VCs Catch Wave To Silicon Beach

Silicon Valley dives into local investment boom.

Rounding Into Shape Co-founders Zach James and Rich Raddon at Zefrs office in Venice in a January 2013 photo
Rounding Into Shape: Co-founders Zach James and Rich Raddon at Zefr’s office in Venice in a January 2013 photo. Photo by Ringo Chiu.

By OMAR SHAMOUT Monday, May 19, 2014

When online consumer rewards site Swagbucks last week took its first outside investment, a $60 million infusion from Palo Alto’s Technology Crossover Ventures, it was the latest indication that L.A.’s booming tech industry is coming of age.

Not only has the amount of money pouring into local tech firms surpassed sums raised at the same point last year, Silicon Beach is getting far more attention from the top tier of Silicon Valley’s venture capital community.

L.A. information tech companies have raised more than $620 million in roughly 50 deals thus far this year, according to data collected by That’s 78 percent more than the amount raised at the same point last year. And it’s more than any other comparable period since Silicon Beach was more or less established in 2009.

Exits are healthier, too.

Sixteen local tech companies have been acquired or gone public this year, reaping more than $1.7 billion. That number could spike much more if Apple Inc.’s rumored $3.2 billion purchase of Santa Monica’s Beats Electronics goes through. The deal flow does not include some private transaction for which terms were not disclosed.

The activity, particularly the influx of cash from Menlo Park, signals a change from a few years ago, when top Silicon Valley venture capitalists pigeonholed L.A.’s tech founders as entrepreneurs who didn’t think big enough, said Dan Chen, managing director at Siemer & Associates in Santa Monica, a boutique merchant bank serving the tech community.

Venture firms in Silicon Valley expect companies they invest in to make billion-dollar exits, Chen said, and their interest in investing in the L.A. market reflects a growing confidence that their goals can be achieved here.

The momentum started last year, when Silicon Beach companies Snapchat, JustFab, Honest Co. and OpenX had funding rounds led by Bay Area VCs. It has continued this year as anonymous messaging app Whisper and enterprise messaging app developer TigerText raised $30 million and $21 million, respectively, mostly from Silicon Valley investors. In addition, Zefr, co-founded by Zach James and Richard Raddon in 2009, netted $30 million in a February Series D round from four Bay Area firms: Institutional Venture Partners, US Venture Partners, First Round Capital and Shasta Ventures. A London firm, Richmond Park Partners, also joined.

Proving ground

The activity is a reflection of the increasing credibility and viability of businesses being built in the region, said Rod Werner, managing director of City National Bank’s tech and venture capital banking group in Palo Alto.

“You’re definitely seeing the top firms come in,” Werner said. “People who were skeptical of that market in the past are saying, ‘Let me look a little closer.’ ”

Those bets are being confirmed, in part, by the size and number of exits that have been seen this year.

By this time last year, just six companies had been sold, with DreamWorks Animation’s $117 million purchase of another multichannel network, L.A.’s AwesomenessTV, the only one in which terms were disclosed.

Nearly three times as many deals have been struck this year, with Walt Disney Co.’s March purchase of Maker Studios leading the pack. The Culver City YouTube multichannel network could bring in $950 million from the deal if all benchmarks are met. editor Benjamin Kuo said the region should be encouraged by recent trends.

“I think the number and size of the exits speaks very positively to Southern California’s ability to continue to produce very valuable startup companies,” Kuo said in an email.

Werner noted that tech companies with revenue models built around content are garnering particular interest, owing to L.A.’s deep-rooted knowledge base in all things entertainment.

These businesses, such as multichannel networks, or MCNs, offer large media companies access to a whole new consumer base.

And buyers are certainly not in it for the YouTube ad dollars.

“If they can drive more unique users to their site,” Werner said of the studios’ desire to move eyeballs away from YouTube, “then they can generate revenue from them.”

After the Maker deal, rumors were swirling that rival multichannel network Fullscreen, which received $30 million in Series A funding last year from Chernin Group and Comcast Ventures, among others, is also on the market and looking for a Maker-size payday. Recent reports have named Time Warner, Yahoo and Relativity Media as suitors for the Culver City company.

Also in March, West Hollywood’s Machinima raised $18 million from a group of investors including Warner Bros. Entertainment and Google. Not to be outdone, Culver City’s Collective Digital Studio raised an eight-figure round from German media conglomerate ProSiebenSat.1, reportedly in exchange for 20 percent of the company.

Chen said this spate of deals has also had a ripple effect on smaller YouTube networks that produce content for a narrower audience base.

“Newer emerging MCNs focused on niche content verticals have all seen an increase in investor interest and activity” over the past few months, he said.

Though it garners a lot of local attention, entertainment tech isn’t the only sector generating buzz and attracting investment.

Swagbucks Chief Executive Chuck Davis said the company’s funding round, the first in its six-year history, signals investor confidence in L.A.’s growing e-commerce sector, as well as the larger tech market.

“We see this as a great year for L.A. tech investment, and the round we’ve just taken from TCV is a great step in that growth,” said Davis, who previously served as chief executive at Fandango and Shopzilla, both located in Los Angeles. “It’s exciting to see how this market is maturing rapidly and attracting more investor interest from all areas.”

Note of caution

If anything’s putting a damper on the enthusiasm, it is concern that the market for tech IPOs might be pulling back.

After peaking above $20 a share in the weeks after its $450 million IPO, Playa Vista’s Rubicon Project has settled in below its offering price of $17.50.

Werner said inflated valuations coupled with the rocky performance of tech stocks over the past few weeks is causing companies to hold off on public offerings.

“We are seeing companies rethink their IPO exits this year,” he said, noting the recent decision of Los Altos cloud storage firm Box to delay its IPO as evidence of a trend that stretches to Southern California.

Among those in the wings is Santa Monica auto shopping website TrueCar Inc., which registered its $125 million initial public offering with the Securities and Exchange Commission in April. It has not indicated any delay in its plan.

Chen explained that many tech companies are opting to stay private much longer than in the past.

“When they go public the frank reality is that a lot of the value creation in the business has already been done” during investment rounds, he said.

Another recent phenomenon is a decision by traditional asset management firms such as Fidelity, T. Rowe Price and BlackRock to invest in tech startups – Pinterest, Box and Dropbox are examples – before they go public, though he noted such investments represent a tiny fraction of the assets they manage.

New York hedge fund Coatue Management, which typically invests in public equity markets, was an investor in Snapchat’s Series C financing round in December, which valued the company at $2 billion, according to New York research firm CB Insights.

“The last time I saw this kind of activity happen was back in 2007,” Chen said. “It indicates to me that IPO investors are having to secure a position in interesting eventual IPOs early by investing in these companies while still private, and they may be doing this to seek a higher overall return from the investment beyond what the IPO alone could generate for them.”

Because late-stage companies are garnering such high valuations, Werner said many venture firms are starting to get in early before they’re priced out of the market. For that reason, seed funding probably won’t dry up anytime soon.

“We’re seeing a lot of investors come in earlier now,” he said. “The health of the community is the startups.”


Melissa Welch

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3 Competitors Every Entrepreneur Needs to Beat

By Jay Samit

Too many entrepreneurs view their competition with a Coke versus Pepsi mindset. Competition is rarely as simple as slightly differentiated products. Beating the other guy isn’t what makes a great company or what makes it profitable. Instagram, Swiffer and Nest had to compete with consumer habits and perceptions. 

Breakout products face competition from the formidable inertia powering the status quo. Success therefore comes from taking on the three real competitors every innovator must beat: the way it was done, the way it should be done, and the best way to get it done.

As great as you believe your new product or company is, the world got along just fine without you. The greatest competition every startup faces is convincing consumers that there is a better solution to the problems that vex them. Inefficiency and habit are your first real competitors. Microsoft’s Steve Ballmer laughed at the iPhone because he couldn’t envision people using a mobile device differently. People shared large files before Dropbox. Dropbox just made it so much easier that new users were not only willing to change their habits; they encouraged others to share files the same way. To beat the way it was done, your solution needs to be an improvement over the past. 

The hardest competitor to take head on is the way it should be done. Many startups run out of cash striving to create the perfect product. You and your team spend months covering your white board with every conceivable feature and functionality your product should possess. Your vision of perfection will send your companies crashing on shores long before you have a large enough user base to keep the enterprise afloat. 

When it comes to coding: don’t get it right, get it written. The good is no longer the enemy of the great when we live in an ever changing world were new products and technologies are released daily. Get your product into users’ hands as quickly as possible and incorporate the crowd’s feedback to iterate. Your customers will provide the data you need to chart the best course for your company and bury any competitor that goes it alone.

Every product you have ever loved was a compromise from the ideal vision of its creators to the realities of shipping on time, on budget, and on price point. Anyone who has ever manufactured a physical product that had to be on the shelves for Christmas shopping knows how painful these choices can be. Every entrepreneur builds their business with limited resources, but competes with unlimited passion. Sometimes innovators just need to build something that solves one universal problem perfectly. 

Snapchat didn’t have millions in the bank when it started. Snapchat solved the problem of teens finding unwanted photos publically posted on social media. Now the company has the usage patterns and data of 700 million photos and videos per day and I am sure the founder is still working to add more features and functionality from his white board.The hardest competitor to take head on is the way it should be done. Many startups run out of cash striving to create the perfect product. You and your team spend months covering your white board with every conceivable feature and functionality your product should possess. 

Your vision of perfection will send your companies crashing on shores long before you have a large enough user base to keep the enterprise afloat. When it comes to coding: don’t get it right, get it written. The good is no longer the enemy of the great when we live in an ever changing world were new products and technologies are released daily. Get your product into users’ hands as quickly as possible and incorporate the crowd’s feedback to iterate. Your customers will provide the data you need to chart the best course for your company and bury any competitor that goes it alone.

Don’t focus on the other businesses in your market. At the end of the day, your toughest competitor will always be the face you see in the mirror every day.

Congrats to our El Segundo neighbors - Swagbucks locks in $60 million in its 1st external raise!

I had the privilege of seeing Chuck and Josef present at Oasis Summit earlier this spring. They certainly had some exciting news just around the corner... Congrats to this great Los Angeles company and inspiring team!

El Segundo-based coupon site Swagbucks secures $60 million in venture capital

By Jordan England-Nelson, Long Beach Press-Telegram

POSTED: 05/13/14, 5:55 AM PDT |

A South Bay tech company has raised $60 million in its first round of external funding from Technology Crossover Ventures, a late-stage venture capital firm that has backed such heavy hitters as Facebook, Netflix and Spotify., whose parent company Prodege LLC is headquartered in El Segundo, offers gift cards to Wal-Mart, Nordstrom, and about 300 other e-commerce companies in exchange for interacting on its site. Users earn points — or “swag bucks” — when they shop, search the Web, play games or take quizzes. The company then uses the data collected to run targeted ads and drive traffic to its affiliates.

“Rewards are not just an aside, they become an emotional part of the experience,” Swagbucks President Josef Gorowitz said by phone Monday. “The consumer is constantly collecting points and having fun doing so as well.”

Swagbucks, which bills itself as the “leading rewards discovery community” and top provider of free gift cards, announced its new funding today in a press release.

The company also announced that Prodege Executive Chairman Chuck Davis will become Swagbucks’ new CEO, a role previously held by Gorowitz.

Davis’ resume includes running the discount shopping site Shopzilla and, more recently, the online movie ticket site Fandango. Davis also is a partner at Technology Crossover Ventures.

The announcement of Swagbucks’ venture funding comes amid what seems to be a boon in the online rewards and coupon sector. RetailMeNot Inc. had its initial public offering in 2013. Pre-IPO shares of Inc. jumped 90 percent after it went public in March. And Ebates Inc. is reportedly planning its IPO for later this year.

However, the real value of these rewards sites, which purportedly create value by driving traffic to affiliate partners, may be overblown.

“One of the biggest problems in e-commerce is attribution,” said Brooke Partelow, co-founder of Bounce Exchange, a conversion rate optimization company that tracks website-user engagement. “They may be taking credit and getting paid a commission for a sale that the site was going to have anyway.”

Reward platform sites like Swagbucks say they drive new customers to vendor sites, but those customers may have planned to buy from those vendors regardless. A person might search for a Hugo Boss suit on Google, find the one they want at, and then search for a coupon code.

“Vendors have a very hard time determining who gets credit for helping them sell more,” Partelow said.

Swagbucks’ $60 million deal is a coup for the tech scene in Southern California, where large scale venture capital is harder to come by than in Silicon Valley.

There’s been a lot of investment in Silicon Beach companies in West L.A. recently, but the funding tends to hover between $500,000 and $2 million, according to Matt Crowley, president of the Los Angeles Venture Association.

“When you reach out to VCs, you run into a really hard ceiling,” Crowley said. “Anytime someone raises that much money, it’s darn impressive.”

Venture capital firms invested $9.5 billion in the United States during the first quarter of 2014, according to the PricewaterhouseCoopers Money Tree Survey. About half of that was spent in Silicon Valley. Only 5.5 percent, or $520 million, was spent in the Los Angeles-Orange County area.

According to an interactive map on, a news site that keeps tabs on the industry, there are about 650 technology companies in Silicon Beach, the area stretches along the coast from Santa Monica south to Playa del Rey and east to Playa Vista. There are about 300 tech-related firms in the South Bay, according to the map.


Melissa Welch

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The M&A train continues to roll through the LA tech scene

Intuit acquires Lettuce Apps for $30 million, plans to integrate the product with Quickbooks online

Michael Carney_PandoDaily

ON MAY 8, 2014


The M&A train continues to roll through the LA tech scene, this time turning an eye to the burgeoning SaaS ecosystem. Pando has learned that Intuit has acquired design-focused SMB order management platform Lettuce Apps. The all-cash deal came in at $30 million, according to sources close to the transaction, with additional stock-based retention bonuses paid to the startup’s employees. The deal will likely be announced later today.

This is the second such LA-based small business tool that Intuit has snatched up, following the company’s sub-$50 million acquisition of DocStoc in December. Collectively, these deals paint a picture of a company looking to become the go-to resource for small businesses that don’t have large IT departments, software budgets, or consulting firms on retainer.

Lettuce will be integrated into Intuit’s own SaaS-based Quickbooks online, offering small business customers another reason to transition from the company’s legacy desktop software offering to its future-minded cloud platform. For Intuit, that means recurring revenue, rather than a one-time purchase and long upgrade cycles.

The three-year-old startup wasn’t looking for an exit, Lettuce founder and CEO Raad Mobrem tells me. Rather, with over 30 percent month-over-month growth since late last year, the company was in the process of raising a Series B round of funding. Intuit, who was already a partner based on the companies’ Intuit App Center relationship, expressed interest in investing. The terms, and the integration opportunities apparently proved too attractive for either company to pass up, and this investment turned into an acquisition. Mobrem, however, declined to confirm the transaction terms.

Make no mistake about it, startup ecosystems and elite venture funds are not built on $30 million exits, but for a company that had raised just $3.3 million – from investors including Crosscut Ventures, Baroda Ventures, Double M Partners, 500 Startups, Zelkova Ventures, Telegraph Hill Capital, and Launchpad LA – this marks a healthy return for all involved.

Just as importantly for Mobrem, the product he spent almost half a decade building will live on, and his team will stick together, working out of the company’s same airy beachfront Venice beach office.

And with happy investors and a win under his belt, it’s a good bet we’ll see Mobrem back at the starting line in a few years. There are far worse outcomes.


Melissa Welch

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Growthink's Luke Brown was awarded USC's Coach, Mentor and Advisor of the Year

   Great job Luke!!
Growthink's Luke Brown was awarded USC's Coach, Mentor and Advisor of the Year earlier this week, chosen by faculty and staff at the Marshall School of Business. Brown is pictured below with Faculty Coordinator, Professor Patrick Henry of the Lloyd Grief Center for Entrepreneurial Studies. 

Luke, along with Professor Patrick Henry, led the Venture Initiation class comprised of 16 undergraduate students. Luke's years as an entrepreneur, advisor at Growthink, public speaker and his endless passion for learning and mentoring made him the perfect choice to coach this motivated class with an emphasis on Launching and Scaling Your Startup: Learn to build a startup from concept to reality with a focus on real-world entrepreneurial action and execution.

The Lloyd Grief Center for Entrepreneurship also named its 2014 Undergrad Entrepreneur of the Year. The honoree of this award, Garret Davis, is CEO and Founder of Refined Hardware, which makes limited edition luxury watches in America. Davis, 21, had sales of over $330,000 in his first year of business. His most recent introduction generated over $50,000 of orders in just 24 hours.

A BIG congratulations to our very own Luke Brown as well as Mr.Garret Davis for their hard work and much-deserved awards!

More about the USC Lloyd Greif Center for Enterpreneurial Studies at the Marshall Scool of Business can be found here:

Women Entrepreneurs Fight for Their Piece of the Pie


By Zoë Schlanger / May 7, 2014 5:47 AM EDT

On a clear Friday morning in April, in a room near the top of the New York Times building with a humbling view of lower Manhattan, the world’s financial epicenter, eight groups of women wait to pitch their businesses.

They’re vying for $25,000 in early-stage investment by five so-called angel investors. First up is Miki Agrawal, who speaks casually, convincingly and fast. She has done this before. She locks eyes with the five investors, one by one, as she describes something every woman in the room can relate to—the fear of period leaks.

The line of underwear she developed with the other two women who founded Thinx would end that worry forever, she says, with four high-tech layers of fabric in the crotch. By the time she gets to the part where girls in developing countries often miss a week of school while they are menstruating simply because they lack proper sanitary supplies, and how her company would donate washable pads for every pair of underwear sold, the investors are nodding, totally into it.

The entrepreneurs have just completed something called the Pipeline Fellowship, which is trying to level the playing field for women in angel investing, an increasingly integral part of America’s capital formation. startups with at least one woman on their founding team are roughly 18 percent less likely to attract equity investors than their all-male counterparts, according to 2013 data from an ongoing survey by Emory University. Yet they are almost 20 percent more likely to have generated revenue—and that’s no small distinction in a world where the vast majority of venture-backed startups fail. Data collected by PitchBook found only 13 percent of all venture capital deals in the United States went to women in 2013, a significant increase from the firm’s 2004 data that put the figure at 4 percent. But that still means 87 percent of deals are being given to all-male teams.

The numbers paint just part of the picture. The rest is made up of the experiences—often ranging from frustrating to infuriating—of female entrepreneurs navigating the world of equity investors, where 96 percent of senior venture capitalists are men.

The anonymous confession-sharing app Secret is rife with posts by female entrepreneurs bemoaning the process of finding financial backers. “Just got out of a meeting with a [venture capitalist] who couldn’t stop staring at my boobs. Not sure whether this means we have a better or worse chance of getting his investment,” reads one.

Kathryn Minshew, who co-founded the career advice and job-search tool The Muse in 2011, says women are frequently asked to drinks by VCs who say they might be interested in investing. But instead of a business meeting, it turns out to be a date. Over the course of her company’s first year, Minshew says, she spent “probably 30 hours, maybe more” going on bait-and-switch drinks of that nature.

“One of the very common questions I get from younger entrepreneurs is, How do you very nicely confirm with an investor that something is a business meeting and not a personal meeting, without offending them?”

Natalia Oberti Noguera, the founder of the Pipeline Fellowship and a self-described “LGBTQ Latina and a feminist with a capital F,” has come to terms with that bias. That’s why the crowd assembled in the Goodwin Procter offices for the pitching event is almost entirely women. Just two men are in the audience, to support their co-founder Holly Pressman, who is pitching their finance-education site Oberti Noguera’s program trains women to be angel investors, through mentoring with seasoned investors and workshops on issues like due diligence and valuation. The five women at the table in the pitch meeting—an insurance executive, a mortgage executive, two magazine executives and the vice chair of a New York City school, were nearing the end of the program, the part where they narrow down eight potential investments to three.

“People will probably invest in people who make them feel safe, and usually that means people who are not different. So if that’s how we work, let’s get more women and people of color on the investing side,” Oberti Noguera tells Newsweek.

In the first half of 2013, according to the Center for Venture Research, just 16 percent of companies pitching to angel investors were women-owned, but 24 percent of that group got funded—a higher rate of success than the deal rate overall. That may in part be thanks to programs like Pipeline Fellowship, Golden Seeds, 37 Angels and others like them. Angel investors back projects they feel passionate about, and that are in their early stages of development, in return for equity in the businesses. They are a different financial species from venture capitalists, who invest institutional money—from pension funds, university endowments, wealthy individuals—in much larger sums, and typically require a seat on the board of the business they back, as well as an equity stake.

In a study released by Harvard in March, investors, both men and women, heard real startup pitches adapted from real businesses. Each pitch was shown in one of four ways to different investors: in one version, a male voice presented the pitch alongside a photo of an attractive man. In another, the voice was male and the photo of the man was less attractive. Another two versions were narrated by a female voice, one with a photo of an attractive woman and one with a less attractive woman.

Investors chose businesses presented by men 68 percent of the time. Only 32 percent of investors chose to fund the ventures presented by women, despite the pitch being exactly the same. The pitches by more attractive men fared considerably better than the ones by less handsome, while better-looking women did slightly worse, by a negligible margin, than their less pretty female counterparts.

You read that right: Both men and women would rather invest in a man over a woman, especially if the fellow has the right look.

“It’s more about intuition than data,” says Deb Nelson, the executive director of Social Venture Network, which connects social entrepreneurs with socially conscious investors. In traditional profit-driven investment, especially with early-stage funding where data are scarce, the decision of who to fund can come down to which entrepreneurs look and sound as if they will succeed. As long as the image we conjure in our collective imagination of a capable business leader is an attractive (likely young, likely white) man, that intuition will look a lot like sexism, racism and ageism. “We need to unlearn how we’ve been socialized,” Nelson says.

59_WomenEntreprenuers_01Natalia Oberti Noguera founded the Pipeline Fellowship as a way to put more women on the other side of the table, deciding which companies to invest in. Bryan Thomas for Newsweek


Consider the story of a tech startup called Clinkle. Its 22-year-old white, male CEO, Lucas Duplan, raised $30 million in investment over the past year. Now, the company has laid off a quarter of its staff, lost its chief operating officer and has been christened a hot mess by the tech news website Re/code, all without putting out its product yet, an app to stealthily transfer payments between smartphones.

“I don’t think it was the app that was impressive,” one former employee toldBusiness Insider. “I think it’s Lucas who is so compelling. He sells the vision of what every investor wants, which is a 20-year-old, white, male Stanford computer science major. He fits the bill. He appears to be the next Mark Zuckerberg, and he carries himself that way.” Duplan declined to comment for this story.

Oberti Noguera says there’s a wider lesson to be learned from such stories.

“If a guy has a really great exit, then of course that guy was awesome. And if a guy doesn’t do well, it’s like, ‘Well, he must’ve not had the pricing strategy down pat.’ But if a woman doesn’t end up succeeding, it’s ‘Oh, women suck,’” she says. “We don’t have enough female success stories, so the failure stories end up overshadowing everything. We have so many white–guys stories, but that doesn’t mean that if the guy is white and wearing a hoodie that he’ll succeed.”

If looks aren’t a good benchmark for investors, what is? A 2012 report from Dow Jones found that a company with at least one female executive at the vice president or director level was more likely to be successful than companies with no women at that level. For venture-backed startups with five or more female executives, the report found 61 percent were successful and only 39 percent flopped, compared with a 50 percent failure rate overall. The study did not find any statistically significant relationship between a company having female founders and its success, perhaps because there were so few represented: Of the 20,194 companies in the report, only 1.3 percent had a female founder.

There are those who argue women need to adapt to the system, rather than the other way around—that it’s the women themselves who are to blame. And not all of these critics are unreconstructed Mad Men–era throwbacks.

“VCs don’t have a bias against women entrepreneurs; we’re just bad at pitching,” claimed a headline on the website Venture Beat last year. The author, Mauria Finley, a woman who founded Citrus Lane, a subscription service for children’s products, says women don’t think big enough and spend too much time focusing on details. In The Boston Globe magazine, Fiona Murray, one of the authors of the Harvard study, wrote that women should “watch sports” to have something to chat about with male investors.

“Women have to do things proactively against a tide of bias,” Murray tellsNewsweek, adding that “it’s not to say those biases are okay. It’s not just what women can do, it’s what men can do too.”

All the investors Newsweek spoke with say that having something in common does make an enormous difference to winning their support. Having a personal connection with the proposed product also makes a difference.

According to a study of a wide range of corporate firms by the Center for Talent Innovation, 56 percent of employees said the leaders at their companies didn’t value ideas they don’t personally see a need for, “even when there [are] strong data and evidence that it’s a good, marketable idea.”

Jules Pieri, who founded e-commerce site The Grommet in 2008, says she has seen that in action. “Every woman has heard this if her business has a consumer side to it: They say, ‘I’ll go ask my assistant, I’ll go ask my wife about this.’ And you just want to jump out the window,” she says.


Projects like the Pipeline Fellowship are focused on getting more women with resources to invest in other women. But such solutions operate within the equity-investing system. Danae Ringelmann wants a better system: online crowdfunding campaigns, housed on sites like Indiegogo, which she founded in 2007. She says 47 percent of the projects that reach their funding goal on Indiegogo are female-led.

“Being able to sell your idea to one person is a dependency that really shouldn’t matter. You’ve changed your whole approach for that one person, what you think that one person wants to hear,” Ringelmann says.

Before Indiegogo, she worked in investment banking. One day, she went to an event in New York City, where people making films and theater productions could meet potential investors, even though she didn’t have the money or influence to fund a project. One director approached her, hopeful that she could help make his production of Arthur Miller’s Incident at Vichy an off-Broadway reality.

She co-produced a concert reading—where potential investors can attend and consider whether to invest. Ringelmann ultimately couldn’t gather enough capital to get the play staged, partly because she didn’t have a personal relationship with enough theater investors.

“The people who wanted the play to come alive the most didn’t actually have the power relationships to make it happen,” she says. Years later, Indiegogo came out of that sobering experience. “We decided to use the Internet to blow that [model of capital] up,” Ringelmann says.

Indiegogo has helped thousands of entrepreneurs get started. Businesses that want to seek traditional investment later have used the success of their Indiegogo projects as proof of their project’s viability, according to Ringelmann.

For its part, Indiegogo still needed venture capital to get off the ground. Ringelmann says her team was rejected by over 90 venture capitalists before they raised their first VC dollar. But now the funding appears to be flowing: In January, the site announced it had raised $40 million in Series B venture funding, the funding stage meant to speed growth.


A fact that gets lost in all the bleak reports about the capital gap is that women start many successful businesses without VC funding. Indeed, women own 30 percent of all businesses in the United States. Many choose not to approach investors in the first place. Instead, they grow their businesses at a rate directly proportional to their businesses’ success.

The point of venture capital isn’t necessarily to grow a sustainable business. The point is to make a lot of money. The VC’s investment is worthwhile only if and when the company has a major liquidity event, called an “exit,” by either being bought or going public. Exits are very rare, and most VC-backed startups fail.

When a fledgling business makes a successful pitch and receives a sudden injection of millions of venture capital dollars, it has often made an agreement to grow as fast as possible. Perhaps it moves into offices and goes on a hiring spree. It’s racing toward the exit.

For all their expertise, venture capitalists are basically shooting craps, only with worse odds. Just 2.3 percent of venture capital deals end in a payout of more than $100 million, and 0.18 percent get a payday that exceeds $1 billion, but those are the margins that major firms are gunning for. More than 90 percent of venture capital-backed startups fall short of their projected success, according to Harvard Business School research. Fully 45 percent fail entirely and return nothing to investors, according to data from Sand Hill Econometrics. Another 25 percent might make some money, but fail to return all of the original investment. In both cases, or around 70 percent of the time, the entrepreneur walks away with nothing at all.

MIT engineer Limor “Ladyada” Fried didn’t seek out any investors when she founded Adafruit, her a DIY electronics kits company, in 2005. Adafruit had over $22 million in revenue in 2013 and is expected to double its 50-person staff this year. Fried isn’t opposed to venture capital or angel investment, but with a company that focuses on education and “making more engineers,” rather than short-term profit, Fried doesn’t see how the equity investment model would fit in, at least for now.

Adafruit has more than 1,800 products for sale and is engineering new ones all the time. It recently launched a new children’s show about electronics called Circuit Playground. An investor might consider all those diverse focuses “outside the core business” of shipping out kit orders, but it’s just how Adafruit does things, Fried says.

“Had we taken investment and not constrained growth, we could have made some mistakes with hiring and space. It’s given us more flexibility to not have the pressures of a return on investment from an outside group. We’re growing at our own pace and on our terms,” Fried says. “There hasn’t been a challenge that a cash infusion could solve. And we know that taking on investment and investors would take one important thing away that cash definitely cannot solve: time.”

It’s a lesson women and men could take to heart. 


Melissa Welch

Director of Client Development


(310) 846-5015

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