Tips for the Female Entrepreneur: Understanding the Gender Funding Gap & How to Overcome It
While we may have made some progress toward creating a startup culture that is more accessible to everyone, the foundation of the culture still creates obstacles for women, and stereotypes and blatant discrimination continue to inhibit real progress. For example, according to recent data, in 2019, women received a record amount of startup venture capital in the United States. However, this historic achievement represents securing only 2.8% of total startup investment before falling significantly in 2020 by a decrease of 27% over the same period of time.
The gender funding gap is not a pipeline issue. There are an abundance of women founders and a growing number of organizations that exist to connect them with VCs. Therefore, if any investor claims they simply can’t find female entrepreneurs to invest in, the reality is, they aren’t looking. According to a recent study, research showed that when you combine VC funding for both women-founded and mixed co-founded companies in 2019, it only amounts to 9% of total investment. And the issue doesn’t stop with VC funding. Studies show that the gender funding gap is an issue across all funding sources. In fact, according to Fundera, women entrepreneurs receive less in financing across every kind of business loan, it doesn’t matter if it’s lines of credit or invoice financing. When you consider the fact that women represent more than 40% of total entrepreneurs in the United States, it becomes abundantly clear that we have a long way to go.
What’s more, despite this incredible disparity, businesses founded by women deliver higher revenue on average. In fact, they deliver more than twice as much per dollar invested than those founded by men - making women-owned companies better investments from a financial standpoint. Not only does more investment towards women in business create innovation and reach, but statistics also show that it creates economic growth and has positive social benefits. And, according to one study, estimates show that investors are missing out on businesses worth approximately $4 trillion in revenue annually by not investing in more female-led enterprises.
In order to create a better reputation and live up to the promise of a new and fully inclusive status quo, the start-up industry must rethink a lot of outdated customs and ideas, like that of the ideal “white Harvard male in a hoodie” entrepreneur, a stereotype that has been widely celebrated and televised. The unintended side effect of these kinds of biases are an increased barrier to entry for women and minority entrepreneurs.
One reason that these biases exist is due to a lack of women role models. Every entrepreneur has role models they look to for guidance, particularly when it comes to building a business. For most women, that means looking to other female business leaders that have already been through the particular challenges they are facing. In a recent study, research showed the participation of female mentors and directors improved the performance of women’s portfolio companies.
Additionally, the presence of successful businesswomen at speaking events has a major impact on establishing female role models. Speaking events help to eliminate the idea that gender gaps in business are pipeline issues by displaying expertise and authority from women founders. As more and more women are featured at speaking events, the expectation for what conferences, boardrooms, and Fortune 500 lists look like will change.
Another big reason the gender funding gap exists is due to the way woman founders pitch and the kinds of questions that they are asked by potential investors. According to research by the Harvard Business Review, while men are more frequently questioned about the positive aspects of their businesses, women are often asked about the potential downsides of investing in their businesses. This is compounded by the tendency women seem to have of being more conservative when pursuing funding and presenting their business outlook.
For these reasons, it is recommended that women scrap the traditional pitch and instead construct a data-driven strategy to eliminate potential biases. Similarly, research showed that funds that implemented this kind of strategy ended up with 40% investment in female CEOs - a percentage that is in line with the proportion of women business owners in the U.S.
That said, another area that is sadly out of proportion is the number of female investors in the VC community. In fact, only 12% of VCs are women and over 66% of VC firms do not have any female partners. These numbers are incredibly discouraging to young women entrepreneurs. More female investors mean more balanced decision-making. Statistics show that 70% of the most successful funds include one or more female partners.
None of this should stop you
It’s important to know what you’re heading into, but we also want to provide you with helpful guidance on what you should do to avoid these pitfalls and secure the funding that you deserve. We spoke with a few successful businesswomen to pull insights from those who have been there and found a way to overcome the issue. Here’s what we’ve identified as the key things to focus on:
1. Look to Female-Friendly Places for Advice and Role Models
Finding organizations that promote the support of women-based businesses will play a big role in how you grow. Donna Wells, former Tech CEO, Fortune 500 CMO, Board Director, and innovator in financial services, FinTech, and cloud software industry, had this to say, “Go first to female-focused incubators instead of say, Y Combinator or others. You’ll have a much higher probability of acceptance and getting top-tier advice.” She continues, ”Look for VCs that don’t just hire women, but ones that have women partners. Statistics show you’ll be more likely to get funded with those that do.” Here is a list provided by Digigrass.
2. Think Bigger
Tara Lemméy, VC, Entrepreneur, and CEO of LENS says, “women are more likely to fall in the category of ‘non-hype’ CEOs, who want to be able to present with confidence, rather than the hype and hand-waiving that others use. Women tend to be more grounded.” While it isn’t always the case, there are indications that women can tend to be more conservative in business. Having a conservative nature isn’t always negative, but being too conservative means passing up on opportunities to go out and ask for money even when it's cheap and available. And conservatism in your spending and business decisions is not conducive to growth.
Use your conservative nature to your advantage, and paint all the possibilities, big and small. Tara Lemméy suggests that it’s better to be prepared with probabilities instead of selling on hype, “Know how you are going to make money and have 5 possibilities for how you can do it, but don’t be afraid to think big, funders are going to cut your forecasts in half anyway.”
3. Start Raising Money Right Away
Another thing we heard: Don’t wait and don’t be discouraged when you get turned away at first, that’s business. Expect to fail and use it as a learning experience. Just be sure to take the feedback and use it to secure another attempt where you’re more likely to generate success.
Donna Wells says to be aware of the market conditions, “Understand what the climate is for valuations. The current climate is very startup-friendly. Don’t miss out on that.” Understanding when to act is really important and there is no better time than right now. Jaime Klein, CEO & founder of Inspire Human Resources agrees, “The perfect time to take a line of credit is when you don’t need it. Take a line of credit as soon as you can show positive signs of growth.”
Here’s the good news, despite the challenges that women in business face, they remain optimistic about their success. According to a recent study, 84% of women said they expect year-over-year revenue growth, 73% plan to expand, and 62% expect a revenue increase over the next 12 months. These percentages are higher than the surveyed men.
So while the gender funding gap exists and is an issue that needs to be resolved, business for women is looking up. We hope that by reading this article you have a better understanding of the gender funding gap, and feel more confident in your ability to overcome the obstacles it presents. There is a lot to do, but by spreading awareness and helping others who are faceing these challenges, we can make progress. Keep moving forward and keep supporting women in business.