Capital is the lifeblood of any startup. No matter how great an idea is, often times without capital, it could be dead in the water. Businesses end when they run out of money, so raising capital is one of the most important factors in launching a high growth startup.
Raising capital for a startup is always challenging, but more so for female entrepreneurs. Women are the minority among startup founders, leaving female representation limited in the venture capital and entrepreneur space.
2020 was a bang-up year for venture capital investment, but only in male-founded companies. According to research from Crunchbase, total global venture funding increased 4 percent year-over-year, but funding to female-founded startups decreased by 27 percent. This adds to the challenges women already face in securing funding.
On top of that, the COVID-19 pandemic had a disproportionate effect on women, increasing the chasm between the professional success of men vs. women. Female entrepreneurs are vital to economic recovery, yet women remain an under-invested asset despite potential for leadership and profitability.
Challenges of Fundraising for Female Founders
Fundraising for female founders comes with unique challenges compared to their male counterparts. Part of this is due to women’s relational approach to fundraising, leading them to focus on building a relationship. As a result, they don’t often come across as assertive as necessary.
Women also face inherent inequalities, such as personal questions that aren’t asked of men. These may include “do you plan on having a baby?” or “are you married?” These questions may be a probe to ascertain if a female founder will lose interest in running a company after starting a family, and though illegal to ask, investors still do.
Advantages of Fundraising for Female Founders
Though there are inherent issues with fundraising as a female entrepreneur, there are advantages that women can use. On a whole, women tend to be more organized than men, which shows investors that they’re prepared to run a business and gives them access to all pertinent information.
Female founders also have an advantage with startup ideas that are intended for female audiences. As part of the target market, these founders are in a good position to understand their consumers and deliver a product that’s tailored to their needs.
Finally, the industry is working to change the landscape for female entrepreneurs. To address the gap, several funds and organizations have been created to invest in women-owned businesses and increase initiatives to support female entrepreneurs.
Strategies for Fundraising for Female Entrepreneurs
Show Confidence
In a study conducted by Wiebke Bleidorn of the University of California, there’s a gender gap with confidence. No matter the background, culture, or country, men have higher levels of confidence and self-esteem than women. This isn’t limited to fundraising – the same phenomenon may be responsible for the salary gap and salary negotiations.
And just like with salary, low confidence can have a negative effect on fundraising efforts. Confidence comes across as competence, regardless of whether that’s accurate, and women need to project more confidence to gain the trust of investors. Women can’t allow investors to push them around, ask inappropriate questions, or convince them to settle for less than they deserve.
Conduct Research
Research suggests that venture capital firms with male partners are more likely to invest in male founders. This doesn’t mean women shouldn’t seek funding from these firms, but that women should do research and seek firms with a strong track record of investing in female founders.
According to another study conducted by Crunchbase, the venture firms that have female founders in their portfolio are more likely to invest in ventures with female founders. Because of this, it’s advantageous for women to seek diverse funding sources and prioritize venture capital firms that have demonstrated investment in female startups.
Seek Crowdfunding
For female founders, venture capital fundraising may not be ideal. Crowdfunding can be more lucrative and beneficial. According to a report from PricewaterhouseCoopers, among 450,000 seed crowdfunding ventures, women secure 11 percent more pledge dollars than male counterparts on average.
This could be because crowdfunding is more diverse compared to the “boys’ club” of venture capital firms, or that more women are in the crowdfunding arena. As a result, women experience less gender bias with crowdfunding.
Another possible explanation is the way crowdfunding is pitched. Venture capitalists are looking for return on investment, while crowdfunding typically looks for great stories and relies on relationships. Crowdfunding donors may be motivated by cause and background, more than pure numbers. Campaign pitches use emotional hooks, and women are more effective at creating these types of emotional stories and building relationships.
Change the Questions
As mentioned, venture capital firms tend to ask inappropriate or illegal questions of female founders vs. male founders. Generally, the questions for male founders are focused on promotion, advancement, achievements, etc., while the questions for female founders are focused on prevention, responsibility, security, and safety.
Fortunately, female founders can reframe these questions to help their cause. Respond to prevention-related questions with promotion-related answers that focus on the present and the future. For example, a question about customer retention can be reframed to address strategies for new customer acquisition, customer retention, and customer expansion.
Show Proof of Concept
Many businesses fail, so there’s an inherent risk in investing in a startup. Investors ask a bevy of questions to ascertain the founder’s ideas and strategic planning to determine their risk and validate the idea, so women can get far by showing proof of concept.
Not every idea is a gem, but getting feedback from potential consumers can help validate the concept and prove that people would be willing to pay for it. Market research can go a long way, so be sure to show the numbers and seek feedback wherever possible, even if it’s just in social media groups that have the target audience.
Leverage Uniqueness
Plenty of woman-owned businesses are marketing unique products to women. As part of the target market, these female entrepreneurs have an advantage in understanding the pain points and desired benefits alongside their audience, which can be of value for fundraising pitches.
Women may have more unique ideas that address a significant gap in the current market. In some cases, this product may be awkward or embarrassing, making it more difficult to pitch. But that’s all the more reason that it can be sold to investors, and getting comfortable talking about it is an important factor in the business’s future success. In addition, this product may have the “first-mover” advantage, meaning it is first-to-market and a huge win for an investor looking to be part of the next big thing.
Find Investors in the Same Network
Investment firms are everywhere, so there are many more options than traditional funding sources. Women can seek investors that align with the business’s goals and values. For example, a business related to eco-friendly solutions may be a compelling investment opportunity for an investor who’s passionate about climate change.
Not all investors are looking for profit – they may be motivated by different goals and values. Investors who share the mission or goal are more likely to connect with the “why” of the business and will want to be a part of it, beyond just seeking the best return on investment opportunity.
Resources for Female Entrepreneurs
Local Resources
The first place to look for funding is the local community. Many communities have resources for women-owned businesses, both for guidance and funding, and they’re a good place to start.
The Red Backpack Fund
The SPANX by Sara Blakely Foundation is dedicated to helping women with financial opportunities for business. The Red Backpack Fund was created during the pandemic to assist female entrepreneurs through hardship.
SoGal Ventures
Several venture capital funds have arisen to empower female entrepreneurs and close the gender gap in business. SoGal Ventures is one of these firms, led by women, that invests exclusively in startups with diverse founding members.
Grants for Women
Grants for Women is a resource that provides a comprehensive list of grants designed to help women in business. These grants are on both the local and national level, making it much easier to find ideal funding sources.
37 Angels
37 Angels is an excellent funding source for female entrepreneurs. Created to address the gender gap in startup investing, the venture capital firm invests in both female and male founders of early-stage enterprises. The application process is transparent and open, so entrepreneurs of all backgrounds can apply easily.
Small Business Administration
The Small Business Administration has always been a great source of funding for women-owned businesses. This organization can offer financing options through its Lender Match Tool and the Women-Owned Small Business Federal Contracting Programs.
Key Takeaways
For the time being, women are at an unfortunate disadvantage when it comes to capital fundraising and gender bias. Though women face considerable challenges, staying resilient in the face of obstacles is an important part of being an entrepreneur. There’s a lot of rejection and hardship in entrepreneurial pursuits, but it will all be worth it when success happens.
