For generations, we’ve examined productivity and economic performance through a variety of metrics like hours worked, GDP, and others. However, those indicators aren’t so reliable anymore; they no longer give us the best picture of real productivity and conditions.
We’re now in what some describe as an “innovation-based economy.” This new market calls for a different approach to how we think about success and performance.
People began discussing the rise of the innovation economy around the beginning of the decade. In 2012, a group of thought leaders published a paper with the Brookings Institution about the rise of a new economic mode. In the report, the authors suggest simple input versus output is no longer a particularly useful way to envision the market. Now the ability to innovate is, on its own, an asset.
In this innovation economy, growth is now fueled by knowledge, entrepreneurship and collaboration, not just material and labor. This new mode of thinking calls for us to encourage entrepreneurship, expand small business, forge collaboration with governing bodies and expand access to information and technology.
The goal behind this project is to remake our economy into a dynamic, adaptable market that’s ready to meet the challenges and opportunities of the digital, global environment. It’s not going to be easy. There are several obstacles impeding innovation, one of the most prominent being the lack of women participating in the innovation economy.
Why are women left out?
If old metrics used to determine productivity no longer apply, how do we measure performance in the innovation economy? If we’re looking at inventiveness and innovation, then patent-holding seems to be a good indicator.
Today, women make up a little over half of the U.S. population (157 million people at last count), and only 12 percent of U.S. patents are held by women. The problem is especially pronounced here, where women represent just 13 percent of the engineering workforce, and form a similarly-sized minority in other science and technical fields. However, the problem is not unique to the U.S.
Even in world-leading zones of innovation like Shanghai and Bangalore—cities that dominate the globe in tech innovation—women fall behind their male counterparts in filings. We know this because Asian inventors typically file counterpart patents in the U.S., along with their home country.
Is the discrepancy along gender lines a product of natural inclination? Do women simply shy away from tech innovation? Hardly. The real crux of the problem is access to funding and support.
Let’s look at venture capital funding. Only about 7 percent of VC funds go to women-led startups, and that number hasn’t changed in years. The opportunities for investment are out there, yet VCs pass them up. There’s no rational reason why many women-led firms are ignored. In fact, women-led tech firms are actually more capital-efficient than their male-led peers. On average, such companies produce a 35 percent higher return on investment than companies with homogenous male leadership.
Correcting for bias in VC funding
It’s clear that there’s a degree of discrimination at play in determining who gets access to VC funding. There’s too much at stake in this new economy and women have too much to offer for this to continue.
Firms that invest almost exclusively in male-led companies aren’t just doing a disservice to women, they’re limiting their own return on investment. When given the resources to perform, women clearly demonstrate their ability not only to innovate, but to leverage innovation to identify additional value. The full range of our creativity and business acumen will be essential for growth and prosperity in an innovation-based economy. So, where do we start?
I believe the first step is to simply hear the pitch. It sounds obvious, but the truth is that women often have trouble even getting in the door to pitch an idea to potential investors. Take the #StartWithEight campaign for example. This movement started gaining steam last year with a very simple proposal: get VC firms to commit to take meetings with at least eight new female candidates in one month. It’s a modest goal, but even getting there marks substantial progress.
Once VCs take the meeting, we need them to start putting up the cash.
There are a few ways to approach this. A firm might, for instance, allocate a set amount in reserve to invest in female-led businesses. The idea isn’t to restrict investors’ decision-making process or “force” them to invest in something for the sake of diversity. Rather, it’s a means to dismantle internal biases, break negative habits and be open to new opportunities.
Women entrepreneurs will play a vital role in our collective success in the innovation economy, but they need institutional support. Otherwise, we all pay the price.