can run independently once they get seed funding, but they can use angel funding." Over time, she hopes Women 2.0 will uncover more scalable, VC-fundable companies, but the first step is getting women to meet the right contacts and try their hand at entrepreneurship with smaller projects.

Many will fail, but that's part of the game, she says. The important thing is to try again.

"Launching a startup in general and trying to succeed against the odds and achieve the impossible — that's incredibly difficult whether you're a man or a woman," said Garg. "It's about drive — male or female, if you are gutsy or diligent, you can make it."

Editorial Intern Aimee Miles can be e-mailed at amiles@paweekly.com.

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