The Fight of the Female Founder

As I was conducting some research for this article, I came across a startling fact: until the US Congress passed the Women’s Business Ownership Act in 1988, women required a “male relative” to co-sign on business and lending documents. 

Let that sink in.

The same year Salt ‘n Pepa sold 1.3 million copies of “Push It,” none of the three band members could have legally gained access to business capital without a husband, father, or son to co-sign her business loan. 

Since the law changed in 1988, women-owned businesses have risen from 4.1 million to 12.3 million with women now owners of 40% of all businesses in the U.S. While it’s important to recognize how far we’ve come, we must also acknowledge the fact that many women-owned businesses still face incredible challenges when it comes to financing their ventures.

The VC Gender Gap

Privately held technology companies led by women are more capital-efficient, achieve 35% higher ROI, and, when venture-backed, 12% higher revenue than startups run by men, according to research by the Kauffman Foundation.

Despite these impressive numbers, women are massively under-represented among both venture-backed entrepreneurs and venture capitalist investors:

Women entrepreneurs are 63% less likely than men to obtain venture capital financing

Women entrepreneurs raised only 1.9% of venture capital in 2022

Women founders tend to receive an average of $1 million less than men founders

Women make up only 13% and 19.4% of investing partners at venture capital firms in the US and Canada respectively

There are several reasons for this inequity:

1. Conscious or Unconscious Bias

Many VC investors rely on pattern-matching and invest in companies that resemble the ones they have funded in the past, which usually means companies led by men. Investors are human and tend to invest in people they can relate to. Since 80-90% of investing partners are men, it stands to reason that male entrepreneurs are more likely to receive funding than their female counterparts.

“Ultimately, venture capital at the early stages is a people thing, I’m betting on you. People are just more comfortable betting on somebody that is more like them, looks like them, talks like them, went to the same schools, eats the same food, goes to the same restaurant, drinks the same wine, goes to the same country club, all these little things. They’re not overtly racist or overtly discriminatory, it’s just comfort. Ultimately it’s a comfort thing.”  Interview with a male investor, August 2015  Source: Harvard Business Review

2. Accessing Investors

Before you can even experience the inequities of the VC world, you have to cross the hurdle of actually finding investors. It often feels like there are secret doors to angel and VC investors that can only be opened when you know the right people or find the right allies to make introductions.

To find and access investors as a female first-time founder, try connecting with other entrepreneurs in your industry and find out how they met their investors. Reach out to family members or current contacts, such as your lawyer, accountant, or banker, who might know some suitable VCs, wealthy individuals, or successful players in your industry that may be interested in investing and mentoring you.

3. Lack of Representation

Female venture capitalists are twice as likely to fund female-led start-ups compared to male venture capitalists. However, there are still very few female investors, and they tend to be concentrated in funds that focus on earlier-stage investments, where risk is higher and the funds invested are smaller. Research published in the Organization Science Journal of more than 2,000 venture-backed startups found that female-led firms whose first round was raised exclusively from female VCs were two times less likely to raise a second round. 

Harvard Business Review says this is because of an effect known as attribution bias: When people see that a female founder received funding from a male investor, they assume it’s because she is competent and her startup is strong. But if the same founder only has female investors, then people are more likely to assume that her success is due to her gender, rather than her competence. 

4. Discrimination

TechCrunch Disrupt discovered that founders pitching their ideas were asked different questions depending on gender. Men were asked promotion-orientated questions, such as what were their hopes, advancements, achievements, and ideals. Women, on the other hand, were asked preventive-orientated questions, such as concerns about responsibility, reliability, business security, and due diligence. These types of questions force women to constantly defend their ideas and their capabilities. Researchers found they also result in substantial funding gaps. On average, each prevention-orientated question asked would equate to $3.8 million less in funding than promotion-orientated questions. 

5. Cultural and Societal Factors 

I’ve been told on many occasions that women are more risk-averse and less aggressive in the process of confirming a round and that our male counterparts are capable of committing larger funds, faster. Why is this? Well firstly, we’re all facing the same social constraint — fighting to prove our legitimacy — and we’re probably maintaining the same aversion to risk. This creates an invalidating cycle in which female investors take fewer risks, particularly in regard to investing in female founders, and garner fewer funds than their male counterparts. To break this cycle, we need to trust in the ability and potential of women on both ends of the deal, with no strings attached.

Building a Fairer Tech Landscape

To close the VC and funding gender gap, investors and entrepreneurs have a lot of work to do. Here are some ways we can begin building a fairer tech landscape for female founders:

1. Get Inspired by Successful Women

A LinkedIn post by Keith Ippel, the Co-Leader of the Spring Activator and Spring Investing Collective recommended some excellent reference material to inspire female entrepreneurs and investors. He recommended looking at Shelley Kuipers and The51, Vicki Saunders (She/Her) and Coralus, SheBoot, Glynnis Vaughan, MA Women’s Equity Lab, Kristen Perry and Spring Investing Collective, Danielle Brewin Graham and The Firehood, Danielle Gifford and Movement51, Rhiannon Davies (she/her) and Sandpiper Ventures, Ka-Hay Law and TELUS Pollinator Fund for Good, and Sana Kapadia and GenderSmart. 

2. Address Biases in the System

VCs have a responsibility to rethink how they evaluate investment opportunities and ensure that business metrics rather than implicit biases guide funding decisions. It’s also important to talk about unconscious biases and provide training so VC investors have the skills to identify and address their own biases. 

3. Encourage More Women Investors

Studies have shown that female investors are more likely than their male counterparts to invest in female founders. However, female investors make up just 13% and 19.4% of investing partners at venture capital firms in the US and Canada respectively and many of them work with early-stage startups. We need more women represented at later-stage VC firms.

Women interested in investing must get involved to boost representation. According to Silvia Mah Ph.D., MBA, publisher of Innovate-Impact-Invest, women can get started by:

1. Helping to judge at pitch competitions
2. Getting on the selection committee for an accelerator’s intake process
3. Providing mentor hours on LinkedIn or in one’s local ecosystem hub
4. Going for coffee with other aspiring or existing woman investors
5. Dipping your toes into equity crowdfunding
6. Getting connected to organizations of angels or VCs

4. Support Women Founders

Although VC firms may encourage their female investors to recognize and advocate for female entrepreneurs, this obligation should not be solely imposed on female VCs. Male VCs should actively collaborate with their female colleagues to support startups led by women, not only because of a desire to aid female-led businesses but also because it is mutually beneficial for both investors and founders. By working together, they can help create a more equitable and diverse ecosystem, which can foster the emergence of a balanced next generation of successful startups.

Friendly Debt Capital for Female Founders

The TIMIA team has always been championed by its empathy for the entrepreneur. We have built a founder-friendly business for both male and female entrepreneurs. Today, we’re actively working to bring more female entrepreneurs into our portfolio and raise awareness about non-dilutive forms of growth capital among female founders. 

Our leadership team is heavily stacked with experienced businesswomen, and we offer a friendly place for female-led startups to discuss growth capital opportunities. 

For more information, contact our team.

More articles in the Female Founder Series:

• Female Founder Spotlight: Monique Morden
• Friendly Financing for Female Founders
• Female Founder Spotlight: Jennifer Mercer

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