Why Female Entrepreneurs Struggle to Secure Funding (and How to Make it Easier)

Women-owned businesses are booming – in fact, they grew by 114% in 2017, as compared to the national overall business average of 44%.  And businesses owned by women of color grew a whopping 467% in comparison to either of these categories.  With this major growth, you’d think female founders would have no problems securing funding from venture capital firms.  However, the sad fact of the matter is that all-women teams only secured 2% of the total $85 billion that venture capitalists invested last year.  While this stat is sobering, it’s not exactly shocking.  Female founders across the world have faced a long struggle with gender inequality in the startup ecosystem, especially when it comes to raising funding for their businesses.  However, the funding tide is beginning to turn, and there are some actionable ways that female entrepreneurs can raise capital.

 

Approach venture capital firms with female partners  

According to a recent TechCrunch study, there is evidence to suggest that firms with female founders or a larger number female partners are more likely to invest in women-owned businesses.  Having someone in the firm who can relate to your business is helpful when looking for funds.

Jennifer Ding, founder and CEO of ParkIT, knows this firsthand.  Some of the biggest challenges women face, says Ding, are “not having direct VC connections [and] finding partners who understand their market or product, especially if it is [a product] for women.” 

There are excellent female-owned venture capital firms designed to close the gender gap that many women in business experience.  Golden Seeds, founded by Stephanie Newby, is one such firm, and others like Portfolia and True Wealth Ventures (a great option for Texas-based entrepreneurs) are on the same mission to promote women-owned businesses.

 

Try an alternative funding method

The unfortunate reality for many female founders is that VC funding still represents a very small portion of the overall capital that women-owned businesses earn.  For this reason, focusing on alternative funding methods could be a better option.

Ding did just that, utilizing grants, pitch competitions, and accelerators when launching ParkIT.  Incubators and accelerators can be invaluable resources for female entrepreneurs when it comes to both networking and receiving venture capital funds.  The National Women’s Business Council found that 15% of accelerator and incubator grads received VC funding, vs. 4% of non-graduates.

  Jennifer Ding, c/o Amanda Gentile/ADG Photography

Jennifer Ding, c/o Amanda Gentile/ADG Photography

Ding also found Rent the Runway’s Project Entrepreneur useful, which offers digital resources as well as in-person events across the country aimed at helping women-owned businesses thrive.  As for other networking events, she cites the YC Female Founders Conference as a must-attend for any other female entrepreneurs.  “It was certainly interesting to attend some of these events and learn about the different styles of pitching men vs. women tend to use,” she says.

 

Refine your pitch

As Ding notes, there’s a difference between how female entrepreneurs and male entrepreneurs approach a pitch, but this difference runs deeper – men and women are even questioned differently in these situations.  Dana Kanze, an entrepreneur and academic, found that “67% of questions posed to male entrepreneurs were promotion-focused,” meaning venture capitalists already assumed these businesses would grow.  However, female entrepreneurs received prevention-based questions 66% of the time, which indicated that venture capitalists assumed these businesses would either fail or just “maintain the status quo.”  Female founders generally respond to those prevention questions with prevention answers, which may seem natural, but actually does more harm than good.

The kicker?  Startups that were asked mainly prevention questions raised $14.5 million less than those asked promotion-focused questions.  This implicit bias would explain why such little VC funding is secured by female-led startups, despite the fact that women-owned businesses are growing at such a rapid pace.  These biases put minority female founders at an even greater disadvantage – they accounted for less than 0.2% of all venture deals between 2012 and 2014.

This implicit bias may seem insurmountable, but Kanze has a tactic that can help female founders combat prevention-based questions.  She believes responding with promotion-based answers, highlighting how your business would grow or you would learn from the experience, is the key to overcoming these gender biases.  As with many things in life, confidence is essential, and owning your ideas and success so far can do a lot to help you secure funding for the future of your business.

 

What this means for female founders

In order to make the most of your fundraising efforts, carefully vet your venture capital sources.  Make sure that you are approaching those you know have a history of investing in female-owned businesses and/or have women as founders or partners.  And be sure to explore all avenues of alternative funding.  You never know what doors an accelerator, pitch competition, or networking event can open.  Stay vigilant when it comes to the pitch itself.  Perhaps most importantly, remember that you’re there to sell yourself and your business, so maintaining confidence in your work and abilities is important.

 

We still have a long way to go before the startup playing field is equal, but discussions like these are serving to bring issues into the open where they can begin to be addressed.  To all female entrepreneurs – keep being loud about the difficulties you face every day, and don’t give up hope.  The landscape is changing, and it is voices like yours that are making shifts happen.