Venture Capital Funding and Female Entrepreneurship: Advancing Gender Equality
In my blog post about The Gender Wealth Gap for Women of Color, I touched a little on the topic of venture capital funds and female entrepreneurship. Female entrepreneurs own 38% of all businesses in the US, but that number is drastically low when you consider startup funding.
In a 2018 study, research states that for the last decade of venture capital funding, women received only 2.2 percent of all VC dollars.
For women of color, the percentage was even lower! Latinx woman-led startups raised only 0.32 percent while Black woman-led startups raised only .0006 percent. This is outrageous, right?
Entrepreneurial start-up ventures contribute almost 20% of new job creation annually in the United States. In the earliest stages of start-up business creation, the matching of entrepreneurial ventures to investors is critically important.
In this blog post I want to help spread more awareness of the venture capital funding industry and how it affects female entrepreneurship for all women. You’ll also learn a few ways you, as a female entrepreneur, can help tap into venture capital funds to help make a difference for women who look like you, all around the world.
What is Venture Capital Funding?
Venture capital is a type of equity financing that gives entrepreneurial, small companies and startups, the ability to raise funding before they have begun operations or started earning revenues or profits.
Ever seen the show Shark Tank? It’s about a panel of investors who are seeking the next best business idea to invest in. Contestants come on to the show with their business idea and their statistics hoping to have someone else see the ultimate vision of their business come to life.
Many start up entrepreneurs come to this show and know that venture capital funds arena high risk, high return financing and, also has a high risk of failure.
The Inequality of Venture Capital Funding for Female Entrepreneurs
The inequality and bias of VC funding starts from the very beginning; the pitching stage. The VC investment process has four stages:
- Deal sourcing
- Due diligence
In 2014, a study was conducted to test the pitch process from the viewpoints of women and men entrepreneurs. Identical slides and scripts were presented to investors, voiced by men and women, with or without photos of the ‘presenter’, and then asked study participants to rate the investment. Pitches voiced by men significantly outperformed those with a woman narrator, and pitches where the narrator’s picture was a good-looking man performed best of all. Outcomes were the same whether the participants (‘judges’) were male or female. The researchers concluded, “Investors prefer pitches presented by male entrepreneurs compared with pitches made by female entrepreneurs, even when the content of the pitch is the same.”
Here were other findings from this study. If you would love to learn more about this study and its findings, you can find out more here.
- Male entrepreneurs were 60% more likely to be awarded funding for their pitches than female entrepreneurs
- High physical attractiveness led to a 36% increase in male entrepreneurs’ likelihood of receiving funding, as compared to low physical attractiveness; however high physical attractiveness did not significantly influence female entrepreneurs’ likelihood of receiving funding
- when men and women presented identical pitches, 68.33% of participants chose to fund the ventures pitched by a male voice, while only 31.67% of participants chose to fund the ventures pitched by a female voice.
Multiple academic studies have shown that there is a strong gender bias in many different elements of the pitch process which includes;
- Questions asked to female founders over male founders
- Confidence Gender Gap, where woman undervalue their worth and business idea less than men
Venture Capital Funding for Female Entrepreneurs that Eliminates the Pitch Process
A pitch formally introduces you to the possible investors of your business and that is a relationship that you want to build. However, as a female entrepreneur and understanding the bias and studies that comes with pitching, there is a way around the pitching all together.
There are venture capital funds that female entrepreneurs can seek out because they actually eliminate the pitch from their process and shift their focus on actual performance data from startups.
Naturally, these female entrepreneurs all end up with dramatically more gender-balanced investment portfolios. It’s proven that venture capital funds that don’t consider a pitch invest in eight to twelve times more women than average!
Here are some Venture capital funds that eliminate the pitching process that may help female entrepreneurs receive the money they deserve;
- Founder Institute - evaluates companies based on watching 14 weeks of work
- ClearCo - funded 8X more women than the venture capital average
- Loyal VC- has 37% women CEOs in its first 70 investments
Now keep in mind that these venture capital funding firms aren’t claimed to make exceptional results for women entrepreneurs however, they claim to fund the best possible companies. Ditching the pitch process is one way to eliminate bias and gender inequality in the future for female entrepreneurs.
Eliminating Cross-Gender Competition: Venture Capital Funding and WOC Female Entrepreneurs
The other choice is to eliminate cross-gender competition. This means that only women pitch against other women. Here are some women-led venture capital funding for female entrepreneurs.
- Target Global
- Phoenix Venture Partners Seed Fund
- Steelsky Ventures
- Unshackled Ventures
- Impact X Capital
A more inclusive venture capital industry means more opportunities for under-represented founders and more wealth for everyone! There is also a lack of diversity within venture capital funding and female entrepreneurship for women of color. Did you know by 2044, minority-owned businesses will play a significant part in the U. S’s economy?
Also, a startup founded by an African American male may have less than a 1% chance to receive financing from a venture capital firm but, if the startup is established by an African American woman, that figure drops to 0.2%!
While there are several venture capital firms with people belonging to minority groups in their team, only a small fraction of them are given the power to actually decide which startups they will invest in and support.
If you are a women of color entrepreneur, you may find this list below of venture capital funding firms useful.
- Black Angel Tech Fund
- Backstage Capital
- Harlem Capital Partners
- Pipeline Angels
- Kapor Capital
And many more. To find out 20 more venture capital funds for women of color entrepreneurs, click here.
Closing the Gap between Venture Capital Funding and Female Entrepreneurship
So how can we, as female entrepreneurs or women of color, help close the gap between venture capital funding and female entrepreneurship? One way is to become an investor yourself, if possible, because not only is there a gender gap in which startups receive funding, but there’s also a significant gap in women investors.
Less than 10 percent of decision-makers at U.S. VC firms are women. This means that even though dozens of firms have made concerted efforts to diversify their ranks, only 105 investors out of roughly 1,088 are female.
Here’s a quote I love by an angel investor, M. Kim Saxton:
“Women tend to solve problems important to women. But men, who tend to be the funders, don’t understand these problems or why they are important. One example — Rent the Runway founder Jenny Hyman tells that she had to frame the problem as being similar to men renting tuxedos before she could get funding. This has led to the creation of funders who only invest in women-founded startups, like Golden Seeds and SoGal Ventures among others. So, one tip is to seek funds from them.”
Here's some more advice about being a female venture capitalist from another from the founder of Growth Marketing, Stacey Caprio:
“My advice to female founders who want to raise venture capital is to either make sure you present your product’s market and benefits from a male-perspective, or make sure you are pitching to a female group of VCs. The audience listening to your pitch is only going to want to back you if they have a personal connection or can easily see the product-market fit your company has. If you are able to turn your pitch so men can connect with it and clearly see the market, that’s when you’ll start to get more funding. Or simply find women you can pitch to if your product has no male audience product-market fit connection.”
What Did You Learn About Bridging the Gap Between Venture Capital Funding and Female Entrepreneurs?
What were some key takeaways you learned from venture capital funding and female entrepreneurship? Let me know in the comments down below! Share this with your female entrepreneur friends who needs a little boost in confidence when trying to find V.C’s that will believe in her ideas and facts instead of her gender.Remember, YOU are powerful, and remember Curated for Equality stands for fashion and activism. Make sure to take a browse around our site and take notice of our diverse and inclusive community of women makers, designers and models. We’re not doing this to fit a quota, we’re doing it because it’s in our brand’s framework and purpose.