In 2019, venture capital investment into U.S. startups nearly doubled from $88 billion to $144 billion. So, while it comes as no surprise that 2019 was also a record year for female founders securing these dollars, many would be shocked to learn this funding amounted to a mere 3.4% at its all-time high.
It would be reasonable to assume that VC funding would drop in 2020, especially during the uncertainty of the pandemic. However, U.S. investment actually increased to a whopping $166 billion with about the same number of deals as the year previous. In spite of this, investment into women-led startups tumbled to just 2.4% of funding, confirming many expert theories that the pandemic has caused a “shecession” in the entrepreneurial world.
These discrepancies are huge and even more startling when you take into account that women-led startups are more likely to be successful than those led by their male counterparts. Only about 12% of decision makers at VC firms are women, and of all the partners at these firms, only 2.4% are female founders who have the true authority to control investment decisions. When women venture capitalists do make the decisions, they’re twice as likely to invest in female founders and their teams. While these numbers are increasing steadily, there is a long way to go before parity is reached in the venture capital world and we begin to see it flow through to funding decisions.
How can female founders overcome funding hurdles?
It’s no wonder then why many women are less confident about starting a new business than their male counterparts, given the hurdles they face. So, what can be done?
The first step is helping women gain the financial literacy needed to adequately launch their business and communicate the value to potential investors or lenders.
Begin with the end in mind and make sure you understand the personal financial implications of the path you are choosing to take. After all, business is all about money, and anyone who says they are looking to start a business but doesn’t care about or understand money is probably not being honest with themselves. The choices you make at the beginning will determine your path, and your path will determine your destination. Research your total addressable market, and compile data on comparable companies and their business models. Put together an estimate of how much runway you need to launch and the associated operating and scaling costs. Understand your unit economics thoroughly so that you can adequately communicate the value to any investor with whom you want to work.
Related: WJR Business Beat with Jeff Sloan: Women Leadership Roles Show Progress When it Comes to Venture Capital
Alternatives to VC funding for female founders
As demonstrated in the data above, it can be difficult to attract traditional VC funding for most entrepreneurial women — especially if this is your first time starting and running a business. Fortunately, there are other routes women can capitalize on as well as a trove of online information (including directories and resource lists) specifically geared toward them.
Traditional bank loans
For many aspiring entrepreneurs, getting a small business loan from the bank to fund their new company is a viable option. However, be careful if you choose to go this direction, as it isn’t always possible to obtain. In fact, many first-time business owners aren’t able to get traditional funding and find themselves putting their home and personal assets on the line with a personal loan versus a business loan, which will have more protection and less personal liability.
If the business you aim to start is one that will provide a physical product or service that consumers would find useful, you may be able to crowdsource your funding and raise money through Kickstarter or Indiegogo. In fact, you may find the crowdfunding site, iFundWomen, will specifically help fill this need.
There are a lot more angel investors out there than you might think, and you have nothing to lose by seeking them out. How do you get in touch with these investors? You can network through shared connections or look to connect with them directly through online platforms like LinkedIn. Keep in mind these people receive hundreds of similar messages, so try to be as clear, concise and respectful as possible — but ask for a quick call to provide more details.
In recent years, many alternative funding platforms like ClearCo have popped up in an effort to help founders scale without sacrificing a huge amount of ownership in their company. If your product is in the e-commerce or SaaS space, these types of backers could be a great fit to give you the early boost you need while maintaining a vested interest in the future of your company.
Key takeaways on funding for female founders
While female founders do often face more challenges when it comes to launching a startup, the good news is it’s not slowing them down. Women-owned businesses grew 58% from 2007 to 2018, and for women of color, they grew even faster. As we work to close the gender gap in VC funding, it would be reasonable to suggest these numbers are just the beginning.