CNBC Upstart 100

Why women entrepreneurs will be the economic force to reckon with in 2017

Elaine Pofeldt, special to
This start-up is based on playing games to find your best career fit
This start-up is based on playing games to find your best career fit

The Golden Age for women entrepreneurs has finally begun. The stars have aligned to help trigger the trend as robust ecosystems churn out enterprising females equipped with inspiration, know-how and funding. In recent years, the rate of women entrepreneurs has been growing at a percentage at least double that of their male counterparts.

A microcosm of the trend is CNBC'S inaugural Upstart 25 list, where 10 of the company fledglings were founded by women in a host of industries — from neuroscience to finance to retail. Some also offer products and services with a social mission that are geared to women.

Take the founders of Dia & Co., No. 11 on the Upstart 25 list. When Nadia Boujarwah and Lydia Gilbert met at Harvard Business School in the fall of 2011, they began talking about the yawning gap in the retail market in serving women who wear sizes 14 and up. "I have been this customer all my life," says Boujarwah.

On the hunt for fashionable clothes, they dreamed up the idea of a home-shopping service for plus-size women. About a year after graduation, they turned their idea into Dia & Co., a New York City-based company that sends subscribers boxes of clothing selected by a stylist. Recipients can buy what they like and return the rest.

Their target customers responded enthusiastically in market research, but the investors they approached in the mostly male investment community were skeptical. One reason was because plus-size women tend to spend less on clothing than women who wear smaller sizes, says Boujarwah.

"We tried to go to early-stage venture capitalists and professional angel investors and found that it was pretty challenging not just to be female entrepreneurs raising money in the world of venture capital but also female entrepreneurs serving a female customer very few people understood," recalls Boujarwah.

That wasn't the end of the story. Determined to succeed, the two women went on to raise "under $1 million" in convertible debt from friends, family and colleagues and grew the business on a shoestring, says Boujarwah. When they hit "hundreds of thousands of dollars a month in revenue," she says, they returned to the venture capital circuit.

This time around, Boujarwah and Gilbert raised money from investors, including some early skeptics, and went on to bag a reported $18 million in September 2016 in a Series A round led by Sequoia Capital. All told, they have raised $25 million, said Boujarwah, who declined to share the firm's revenue.

There is more of a focus on hearing what women have to offer and recognizing the value of investing in them.
Elizabeth Ames
senior vice president, Anita Borg Institute

Dia & Co. is among many companies on the Upstart 25 that believe products that target women is a fast-growing, lucrative niche. At digital investing platform Ellevest (No. 9 on the Upstart list), co-founded by Wall Street titan Sallie Krawcheck and tech entrepreneur Charlie Kroll, for instance, many customers are female. "What we have done a lot of work on is identifying that women have different needs when it comes to investment advice and financial management," says Kroll.

A global phenomenon

The strong representation of women on the Upstart 25 list reflects the growth of female entrepreneurship both at home and abroad. Women now make up 40 percent of new entrepreneurs in the United States — the highest percentage since 1996, according to the 2016 Kauffman Index of Startup Activity.

Meanwhile, in the 40 economies participating in the sweeping Global Entrepreneurship Monitor (GEM) survey in both 2011 and 2016, women's entrepreneurship rates rose by 13 percent on average, while male rates increased by 5 percent, according to lead author Donna Kelley, a professor of entrepreneurship at Babson College, which prepares the report with Baruch College.

The growth has been very swift in recent years. From 2015 to 2016, women's entrepreneurship rates increased by 10 percent on average versus 5 percent for males, across 51 economies that participated in the GEM survey. And in 29 of the 51, the ratio of male to female entrepreneurs has increased.

"The gender gap has closed in many countries, where women are as likely or more likely than men to start businesses," says Kelley.

So what is sparking women's interest in the start-up scene? Marketplace trends, expanding financing options — including the rise of venture-backed funds led by women — and greater access to mentors and role models all contribute, say experts.

"There is more of a focus on hearing what women have to offer and recognizing the value of investing in them," says Elizabeth Ames, senior vice president of marketing, alliances and programs at the Anita Borg Institute, a Palo Alto, California, organization focused on recognizing the contributions of women in computing.

Role models pay it forward

And there are more high-profile examples of successful women entrepreneurs to spur women on. Julia Collins, co-founder of headline-grabbing Zume Pizza (No. 1 on the list), and partner Alex Garden, for instance, closed a $2.5 million seed round in Silicon Valley in four days. Garden is the former president of gaming powerhouse Zynga Studios.

The duo — who initially worked together via Skype and met in person for the first time when they began raising funding — use robots to bake pizza inside of a high-tech van supported by small "sprinter" vehicles that make deliveries. Eight-slice 14-inch pizzas start at $15 — reflecting Zume's goal of bringing wholesome food, free of artificial ingredients, to people on moderate budgets. The company, which has sold 25,000 pies since it was founded in September 2015, reportedly raised another $23.8 million in a Series A round at the end of 2016.

"One of the things about being in Silicon Valley is, you have much better access to start-up capital," says Collins.

Crowdfunding has also helped some women gain a toehold as entrepreneurs. Although female entrepreneurs are less likely to use crowdfunding than men, they raise an average of 10.75 percent more money than their male counterparts, according to the GEM report.

Markit Opportunity (No. 4) relied heavily on crowdfunding when it got its start. The for-profit social enterprise, based in Kenya, developed a mobile platform that enables multinational corporations to buy responsibly from small-scale farmers in developing countries. Co-founders Ashley King-Bischof and Zeluis Teixeira raised $6,612 on Indiegogo to do a small pilot and are now looking for additional funding in a seed round — a task they know won't be easy, given that potential backers often assume a social venture must be a nonprofit. "It will be challenging to overcome some historical notions of the often-false trade-offs between profit and social impact," King-Bischof said on a Skype call from Nairobi.

Steep barriers remain

Despite substantial progress on the start-up front, the "scaleup gap" between men and women remains huge. "Female-owned businesses in general still start smaller and stay smaller," says Arnobio Morelix, entrepreneurship researcher at the Kansas City-based Kauffman Foundation, which promotes entrepreneurship.

Only 3 percent of women-owned firms in the U.S. have "high economic impact," generating $500,000 or more in revenue, compared to 9 percent of male-owned firms, according to the 2016 State of Women Owned Businesses report commissioned by American Express OPEN.
And relatively few women-owned firms smash through the $1 million barrier. Only 27.8 percent of firms with $1 million in revenue or more are owned by women or equally owned by men and women, and just 18.6 percent of companies with 500 employees or more are female-owned or equally male and female owned, according to research by the Kauffman Foundation.

"One of the things that could make more women-owned businesses scalable is programs to support women business owners through mentoring and helping them find access to capital," says Alice Bredin, research advisor for American Express OPEN.

Plowing through funding obstacles

Despite the success of the women entrepreneurs on the Upstart 25 list, many women still can't find the funding they need. More than 72 percent of women entrepreneurs said lack of access to capital was a challenge in one recent survey by the Kauffman Foundation.

(Left) Pymetrics co-founders Frida Polli, CEO, and Julie Yoo, chief data scientist
Source: Pymetrics

The funding gap is particularly pronounced when it comes to venture capital. Only 10 percent of venture capital around the world went to women between 2010 and 2015, according to a study by TechCrunch published in 2016. "Women still get significantly less of the venture capital and investment dollars," says Morelix.

It isn't only because women pitch ideas male investors don't relate to. Ask Frida Polli, a PhD who co-founded Pymetrics (No. 14) with partner Julie Yoo. The New York City start-up aims to match job seekers with positions that fit them well using neuroscience assessments and data algorithms.

Smashing old stereotypes

"I definitely think that you suffer from what I would call not conforming to the stereotype—the hacker in the hoodie or whatever you want to call it," says Polli, whose firm serves clients such as Unilever and Accenture. "There is a kind of male stereotype investors sometimes look for."

Pymetrics raised $2.5 million in a seed round and $6.4 million in a series A round in August, according to Polli, but many women raise little financing of any kind. Women entrepreneurs reported self-funding 61 percent of their total business capital, compared to men, who said they self-funded half in the Global Entrepreneurship Monitor 2015 United States Report, prepared by researchers at Babson and Baruch colleges. When women do raise money, they are less likely to get it from banks and more likely to turn to friends and family for financing than men, the research found.

(Left to right) Foodstirs Modern Baking founders Galit Laibow (CEO), Sarah Michelle Gellar (chief brand officer) and Greg Fleishman (COO)
Source: Foodstirs

But as some of the entrepreneurs in the Upstart 25 show, bootstrapping can sometimes give a business the runway it needs to gather the proof of concept it needs to win over investors.
Galit Laibow, CEO and co-founder at Foodstirs (No. 19 on the list), found that to be true.

Her Santa Monica, California, start-up sells organic, GMO-free baking projects online and in stores such as Fresh Market and Whole Foods. Foodstirs' projects include the Ombre Pancake Kit, featuring bright pink pancakes, as well as the Frosted Cake Pop Baking Kit, to parents looking for a DIY project to do with their kids.

She and co-founder Greg Fleishman teamed up with Hollywood actress Sarah Michelle Gellar to launch the business and originally self-financed it. After quickly finding there was a market for their products, the company says they have raised $5 million from investors, including Beechwood Capital and Cambridge Companies. Although they won't disclose their revenue, they claim to have surpassed their goals, and the 12-employee company is branching out to another 1,000 stores by June.

The inaugural CNBC Upstart 25: Promising young start-ups

"We have enough to fuel the growth as the brand grows," says Laibow.

That's not something many women entrepreneurs could say in the past. But if the current growth of female entrepreneurship continues and more women scale their start-ups, lack of funding could become less of a perennial challenge in the future.

— By Elaine Pofeldt, special to