Stitch Fix’s Katrina Lake Did More With Less Cash

Female entrepreneurs often raise less money from VCs than men, forcing them to run their startups more efficiently

Stitch Fix Makes Trading Debut After Disappointing IPO

Katrina Lake became the first female chief executive officer to take a company public in the U.S. this year when Stitch Fix Inc. started trading on Friday. Almost more unusual is the fact she did it with a fraction of the cash of most venture-backed companies: The online subscription apparel retailer had raised just $42 million.

Lake had to do more with less because female entrepreneurs are at a disadvantage when raising money from mostly male venture capitalists. A Bloomberg study last year showed that women founders got about $3 for every $4 that male founders raised. Just 7 percent of founders are women.

Katrina Lake, co-founder and chief executive officer of Stitch Fix Inc.
Photographer: David Paul Morris/Bloomberg

But Stitch Fix’s IPO shows that this funding shortfall can sometimes be an advantage in a startup environment brimming with cash. 

“Female founders are much more focused on capital efficiency, partly because they have access to less capital,” said Magdalena Yesil, an entrepreneur, tech investor and author of the book “Power Up: How Smart Women Win in the New Economy.”

In contrast, some startups in male-dominated Silicon Valley have arguably raised too much money. “The excessive amount of capital in Silicon Valley has allowed a lot of entrepreneurs to run around without much discipline because if you're not running out of money you're not constantly asking to be regraded,” venture capitalist Bill Gurley told Bloomberg TV on Friday.
He has backed companies including Stitch Fix and Uber Technologies Inc.

Lake herself embraces that thinking, telling Entrepreneur magazine earlier this year that she thinks the worst piece of advice for entrepreneurs is to raise as much money as possible.

“There are companies out there that may have failed because they had too much money and never had to think about the economics of their business,” she said.

She didn’t name names, but some notable disappointments in e-commerce include One King’s Lane and Gilt Groupe, which raised more than $200 million each before being sold for considerably less. 

Many of the women who have been able to raise outsized sums of cash did so due to their celebrity status. The Honest Co., which has raised more than $200 million and is looking for more, was founded by movie star Jessica Alba.

Several male-run online commerce companies that started around the same time as Stitch Fix have raised more cash but don't seem close to an IPO. They include Le Tote, which has raised more than $50 million, and Poshmark Inc., which raised $88 million this week, bringing its total funding to more than $150 million.

Of course, male entrepreneurs also embrace the discipline that comes with less cash. Eric Ries discusses the importance of capital efficiency in his widely-followed book “The Lean Startup.”

Yesil, an early backer of Salesforce.com Inc., says tough times can produce extra creativity. After the first dot-com bust, Salesforce couldn't raise cash from VCs so it was forced to offer discounts in exchange for longer customer contracts. It survived and is now valued at $77 billion as a public company.

Lake still has work to do – on Stitch Fix and the expectation that CEOs of public companies are men. Stitch Fix shares ended their first day up only 1 percent, a disappointment for an IPO. Earlier this week, Lake tweeted a screenshot of an automatic suggestion from her iPhone to turn the phrase CEO into an emoji of a blond man. 

Lake added a cartoon picture of a woman with dark hair and a note: “Hi! Actually, I look more like this.”

— With assistance by Emily Chang

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