In an intensive five-year research effort, TrueSpace and Gallup studied nearly 2500 small businesses 145 of which were in the second-stage and found the majority of entrepreneurial success boils down to two things; the know-how to build a business versus start one and access to growth capital beyond early seed money.
However, the study also identified a dramatic delta in the capital available for women-led businesses, limiting their potential to grow to the middle markets.
While women have the business acumen, their success is being stymied by their inability, for a variety of reasons, to get access to outside funding. In fact, out of $85 billion in VC funding last year, only 2.2 percent went to female founders, and that number is even lower for angel investments.
Improving Capital Access
Female entrepreneurs have less access to outside funding for both external and internal reasons.
Our research uncovered an institutional bias at play. Whether consciously or unconsciously, investors choose to invest in entrepreneurs who are most like them. Since most venture capitalists and angel investors are men, that means they tend to invest in male-led businesses.
An analysis of the questions investors asked men and women also showed a marked difference. Women are more likely to be asked prevention questions, whereas men are asked promotion questions. For example a female entrepreneur might be asked, “How long is it going to take you to break even?” whereas a male counterpart might be asked, “What is your growth strategy?” The question posed to the woman is asking her to defend her success and assumes a negative outcome for the future, whereas the question to the man is more positive and forward-looking.
When confronted with a preventative question, I advise women entrepreneurs to give a promotional answer such as, “We are looking at an exponentially rapid growth trajectory and predict 100% Y-O-Y margins.”
Considering Feelings vs. Facts
Our research also found that investors tend to focus more on the entrepreneur than the business. While it is true the person you invest in is important, a more impartial analysis of the business, not the owner, would logically make more sense.
It isn’t uncommon for a friend of a friend to get in front of an investor, make a 15-minute pitch and walk away with a half million-dollar infusion, without the investor ever having done the due diligence of really digging into the financials and projections of the company. By shifting the investing focus to the merits of the business, instead of the entrepreneur, more female businesses will have the opportunity to get the funding needed for their next layer of growth.
What’s Holding Women Back
- Networking: Let’s be real, impressions and relationships will always matter in business, and this is one area where women in business should shift their focus. Women entrepreneurs tend to join female entrepreneur groups for networking and support. While these groups are valuable, they can’t be the only groups women entrepreneurs join. Women should consider finding gender-neutral entrepreneurial groups, industry groups and other professional and social organizations where they can build broader networks. An entrepreneur’s network is the key to getting in front of investors, and ultimately securing the funding to grow past the million-dollar mark.
- Imposter Syndrome: Another element within a woman’s control is pushing past imposter syndrome. Women, far more than men, doubt their own abilities and downplay their success. This never works if you’re seeking outside funding. Why would an investor invest in an entrepreneur who isn’t self-confident, assured and convinced that her company is the next Facebook?
Women grow up being schooled to be humble and not overly self-promotional. While those traits are beneficial in some circumstances, they play a huge part in sabotaging a woman’s professional success. I consistently see women who undervalue their company when pitching to an investor. A woman should really know what the valuation is, ask for the money she needs and be prepared to have the facts and numbers to defend it. I have yet to see a male entrepreneur undervalue their company, in fact, most overvalue.
- It’s Time to Ask: In business, you don’t get what you don’t ask for. Once you’ve assessed your true value as a leader, ask for what you deserve, plus a little more. Be intentional and prepared to defend what you are asking for from a salary perspective and don’t apologize for it.
It’s important for women to step outside their comfort zone, expand their network, and remain confident and bold when practicing self-advocacy. By taking control of the controllable, women can gain access to the outside funding needed to take the business past the million-dollar mark.