Securing Venture Capital Especially Challenging for Women

Why Women Entrepreneurs Have a Harder Time Finding Funding

Securing Venture Capital Especially Challenging for Women
September 28, 2016 7 min read Opinions expressed by Entrepreneur contributors are their own.

Women entrepreneurs run 30 percent of all small businesses, and together employ 7.9 million people and generate $1.4 trillion in sales (as of 2015). Needless to say, these are pretty staggering numbers.

All that success is wonderful. However, there exists an underlying issue that is keeping women from being even more impactful — difficulty finding funding.

Women-owned businesses receive just 7 percent of venture capital investment money, which is highly disproportionate to their role in the economy. Additionally, loan approval rates for female entrepreneurs is 15 to 20 percent less than it is for men. Clearly, something is not right.

Access to capital is crucial to any small business’s growth trajectory. By looking at the reasons for this disparity, solutions can be more easily seen.

With so many capable, trustworthy businesswomen in this world, it’s vital for society as a whole to ensure they get equal chance to do great things.

Here are the top reasons why women entrepreneurs have a harder time obtaining investments and loans.

It’s hard for any startup.

It’s worth noting that the startup game is a difficult one to get into, regardless of your gender. Venture capitalists, financial institutions and other lenders frequently deny all types of entrepreneurs. Consider this — during the first half of 2014, all small businesses that applied for a loan, only half were approved for any amount whatsoever.

So, add in the general challenges small companies face to secure investment along with the unique hurdles women encounter, and you have a truly difficult task. Not only do women have to demonstrate a great business plan, have excellent credit, and demonstrate solid cash flow, they must also successfully navigate through a process that tends to unfairly favor male-run startups.

There is an issue with the profile of a successful entrepreneur

Candida Brush, a professor of entrepreneurship at Babson College, has an insightful take on one of the main reasons why women don’t get funding — the profile of the successful entrepreneurship is male. If you think about it, this is frustratingly true. When picturing the great business people of today, for many, images of Mark Zuckerberg and Steve Jobs come to mind.

Hence, when investors are approached by women entrepreneurs, there is an unconscious bias that they will not be as reliable an investment as their male counterparts, and therefore not as fundable. To solve this issue, Brush states, “it may be time for the media, educators and funders to recognize that successful entrepreneurs are not all Jeff Bezos or Bill Gates.”

The way to break this unfair stereotype of the successful entrepreneur is to better highlight the great businesswomen of today — Cher Wang, co-founder of HTC; Arianna Huffington, co-founder of Huffington Post; and Beth Comstock, one of the founders of Hulu and current vice chair of GE. This will help instill in the mainstream mind that the face of success comes in the female form, too.

Related: Startups Are the Best Place for Women in Business

Venture capitalists support their own

There is a tendency for venture capitalists to invest in startups run by people who they share a direct or indirect connection. The problem with this is that the business and political world is still overwhelmingly male. For each woman, there are four men named James, William, Robert or John running an S&P 500 company.

In the venture capital world, where 89 percent of investors are male, women entrepreneurs are getting overlooked for funding in favor of giving the money to men with whom they share a connection (think same college fraternity, hometown, friend’s brother, etc.). As Bonnie Crater, the president and CEO of Full Circle Insights, notes, venture capitalists offer funding to those in their “tribe.” The “Good Old Boys” system prevails.

With that said, hope and opportunity remains. Eleven percent of venture capitalists are women, and firms with female partners often invest in female-run startups at a higher rate. The key for women to succeed is in networking and finding investors and lenders that focus on financing women-run businesses.

Related: VC Funding's Gender Gap Is Hurting the Marketplace

There are investors with unintentional — or intentional — biase

The story of Kathryn Minshew, the co-founder of The Muse, is an alarming example of the uncalled-for difficulties women have to put up with when looking for funding. While trying to raise capital for the Muse, Minshew repeatedly encountered closed doors, as numerous VC firms claimed they weren’t in the market to hear her pitch.

When she pushed further, she received hateful responses — tones mirroring the s of saying, “Don’t get too big for your britches.” Even when her pitch was heard, she felt most mistook her leadership and confidence as charm, rather than signs she could effectively grow a business.

Eventually, Minshew did obtain funding, only after contacting more than 200 capital firms.

For minority women entrepreneurs, the issues are further exacerbated. Black women own 1.5 million businesses in America that generate about $44 billion per year. However, black females only obtain 0.2 percent of venture capital investment dollars. There are countless personal experiences that show just how bad it can get for many minority female entrepreneurs.

Kathryn Finney, a black female entrepreneur who started the highly successful blog Budget Fashionista, said, “I actually had a [venture capitalist] tell me that he didn’t do the black woman thing.” Finney, many others, has run into the discrimination underlying venture capital funding.

The truth is minority women represent the fastest-growing group of entrepreneurs in the country.

With both unintentional discrimination and intentional discrimination limiting the access women entrepreneurs have to funding, it’s evident a greater push needs to be made to break down these barriers.

Investors, lenders and other financial firms need greater education on the potential of women to improve the business world. The numbers don’t lie.

It’s clear investors need greater awareness on how discrimination only gets in the way of opportunity and progress for others as well as themselves.

Related: 5 Reasons Women Entrepreneurs Should Consider Buying a Business (Infographic)

Despite all this, the future is bright

In spite of all the obstacles women entrepreneurs face, there has never been a better time in U.S. history to be a woman entrepreneur. The number of women-owned firms has grown 68 percent since 2007, much higher than the national average of 47 percent. Statistics this continue to indicate progress and greener paths ahead for female business owners. But more work is to be done.

While difficulties women have in obtaining business funding won’t be fixed overnight, there remains plenty of ways to overcome these setbacks. It starts with being fearless and resilient, and fully exploring all the potential options. The Small Business Administration has specific loan programs for women-owned businesses.

There are angel investment firms and grant institutions that specifically lend to females. Additionally, with the rise of Fintech startups, there are lots of new funding sources, such as peer-to-peer lending sites.

Networking with other women entrepreneurs is another avenue you have for getting funding, and the National Association of Women Business Owners is a great place to start.

If you are resourceful enough and grab control of the process, you can get the funding you need and get back to building your dreams. 

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Leaders in virtual health research, news, and trends

Securing Venture Capital Especially Challenging for Women

Colette Courtion is the CEO of Joylux, a femtech company using red-light devices to treat vaginal tissue and pelvic floor muscles affected by childbirth, menopause, and aging. Her company has raised $15 million.

But rather than getting large checks from a small number of healthcare venture capitalists as might be expected, she explains how she has had to raise money incrementally, one check at a time, primarily from her target demographic.

“It is hard for men to spearhead this because they can’t get excited about the product, while new female associates don’t necessarily understand what older women deal with. The technology is so new and different that it feels risky and products in the fertility and period space are easier to identify with.”

Since 2008, venture capital investment in the femtech industry has grown by more than $700 million.

But the challenges of positioning and pitching a women’s health company—especially to a room of men—have also been well documented.

We met with members of the digital health investment community to learn more about navigating the complicated VC landscape. Their perspectives helped us answer three main questions: 

  1. Is the ‘femtech’ categorization helpful when pitching to investors? 
  2. What is the most compelling way to structure a pitch?
  3. How can founders evaluate prospective funding sources to ensure a positive strategic partnership?

To ‘femtech’ or not to ‘femtech’

Ida Tin, founder of the period tracking app Clue, first coined the term ‘femtech’ as a way to give investors an avenue for talking about products they otherwise wouldn’t feel comfortable promoting within their firm.

The category includes software, services, diagnostics, and products that support women’s health, falling into a number of different areas such as general healthcare, menopause, or pelvic health. While the term’s rapid adoption and buzz make it an enticing pitch opener, it is not without risk.

Many have argued that the term creates a broad catch-all, where products of all kinds get thrown into the femtech category, obscuring the business model use case for individual companies.

Tracy Warren, general partner of Astarte Ventures, points to the importance of having a business model that makes money first, before relying on the femtech categorization as a point of differentiation.

“My fear is we aren’t being disciplined enough about categorization and requirements for deals, and with a lot of flameouts people are going to dismiss the category as quickly as they started to talk about it.

Elizabeth Bailey, Managing Director at Rhia Ventures elaborates: “From our perspective, reproductive health is essential health care.

I worry the term ‘femtech’ doesn’t adequately capture the rich pipeline of companies and innovations we’re seeing in the broader women’s health space.

But I do think it’s been helpful in catalyzing a new category of investments that has been overlooked for far too long.”

Although the term may provide a helpful framing, it shouldn’t be expected to carry additional weight with investors. As Warren explains, “You’ve got to pitch a highly profitable business with rapid growth and a sustaining, recurring revenue model. Those are the things that get any investor’s attention.”

How to pitch a femtech company

Femtech companies have some of the most passionate founders in the tech startup community because the intricacies of women’s health have long been ignored by investors.

As such, the personal can inform the pitch un any other industry.

While passion is a crucial ingredient for any entrepreneur’s success, investors advise that founders keep their pitch focused on the business case and use language that fits their environment.

As Alyssa Jaffee, Vice President of 7Wire Ventures points out, aligning your vocabulary with the pitch setting is key. “When I first had my baby and I was a working woman, another female VC gave me advice and said, ‘don’t say you have to go pump, say you’re nursing.

’ There are little nuances that which I wasn’t previously exposed to. For example, the language I use to explain a deal around postpartum leakage is different from the language I’ve used with my mom and sister.

Part of this adjustment has to do with who is in the room when you’re pitching, and part of the adjustment should be to ensure your business model doesn’t get lost amidst the language.”

Medical device venture capital can serve as one example. If your product is a medical device built for women, Warren recommends first breaking down the market, the problems, and the costs to investors: “A lot of the femtech founders are first-time entrepreneurs, which has its own set of challenges. A lot of them are female entrepreneurs, which provides a second set of challenges.

And then when you lead with women’s anatomy, you have pretty much given male investors three potential reasons to say ‘No.’ But if you lead with this medical device market, ‘these are the problems, these are the costs, here’s how we fix that.’ And ‘oh, by the way, this happens to be something that addresses vaginal dryness associated with X, Y and Z,’ you get a much different response.

Starlings CEO and Society of Physician Entrepreneurs Director Rania Nasis agrees: “You should always adjust your pitch who’s in the room, regardless of whether your company is in femtech, biotech or diagnostics.

If you’re tackling a condition that is not well understood by the public, find a way to break it down into such that the average, non-medical, person might understand it. Also, keep in mind that investors are after returns. Talk about the size of the market and revenue potential.

All investors understand numbers, even if they don’t have a deep understanding of the healthcare challenges your startup is addressing.”

Nasis goes on to encourage founders to clearly articulate to investors the customer need that they are solving. “Make sure you’ve done the research into your customer and really understand their problem.

What is their biggest pain point and how are they addressing it now? If the answer is they are doing nothing to address it, then the problem is ly not big enough. You want to tackle problems are that are so annoying or painful to the sufferer that they are coming up with all sorts of ad hoc (and inefficient) solutions.

A solution that addresses a need is more compelling to an investor than one that addresses a want, especially in healthcare.”

Any good investor will do their due diligence. If a femtech company doesn’t hold to the standards investors use when evaluating other industries or categories within digital health, it will not bring in VC funding no matter how altruistic the product.

How to evaluate investors

The femtech market is expected to grow to more than $48 billion by 2025, indicating a growing interest among investors and a wealth of opportunity for femtech founders. But all venture capital money is not created equal.

Lynn Loacker, the founder of Project W—a national network of entrepreneurs, investors, and executives to help women founders build great companies—works with Dana Kanze, a professor at London Business School to lead a workshop on disrupting bias in the pitch process.

Kanze’s research found that both men and women investors tend to ask women founders questions about risk and challenge while asking men founders about growth and opportunity. When seeking healthcare venture capital, femtech founders should be on the lookout for questions from investors that seek to understand their business model.

Are the investors conducting due diligence and seeking to understand whether your product falls within a competitive market? Are they interested in the growth potential of your business?

Another thing to look for is whether the investor is interested in helping you grow strategically.

Since many femtech products are the first of their kind, unique challenges will present themselves as the company begins to scale.

Is the investor interested in setting up a weekly call and getting into the weeds to help with operations? These are signs that the investor is interested in building a long-term funding partnership.

An angel investor and advisor in the space urges founders to consider a prospective investor’s track record and the representation of women within the VC firm. “Look at the companies that specific partner has funded and, even better, where she or he was the lead investor and took a board seat.

Are any of these companies led by a woman? If so, talk to those leaders about their experience.

What is the composition of the investor’s team? Are any of the GPs women?” While the gender diversity within a firm may not always predict investment patterns, a Kauffman Fellows report found that women VCs lead twice as many funding rounds for startups with a woman founder as compared to men VCs.

Femtech-focused venture capital firms may be one way to build a positive funding partnership. Warren’s company Astarte Ventures focuses on women’s and infant health. Rhia Ventures focuses specifically on women’s reproductive health.

“One of the biggest misconceptions about venture capital is that it’s only about the check writing,” shared Bailey.

“But in reality, being a good funding partner means bringing resources alongside the financial capital, especially when we’re talking about women’s health startups.

With support from the Gates Foundation, we’re building out this type of capacity to help companies with innovations in contraception and other high-impact reproductive health areas. We’re listening closely to our portfolio companies and other early-stage startups about where and how we can help.”

Specialized funds may be more familiar with your product area and able to offer long-term guidance. Any funding partnership, however, should be evaluated your company’s goals and whether or not the investor is able to support your vision.

The future of VC for women’s health

COVID-19 has left many industries reeling and the healthcare venture capital space is no exception. While there is plenty of uncertainty, there may also be plenty of opportunity.

PwC’s Health Research Institute recently released a report indicating that more Americans are accessing health information in new ways.

As people change the way they think about healthcare, now may be the time to launch your femtech product and start thinking about fundraising.

Maria Velissaris, founding partner of women’s health fund SteelSky Ventures says her fund has seen tremendous growth from their portfolio companies that focus on telemedicine, digital health, remote monitoring, and direct-to-consumer platforms.

“We set out to invest in the future of women’s healthcare, and the future has arrived,” says Velissaris. “Companies we thought would take years to develop significant traction have accelerated growth in this new post-COVID world.

” The company is even more bullish on the segment and is attracting investment into their fund from LPs who were previously skeptical.

Bailey agrees: Rhia Ventures is actively looking for new opportunities in reproductive health that have been bolstered by the pandemic. “If there was ever a year for telehealth, 2020 is it! Perhaps the only silver lining of COVID-19 is that it has advanced telemedicine at warp speed.

We were already investing in digital health and telemedicine solutions in maternal health and contraception that help bridge the access divide, particularly for underserved communities.

COVID has shined an even brighter light on some of those disparities, but in this environment, access has become an issue for almost everyone.”

Kathrin Folkendt, the founder of Femtech Insider, suggests using this time to network, apply for grants, and start setting the stage for conversations with investors.

Working with your development team to make sure your software and minimum viable product is working as smoothly as possible can allow you to test among your target market and set you up for success when you are ready to start fundraising.

The femtech industry faces a unique set of challenges when it comes to fundraising. But it also has a unique opportunity to improve the lives of women and change the healthcare investment landscape. By forging a strong funding partnership, femtech founders can capture much of the anticipated market growth in the years to come.


In-depth: Female-led startups make strides, but venture funding lags

Securing Venture Capital Especially Challenging for Women

Data shows that women control the bulk of healthcare spending in the U.S., which has given women the nickname 'chief medical officer' of the family. However, when it comes to digital health, only 14% of deals were closed by women-led digital health startups in 2019, according to Rock Health.

While women-led companies have made strides in the digital health world, these companies often struggle to secure funding from the male-dominated venture world. Recent reports demonstrate that female led startups are more ly to be bootstrapped, and less ly to be venture-backed than male-led digital health companies, which can lead to major hurdles for early-stage companies.

“Women control more than 80% of the U.S. healthcare dollars, and we make the healthcare decisions on behalf of our, children, partners, parents and of course ourselves.

What this means when we think about digital health and leadership, women as founders, women as funders, we need to be building for the most powerful customer in healthcare, and that is by in large women,” Carolyn Witte, CEO of Tia, told MobiHealthNews.

“We think when we bring more women into decision-making roles, leadership roles, creative roles, and give female founders the same access that male founders have, we can build a healthier system that works better, not just for women, but for everyone.”

Women founders often discuss the challenges of getting the attention of the male-dominated VC industry. In fact, in 2019 women only made up 12.6% of partners at venture funds active in digital health investing, according to that same Rock Health report.

“It's been particularly difficult for female founders, especially female founders in the women's health-segment fundraising,” Maria Velissaris, managing partner at SteelSky Ventures, told MobiHealthNews.

“The issue lies in phenomenon called pattern matching. People tend to invest in those that remind them of themselves. According to a Fast Company article, 40% of VCs are white men who went to Harvard and Stanford. And 80% of VCs are white and Asian. So that's the interesting insight here.

“So, if we know people tend to invest in people that are familiar and are from certain types of networks and backgrounds, then we can understand why the majority of investors are not investing in female-founded companies.”

A different perspective 

Carolyn Witte, CEO of women's digital health company Tia, said that having a female perspective can be an asset, especially when it comes to focusing on women's health.

“I'm a unique breed in that I'm a female founder that is building a healthcare company for women. I think it is important to recognize that women can be amazing founders regardless of if their customer is also female,” Witte said.

“That said, with respect to this particular issue there is an authenticity of founder that I think is really, really important. If you look at women's health, not even just digital health, but women's health, a majority of the companies in women's health are founded by men.

“I think in my opinion there is a little bit of a discount between the product and the nuanced understanding required by a founder to build a compelling solution that is deeply, deeply understood, more so on a level [where] you experience the problem itself.”

The demographic disconnect between female-led founders and the majority of VCs can translate into misunderstandings. However, education can play a key component in fixing this issue.

“In particular, being female-focused and having roots around contraception, we definitely got a lot of questions – I've gotten a lot of questions from investors around basically the nature of contraception. One of the first assumptions that people made, and make continuously, is that aren't people on contraception forever? 

“A lot of men … don't understand how it works. They don't understand that some people might be on contraception sometimes, and then go off of it other times,” Varsha Rao, CEO of Nurx, told MobiHealthNews.

While funding can be a challenge, both Rao and Witte have found success. Nurx has raised over $113 million in funding and Tia closed its $24 million Series A funding round in May of last year.

“I think the most important thing you can do in the early stages of building a company is to be product-obsessed, and to find conviction, not in investors, but in your users and your customer.

“If you believe what you are making, and know in your core, the product and business is wanted. Investors aren't the audience that matters. Your customer is,” Witte said.

Knowing the market landscape is also key for pitching young startups.

“I think what female founders really need to do is make sure they are understanding their financials. When you go into these VCs that don't identify with the problems you are solving, you need to talk to them in terms of economics and the economic benefit and opportunity,” Velissaris said.

While women-led startups are less ly to be venture-backed than their male counterparts, some demographics are more impacted by this than others.

A Rock Health report found that Black-women-led startups are the most ly to be bootstrapped for cash. In fact, 57% of digital health companies led by this demographic reported being bootstrapped, compared to just 10% of white male-led startups.

“By having a diversity of gender, socio-economic status, race, you are going to make better decisions and understand what the market truly wants.

If you are a homogenous group of people that all went to the same school, have the same networks, all the same experience from all the same environment, you are going to be narrow in how you view the world, and that is going to affect the types of investments that you make,” Maria said.

The future of digital health 

So, what's next for the future? Maria said it's important for investors to take a deep dive into their portfolio and identify any gaps.

“What I think would be important in the future is for VCs to be able to make sure they are holding their investors and investment committees accountable for investing in diverse companies.

“The only way I think we can create change or a way to create institutional change is to look at the metrics. Look at your portfolios and say 'OK, how many people are men? How many people are women? What kind of ethnic diversity do we have?' and really start holding people accountable. Because we are not going to be able to move forward.

“It's also better for your own portfolio to be addressing different needs of the population,” she said.

Money isn't the only challenge female founders are facing. Support can also be lacking. Velissaris said that the coronavirus pandemic has put strains on women founders' personals lives, as well as professional lives.

“Everyone is spread out. Everyone has been isolated. Finding a community of -minded people who are going through the same types of experience that you are can be very helpful,” she said.

“Not only somebody to vent to at the end of the day and somebody to walk through challenges with, but also just from a mental health perspective. Just saying, 'You know what? It's been really hard, this has been really hard.

' It's not only challenging from a professional perspective, but a personal perspective. Women are not only dealing with things going on in the workplace or building your company.

You are also dealing with new challenges at home,” she said.  

Witte said that founding a business can be lonely, and support networks are key for helping to overcome this.

“Part of that means mentorship. It's at times thinking about how we cannot create double standards, but recognize that leaders may look different, may act different, may sound different in creating new kinds of standards and praise for different types of leadership that may be different than the male leader we are all accustomed to, whether we to admit it or not,” Witte.

Today more and more female led startups are coming onto the scene. Maria said that it's important not to get discouraged.

“I want to encourage all women founders to be strong, have convictions and follow your dreams,” Velissaris said.  

“So many people told me, time and time again, you can't start a company. You don't know what you are doing. You're too young, you're too Black, you're a woman. This isn't for you. Women don't know finance.'

“Take all of that and use it to fuel your growth and fuel your success. Don't take no for an answer. Continue to knock down boundaries and continue to follow your dreams.”


Top Challenges Faced by Women in BusinessHow to Overcome Them and Succeed

Securing Venture Capital Especially Challenging for Women

A lack of funding is one of the most blatant challenges for women in business. As of 2019, MarketWatch reported just 2.2 percent of all venture capital goes to businesses founded solely by women.

Furthermore, all-male founded companies receive funding after their first-round close to 35 percent of the time; for women, the number is less than 2 percent. Without financial support, female entrepreneurs struggle to scale their companies. As a result, only 2 [percent] of women-owned businesses break $1 million in revenue, which is 3.5 less than men.

How We Can Help

Though we can’t help with increasing the number of female venture capitalists — which some source as the root of the funding problem — we can teach female entrepreneurs the fine art of communicating with Venture Capitalists (VCs). Knowing how to pitch and speak the language of funders can drastically increase your chances of securing funding.

However, the venture capital route isn’t the only option for funding. We have information on alternative paths small business loans for women and women-owned business certification, as well as general information on what to expect in terms of startup costs and financial challenges when starting a business.

2. Support

As an entrepreneur, it’s hard to get by without a little help from your friends. Unfortunately, with a lack of women in prime business positions, it can be extremely difficult for female entrepreneurs to access support platforms or secure mentorship in the way men can.

Women entrepreneurs often lose out on building professional communities, which holds them back from finding mentors, sponsors, and general supporters who could help facilitate success.

3. Stereotypes

Despite the fact that women leaders rake in trillions of dollars every year and run some of the country’s leading companies, there are still pervasive gender stereotypes that undermine the capabilities of female entrepreneurs.

Traits associated with building a business, such as self esteem, risk-taking, decision making, and confidence, are often considered “male only,” even though female entrepreneurs strongly identify with these attributes.

The result is that the archetype of an entrepreneur is a man, leading women to discount entrepreneurship or leadership as an option from a very young age.

4. Work-Life Balance

Finding a good work-life balance is a prominent struggle for many female entrepreneurs. While the household dynamic is changing so that more men stay home to care for the children, the share of stay at home dads is still only 7 percent. Expected societal roles, particularly motherhood, have very much determined the place of women in business.

Though laws have been formed to prevent companies from discriminating against women because of current or future child-rearing, many companies lack flexible policies for women — and some veer away from hiring women to avoid dealing with maternity leaves and shifting schedules.

5. Confidence

The lack of female representation at the top in business causes a damaging phenomenon known as “The Confidence Gap.

” If women in business don’t see other women in positions of power, they’ll find it harder to envision themselves there.

That’s why in a 2016 survey of 8,400 adults, 75 percent of the men said they entered the workforce with confidence that they could rise to senior management; while only 63 percent of women saw that as a viable path from the start.

Female entrepreneurs do not advocate for themselves as male entrepreneurs do, and as a result, miss out on much of the success that confidence facilitates.

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