Women start more than 50 percent of the businesses in the U.S., but account for just a small fraction of the companies that receive venture capital funding. To address this, in conjunction with the 2015 National Small Business Week, the Small Business Administration has put together a program called InnovateHER: 2015 Innovating for Women Business Challenge.
Not only will this competition showcase some of the top female entrepreneurs in the country, but I will be moderating a panel about the challenges that women face when raising capital. You can watch the event livestream starting at 10 a.m. ET (noon ET for the panel) on Friday, May 8.
As a woman that has been both an advisor and investor in this space, I have seen firsthand some of these challenges. To supplement the event, here are a few issues that hold women back from major sources of funding. For clarity, while these obviously do not apply to every single woman entrepreneur, they are themes that I have personally seen, as well as discussed extensively with other industry insiders. In some cases, I have even been guilty of a few myself in entrepreneurial endeavors.
Women pursue business in non-v.c. friendly industries.
Venture capital funding, particularly at the early stages, is the most robust in industries like technology and biotechnology. These are industries that generally attract more men than women. A tech startup might be able to raise substantial venture capital on merely an idea or at least an early-stage prototype. However, a consumer products venture -- which is an industry where many women entrepreneurs tend to start -- needs to have substantial revenue and financial metrics to attract venture capitalists focused on those industries.
Non-tech service businesses -- another arena that attracts a lot of women -- have very few early-stage investors focused there.
If you are a women thinking about starting a business, consider what type of business you are starting in order to give yourself an edge in raising capital. Also, think about how you can transform your idea into a tech play. You could argue that Grub Hub, the online restaurant delivery company, is really a service business, but they have firmly positioned themselves as a technology company. Do the same to attract early-stage investment.
Women often don’t think big enough.
Women tend to be more conservative and more risk averse when it comes to making business projections. While this creates a better risk-adjusted return for women CEOs, according to Shark Tank’s Kevin O’Leary, it can also hurt you in the capital-raising process.
Angel and venture capital investors want to invest in opportunities with huge potential and a management team that has a big vision. So, being conservative, while theoretically prudent, doesn’t play well in the early-stage capital game. It makes the opportunity look too small or it makes the management team look like they don’t have the gravitas to pull off something extraordinary. With investors always discounting your projections anyway, you want to be able to authentically and realistically defend how you can make your company grow by leaps and bounds.
Women play it too safe when networking.
One of the best ways to get a leg up on funding is by having someone in your network make a direct introduction to funding sources. This helps to make investors more focused on you, as you have had some level of verification from a connection, plus the obligation that comes from following through on an introduction from a contact.
Women too often focus their networking on women’s-only groups. While there are a number of great angel and venture capital funds spearheaded by women or that focus on women, women make up only 4 percent of the decision makers in venture capital.
Cindy Bates, vice president of small-to-mid-size business at Microsoft, said “While many women have faced an uphill battle in their entrepreneurial endeavors, the challenges often have fostered new strengths and determination that are integral to ferreting out financial support from potential investors. Not broadening your network as a woman when seeking funding means that you may miss out on the lion’s share of funding sources.”
Fundraising is a numbers game, meaning that you want to get in front of as many sources of funding as practicable. Don’t do yourself a disservice by focusing too narrowly.