The Hidden Truth Behind Female Founders and Funding
A Smaller Slice of the Pie
Out of all venture dollars spent in 2020, how many would you guess were spent on female-only founders? 20%? 10%?… 5%?
The proportion of dollars to female-only founders came to 2.3% – a decline from 2.8% in 2019 (Crunchbase).
More than 800 female-founded startups globally received a total of $4.9 billion in venture funding, which is a 27% decrease over the same period last year (Crunchbase). While it remains unclear if the decline is entirely due to COVID-19, the pandemic has disproportionately impacted women.
The ongoing pandemic and its impact on female founders is just a glimpse into the struggle many working women have had to face this past year. According to a report from McKinsey, more than one in four women were contemplating downshifting their careers or leaving the workplace entirely. Compared to this time last year, there are now 2.1 million fewer women in the workforce (Ellevest).
One of the issues stems from the struggle women face as they take on heavier loads — balancing full-time employment and childcare. 865,000 women left the workforce after school started last September (The 19th). This past December, the US economy lost 140,000 jobs. All of which were held by women (CNN).
The Risk of Losing of Female Leaders
With over 2 million women out of the workforce, we are on track to ending up with fewer women in leadership positions and far fewer women on track to become future leaders. What’s the risk? Companies cannot afford to lose female leaders.
McKinsey reports that company profits and share performances can be close to 50% higher when women are well-represented at the top. Besides their positive impact on financial performance, females also have a vast and meaningful impact on company culture. Female leaders are more likely to embrace employee-friendly policies and programs, more likely to champion racial and gender diversity, and more likely to mentor and sponsor other women.
Ditch the Pitch
Female founders are leaders, and the precarious state of female workers rings especially true to female founders who have historically dealt with gender bias during the traditional fundraising process.
Investors take a bet on the future. While they care about historical track record, they invariably evaluate founders based on potential rather than performance. It all comes down to trust – and people are more likely to trust others who look like them.
One study from 2014 used identical slides, scripts voiced by men and women, with or without photos of the ‘presenter,’ and then asked study participants to rate the investment. The ‘investors’ preferred pitches presented by male entrepreneurs compared to pitches made by female entrepreneurs, even though the content of the pitch was identical. Pitches where the narrator’s picture was a good-looking man performed best of all.
Bias also shows up in how entrepreneurs are questioned. In a 2017 study of Q&A interactions, researchers found that venture capitalists posed different types of questions to male versus female entrepreneurs. Men were asked more “promotion” questions, revolving around the potential for gains. Meanwhile, women were asked more “prevention” questions, revolving around the potential for losses. Entrepreneurs who addressed promotion questions raised at least six times more money than those who asked prevention questions.
Eliminating Gender Bias for Female Founders While Fundraising
Begin the Conversation
Acknowledging and discussing these biases is the first step in establishing a more inclusive and equitable fundraising process. Whether you are a founder or funder, start having conversations with your own team members to uncover what biases we may have, how we can stay aware of these biases, and how we can overcome them.
Females Funding Females
A number of funds, such as Female Founders Fund, Golden Seeds, and Voulez Capital, have established the women-pitch-only-against-other-women approach, focusing efforts and funds towards extraordinary female founders.
Alternative Debt: A Pitch-Less Approach
How can female founders raise millions of dollars while reducing gender bias, minimizing equity dilution, and without giving up board seats or personal guarantees? Alternative debt.
Alternative debt lenders cater to post-revenue companies in the growth stage of their company operations. Two popular forms of alternative debt include venture debt and revenue-based financing. As opposed to solely focusing for potential, alternative debt lenders focus on performance. During the initial screening process, lenders start by looking at three things:
- Annual revenue
- Positive unit economics
- A clear path to profitability
By focusing on the historical metrics and financial projections of the company, lenders spare little room for evaluating companies based on subjective potential. Flow Capital, a North American-based venture debt lender, had adopted a pitch-less investment process where data is gathered in an online application form and companies are selected based on specific metrics.
Lenders and funds that don’t consider a pitch invest in 8 to 12 times more women than average, even if they do not have an explicit gender mandate and are investing on pure financial performance.
Become an Ally
Everyone has a role in promoting equality. Here are some articles that provide steps you can take to become an ally at work:
- Men as Allies: Engaging Men to Advance Women in the Workplace (Bentley University)
- 6 Ways That Women Can Champion Each Other At Work (Lean In)
- 5 Ways Men Can Be Women’s Allies at Work (Forbes)
- Here’s How To Be A Good Workplace Ally To Women During COVID-19 (Forbes)
- The Hardest Part of Being an Ally (Behavioral Scientist)
The world is shifting, and it’s only a matter of time until we begin to see equality transcend into all aspects of our professional and personal lives. By becoming advocates and allies to our female founders, leaders, and coworkers – we pave the way towards a better future for all.
About Flow Capital
Flow Capital provides venture debt and revenue-based financing to high-growth, asset-light companies. We offer fast funding with flexible terms that are tailored to meet your company’s unique current and future needs.
To apply for financing, fill out our online application form here.