Eight reasons female-founded startups get the least funding
If you’ve been following the rapid changes in technology including funding opportunities that are reshaping the industry, then you’ve probably noticed that a movement is taking form. However, female startups founders are yet to benefit largely from these chances across all tech sectors.
In 2019, 2020, and 2021, Fortune and BizJournals reported that the share of all VC investments globally that went to women-led startups were 2.6, 2.2, and 2 percent respectively.
According to Sarah Dusek, Managing General Partner at Enygma Ventures, getting funded is a bit of a game, and women need to learn the rules of the venture capital (VC) game and know what works and what doesn’t.
“Raising funding can be challenging for anyone, more so women in male dominated industries including the technology space. But that doesn’t mean it is impossible,” Keturah Ovio, CEO Dukka told BusinessDay.
Not asking for it
A lot of women shy away from raising money because of bad past experiences of theirs or people they know or have heard of. A well funded startup will figure out the market dynamics faster, attract and hire top talent to build a better product, and ultimately perform better than a startup with lesser funding.
It is male dominated
It is not news that the investment world is dominated by men. According to Ovio, being a startup founder, most of these investors do not put in all the effort necessary to fund female-founded startups. In some cases, they already have their biases in investing in female-founded companies. Investments naturally gravitate towards male founded startups. Also, Dusek opines that the presence of just a few female role models makes it harder for women to raise money.
In this digital age, putting yourself and your startup on the map is super important to establishing oneself as an authority in the space, as well as in building trust. A lot of women tend to shy away from or place publicity at the back burner, either for self or for their startups. Media attention is not something a lot of female founders do really well due to their personality which draws influence from background, culture, and environment.
Different questions being asked
Male and female entrepreneurs get asked different questions by VCs when in pitch meetings. For example, men would get asked, “how do you plan to monetize this?” while women will be asked, “how long will it take you to break even?” The answers to these questions are not the same even though they are quite similar. The outcome of this is that women walk away with lesser funding at lesser valuations than men who are running the exact same business.
Also, in terms of network, most investors are more likely to invest in founders and startups that come highly recommended or introduced by someone they respect or value because of how extensive their network chain is. While this might benefit the investors in terms of their integrity being intact after investment, it leaves many startup founders void of investment opportunities. However, a lot more opportunities specifically created for women to have equal chances to be in front of investors and getting funded are being created. Female-led startups should take advantage of it.
Gender is one of the reasons female startups founders get less funding compared to their male counterparts. “This used to and to a large extent could still be the case, but I wouldn’t generalize that statement. I find generalizations to be quite unfair especially when measures are in motion. Or perhaps, I have just been fortunate enough to meet and be in partnership with exceptional investors? Who knows,” Ovio said. While she has had her own fair amount of misogyny and investor preference for male founders, what strikes more is the level of confidence male founders tend to give off when they walk into a room full of investment opportunities.
According to Ovio, most female founders lack that same level of confidence that makes them and their businesses believable or bankable investment to onlookers. A male founder could walk into a room talking about things that may not make much sense and somewhere along the lines, be able to convince an investor(s) to invest in his ‘silly’ idea. A woman with a better startup or product or idea and possibly more traction than that male founder would already second guess herself, her ability and suitability to close that deal, if she would be judged based on her gender or other lenses she’s preconceived or been made to believe. That already sets a downhill precedence before she even pitches investors. “When you walk into a room with an obscured position, you are already halfway defeated. Like marriage, investors invest in the founder(s) first. Male or female, an investor at the base level wants surety that this person is capable of building this company to greater heights which will turn in 4 -10X their returns at minimum,” she added
Lack of sufficient knowledge
There are very specific rules to getting fundings, as well as specific metrics that investors are looking for. There are specific types of businesses that work and those that don’t, depending on the type of funding. Women are more familiar with taking debt and grants, and there are a lot of unfamiliarities in the space that disadvantages women. According to Dusek, “The biggest challenge with early-stage founders is recognising what your major milestones are. We talk a lot about the valley of death, which is this early-stage era in a startup’s life where it’s very easy for startups to crash and burn and die, or they make it to the next level.”
While all these pose as reasons female startup founders get the least funding, experts say there are trends currently ongoing that suggest the narrative will change positively.
Statistically speaking, female-led startups perform better than male-led startups. A study by Boston Consulting Group shows that women-founded startups generate 78 percent for every dollar invested, compared to 31 percent from men-founded companies. Armed with this knowledge, an impending awakening looms. With more Women VCs, conscious allocation, outreaches, and investments will be made to female led startups.
“In my time, I have hopped on a few calls with investors who made it known that part of their thesis is to invest solely in female founded startups, and/or ensure their portfolios are sizably women-led. I anticipate that a lot more consciousness will happen at an insurmountable rate the same way a lot more young girls and women are diving into careers in tech,” Ovio said.