I recently gave a talk at the Annual Society of Women Engineers Conference addressing how women entrepreneurs face unique challenges when looking to raise venture capital. My colleague, Merav Rotem Naaman, Managing Director of Verizon Ventures Israel, discussed a similar topic at The Hive’s dialogue on Women in Venture Capital at SAP.io, reflecting the increasing interest in exploring, and hopefully impacting, this issue in the venture capital world.
There is no doubt that raising venture capital and securing financing is hard for any entrepreneur. Based on figures from Pitchbook and the US Bureau of Labor Statistics, fewer than 1 percent of new businesses formed in the U.S. raise venture capital as most businesses tend to be self-funded.
Within this relatively small cohort of VC-funded startups, the proportion of funding being given to female entrepreneurs is small, creating a significant gender gap. According to Fortune, companies led solely by female founders represented only 4 percent of investment transactions in 2017, and they collectively raised only 2 percent of the total investment dollars. Nearly eighty percent of the investment dollars went to companies with male-only founding teams.
We need to tap into the half of the population that is drastically underrepresented in the VC-funded startup ecosystem, in order to spur more comprehensive and creative innovation. Diversity of perspectives is critical, and so we must work to change these statistics. What’s driving the gender disparity in venture capital? It’s a complex problem with multiple factors.
To start with, there are not enough women in venture capital at the investment partner level who drive the funding decisions. Women tend to be underrepresented among the partners who champion investment proposals and serve on their portfolio company's boards of directors. How does this impact women entrepreneurs? Unfortunately, it can hamper networking, which is critical to winning airtime and attention for any individual pitch, and can lead to unconscious bias in how pitches are perceived.
How do women entrepreneurs ensure their investment proposal stands out among these challenges?
First and at a very high level, start with a compelling vision for a product, service, technology, or business model that is innovative, actionable, and solves a real need. Demonstrate a deep understanding of the market you’re going after and competitive forces at play. A large addressable market and profit potential are considerations. Hopefully, you will either have competitive advantages that are hard to replicate or be the first to market. Either way, you need to be able to clearly articulate why your solution is the one to back, relative to the alternatives.
Second, ensure that you have a balanced and strong team to address the fundamental needs based on the stage of the product. In the early days, your team needs to be able to get your product successfully launched and enhanced, and then sell to your target customers and meet their ongoing needs as you scale up.
Third, learn to speak the language of a venture capitalist, become familiar with typical funding deal terms, and research which investors are the most likely candidates for your stage and sector.
And finally, approach everything with confidence, as it is critical to success. Whether you are pitching investors or networking, convey confidence to effectively showcase your vision and convey your ability to deliver on that vision. This characteristic may seem easy to master, but often takes practice.
Entrepreneurs seeking funding are largely critiqued based on these high level attributes, regardless of gender. Unfortunately, there is some bias when it comes to supporting female entrepreneurs, much of which I would characterize as unconscious bias. To mitigate and overcome these biases, it’s best to be fully aware they exist so that you’re not caught off guard, then be prepared and come to the table with value.