2 Reasons Women Still Get Less than 3 Percent of VC Funding
When my Masthead Media co-founder Julie and I were in the process of launching our content marketing company back in 2011, we’d heard that it could be a lot tougher for women to secure funding for their businesses than men.
We had no idea just how much the odds were stacked against us. In the past few years, less than 3 percent of venture funding has gone to businesses with all-female founders–a sad state of affairs considering that nearly 40 percent of all businesses in the US are owned by women.
Believe it or not, this lousy funding situation is an improvement over what women went through just a generation ago. As recently as 1988, women still had to have a male relative cosign their loan (that’s when HR 5050, or the Women’s Business Ownership Act, was passed) in order to raise funds for their businesses.
While conditions for female entrepreneurs have changed since the implementation of the law, there’s still a long way to go in achieving full equity with men. In order to make things better for women, we have to understand what’s really driving the disparity.
Why does the gender funding gap exist?
I’ve heard many of my fellow women founders speak up about the pervasive, often misogynistic bro culture that exists, particularly in tech-driven businesses. Not only does the exclusivity and overly masculine culture make it hard for women to grow into power positions within existing companies, but it can make leaving–and launching a business–very hard to do.
There’s evidence to show that withholding funds from women may be less about misogyny and more about ingrained bias. Research shows that investors tend to back entrepreneurs who have similar backgrounds to their own, so if a female entrepreneur is pitching to a room of all-male VCs, she’s already working at a big disadvantage.
“When there aren’t women in the room, there isn’t anyone to see the entrepreneur’s business from a female point of view,” said Racheal Cook, business growth strategist for women entrepreneurs. Today, less than than 10 percent of decision-makers at U.S. VC firms are women, so if you’re a woman, the cards are already stacked against your pitch.
A separate study published in Harvard Business Review also found that VCs tend to be biased in how they frame their questions, asking male entrepreneurs about the potential for growth and female entrepreneurs about the likelihood of losses.
Bridging the Gap–and Getting Funded
So now that you know about the gap, and why it exists, what can you do about it? The most important thing is to remain determined and outspoken about what you and your company can do.
“Keep pitching,” said Elizabeth Gore, CEO and co-founder of Alice, a virtual business accelerator for women. “It can be frustrating, especially with the odds against you, but no system changes without an uncomfortable period of tension before growth.”
You should also arm yourself with as much knowledge and authority as you can going into your pitch meetings, whether you’re speaking to a panel of VCs, or to your local loan officer.
Join a local group of female entrepreneurs and ask if you can practice your pitch. Have your fellow founders throw all the tough questions at you–both positive and negatively worded. Take the time to develop your answers and keep your responses constructive–so you’re fully prepared when you’re ready to fundraise.
If you decide to go the route of getting a small business loan, carefully read and ask questions so that you can understand every word of the contract. “Look at APRs and the Small Business Borrowers’ Bill of Rights,” says Libby Morris, head of loan operations at Funding Circle. “This should give you an idea of what questions to ask to get you where you need to be.”
No Matter What, Keep Pushing Forward
Helping women get more funding isn’t simply good for that would-be business owner: Providing women with adequate and equitable funding benefits everyone since women are more likely to take money earned from their business and invest it back into their community.
“Our world is a better place when everyone has the opportunity to live their dream,” said Morris. “And there are a lot of women out there with the potential to do good for the world, so we should all care about helping women hit their potential.”