When I read the research by HBR, I was surprised to learn that only a small fraction of women entrepreneurs get funded by VCs. Just how small are we talking about here - 5% - according to a report released by The Diana Project. Although the report is over 10 years old, its findings are still very much applicable in the industry today. Businesses solely led by women find it difficult to get funded, despite fulfilling all the prerequisites and sometimes, outmatching their male colleagues in terms of experience and skills. 

PitchBook, a financial data company, published a comprehensive and more recent report on the issue. Although their conclusion was a lot more encouraging, (finally, some good news!!!), it still proved that VCs favored male founders over female founders by a wide margin. Here is a summary of their findings. 

First the good news,

US VC funding for female-founded or co-founded companies has been trending up in recent years, and 2022 saw the creation of several women-led funds, incubators for female founders, and more new companies

But then the report equally mentioned that,

In 2023, companies founded solely by women garnered just 2% of the total capital invested in venture-backed startups in the US.

What does this mean? 

Despite the increase in funding over the years, only 2% have found their way to women-led companies. Now where did the rest go to? Well, that is anybody’s guess. Here is the interesting part, VCs were more willing to invest in companies with a male in a leading role, like a co-founder. This slight adjustment in the company’s structure guarantees about a 17% leap in VC funding as seen in the chart below;

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The findings of these two research has established a rather worrisome trend among VCs. The big question is, why does this stereotype exist? In research backed by the Harvard Business Review, the researchers found four (4) assumptions that led to the gender-based stereotype of VCs towards Women founders. There are; 

(1) women are cautious and risk-averse whereas men are eager to go and test their ideas, 

(2) women are reluctant to grow their businesses whereas men are willing to grow their businesses, 

(3) women do not have resources to engage in high growth whereas men have resources to engage in high growth, and 

(4) women's ventures underperform whereas men's ventures perform well

These are called assumptions because they are not based on any hard facts. To prove this, the team of researchers decided to crunch some numbers using data belonging to 126 entrepreneurs (43% women and 57% men) obtained from 11 Venture Capitalists along with key performance indicators such as Debt-to-equity ratio, profit margin, return on capital employed, capital turnover ratio and EBIT. 

Their conclusion was that; 

There are no significant differences between women's and men's venturing outcomes when venture performance facts are compared.

To put it simply, companies found by men do not have any “statistically significant” advantage in terms of performance over companies found by women. Hence there is no reason why VCs should hold certain assumptions about women founders when the data says otherwise. 

It is just as one Female-led VC said,

I think there’s a built-in male network that’s existed for a long time in the venture community, as well as the entrepreneurial community, that takes people a long time to break into. Maybe there’s some unspoken biases and lack of encouragement

How female founders can navigate the VC stereotype to get funded

As a young female entrepreneur, this may all sound very discouraging. Fair enough, but many women faced this challenge and prevailed. Take the sister co-founders Elise Whang and Emily Erkel for example. Despite not having the easiest experience when it was time to get funded, they persisted and at last, their effort paid off. So what could other female founders learn from those who have gone ahead of them? Here are three tips.

Plan your funding early 

When starting your business, there are so many things that crave your attention. This may include, finding the right structure for your business, creating a business plan, market research, getting your licenses and permits (if applicable), etc. Fundraising is not usually the first thing that comes to mind because many founders often start small and tend to depend on personal savings or money from family and friends. But when it's time to scale up, there could be a need for external funding. At this point, it may be too late to start searching for sources to get funds. This is why you need to plan this as early as possible. The earlier you start, the higher your chances of getting a VC fund when you need one.

Be part of a community 

One of the invaluable things that startup founders need to do is network for two main reasons. One, you get to connect with and build relationships with relevant people in your line of business. The second reason why networking is important is information. Because you are now part of a community, you get access to information exclusive to members of that community. Such as suitable VCs, angel investors, or fundraising platforms. An example of a community established for the sole purpose of helping women founders is the Frank & Eileen™ Center for Women’s Entrepreneurial Leadership

Have a co-founder

Depending on the situation, you may consider hiring a co-founder to speed things up. According to the data released by PitchBook, having a male co-founder alone can increase your chances of getting funded by up to 17%. And the role of a co-founder is not limited to raising funds only. They can be key players who contribute their knowledge, skills, and experience to help the business grow. 

It goes without saying that funding is an important step in the growth of a business. Also, the number of Venture Capitalists as well as Venture capital available has increased over the years. However, the distribution of this capital is one-sided, and the reason behind this is gender-stereotyping which seems to favor male founders over female founders. Knowing the problem is just one-half of it, the other half is having a solution(s), which has been discussed in this article. 

If you enjoyed this, you may also enjoy reading about; How One Woman Built a Billion-dollar Business With $5000