Why Invest In Female Founders
Updated: Sep 21, 2021
My personal experience with Venture is nothing short of a turbulent ride that stretches more than a decade. Having sought capital for my fashion retail commerce platform, Dresstracker, Inc, I have first-hand knowledge of the epic challenges that often slow a female founder's success.
Inc magazine published an article about Dresstracker; I was ready for VCs to open their wallets. We had revenue, utilization in the 90th percent, and love from our customers. Upon running calls with managing partners, all men, our rocketship headed back to earth quickly. You are not big enough. We are looking for CS grads. We focus on the top ten Universities. We need to invest in founders that have done this before, etc. I heard all the reasons why I was receiving a "Brilliant Concept, but No". Finally, when an offer came in, it was a 50% stake in the company at a dismal valuation.
What I learned and still stands true today: We need more women in Venture for Venture to work for women.
Recruiting Women Investors
Harvard Business Review reported that Women-Led Startups received just 2.3 percent of VC funding in 2020. In other words, there is no money being raised for small businesses run by women.
So why are Female Founders' cash coffers missing the most critical cash, venture capital? Investors tend to roll in their existing networks, including founders who have already proven themselves and are onto their next big thing. Twelve percent of decision-makers at VC firms are women, and most firms are working on adding female partners. When women venture capitalists make the decisions, they are twice as likely to invest in female founded teams and allocate funding for women entrepreneurs.
Seems easy enough, to unlock millions in investment for woman, we add more women to Venture benches. Getting to the root of the problem starts with downstream thinking. In a large room of 100 women retiring right now, how many are considering angel investments? How many are considering consulting with startups in their respective industries? The simple truth, not enough. And the reality, far less than men. If investing in women is the end goal, then the hard work starts with resourcing women with the proper knowledge, utilities, and deal flow to make strong decisions on their investment strategy.
We have a long way to go, but some significant changes are making it both more appealing and more possible to invest in female founders. How Women Invest has raised a $10 million venture capital fund to invest in startups with female founders. Female investors predominantly run the fund, over half are women of color, and they aim to disrupt the antiquated, unequal landscape of the venture capital system that typically excludes women startup founders. The partners credit the fund's creation to their network of professional, collaborative, and community-driven female leaders, who represent board directors and senior executives.
What is the Secret Sauce?
Venture Capitalists base their decisions on an Investment Thesis: a comprehensive set of beliefs a fund uses to determine whether to make a particular investment. It offers a guideline for when to take investment action and why. Venture Capitalists have a clear Investment Thesis to help them attract Limited Partners or investors in Venture Capital funds. By promoting the facts, Female Founders are crushing it with Venture debt and adding female founders in the investment thesis; we drive change.
Harvard Business Review asserts that when women-led startups get funded, they are more likely to be successful. According to a BCG study, women-founded startups are the workhorse VCs should be funding. They found that for every dollar of funding, these startups generated 78 cents, whereas male-founded startups generated only 31 cents.
We have to have robust business plans - which, in turn, ups our chances of succeeding. Women-led businesses also tend to be more resilient and adaptable, given all the hoops they have to jump through to get funding in the first place! Startups with a female founder hire 2.5 times more women, according to Kauffman Fellows, and companies with a female founder and female executive hire six times more women! Women-led businesses are also more likely to focus on making a social contribution and building good relationships with their employees.
A Bench of Mentors and Cohorts
Consider how capital would help a small business. Female founders need to build great companies and know our numbers to understand the fundamental financial metrics that run the business. The right kind of mentorship and guidance can set female entrepreneurs apart - which is why we see the uptick in diversity funding for female founders.
It should be a priority for female founders to have a bench of mentors and cohorts who can offer support and resources to help a business grow. With the proper funding and technology investment, women-led startups can consult with experts in their industry who can help them reach their target audiences, connect with the right people and resources, and expand different aspects of the business.
Investing in and supporting women-led ventures isn't just a trend - it's a wise financial move that is here to stay. The next Steve Jobs will likely be a woman since women have a knack for leading inclusive teams toward problem resolution by leveraging new technology. Women are also used to making money by using the leanest resources - because that's what we have historically done. The future of venture investment is in safe hands.