Myth #2: Women Can’t Get Investment Dollars (Part 1: How the Investor Side Works)

Some say you need money to make money. That’s not necessarily true. An entrepreneur creates a business out of an idea and a lot of time and effort.

And last I checked, ideas and effort are free. Time is costly. And maybe material product, but that’s different.

We have a perception that women can’t get investment dollars to start their businesses.

• They earn less money (how that impacts starting a business, I have no idea, but it’s on lists)
• They get fewer loans
• They don’t get Venture Capital (VC) money

Is this really true? Or do perceptions like this just discourage women?

You don’t need big funding to start a company

What happened to creating a company nights and weekends? Woz engineered the first Apple computer at night after his full day of work at HP. HP started in a garage with two guys and $500 – one was on a leave of absence.

At least, that was the “traditional way.” Somehow that changed so people now quit their jobs and run to Sand Hill Road to gather VC funds.

Here’s a more accurate portrayal of how a startup evolves into an enterprise:

Seed capital from friends and family may be needed when a startup is in the Valley of Death, which lasts a few months or years. It depends.

Angel investment (early stage) and VC funds (early and later stage) are typically used for scaling a company, not for getting started. I’ve excluded loans and credit lines – financial products that help cash flow (you don’t get a loan for an idea – that’s movie fiction).

When ready, do women get their fair share from VCs?

We are obsessed with VC money, but it’s a small part of the startup story. We hear how VCs don’t back enough women owned businesses – but it that really true?

If we look at the stats in a different order, we get a different story:

• 30% of businesses are owned by women
• 66% of women owned businesses focus on services (services typically aren’t eligible for VC money)

This means 10% of businesses are women-owned and sell a tangible product, eligible for investment. That’s not many.

• About 5% of tech startups are owned by women
• 13% of companies funded by VCs are owned by women
• And women achieve 35% higher return on investment, and – when venture-backed — generate 12% higher revenue than other tech companies

Looking at the stats, there really aren’t a lot of VC-eligible women-owned businesses. But the ones that are eligible far exceed expectations.

We need more women starting scalable, product businesses to keep this trending positively.

Investors want to see a legitimate business

In the early days of a startup, the only person who believes in you is you. You constantly need to sell your idea. That’s why family and friends funding and “earning your keep” is important. The way investors see it, if your friends and family don’t buy into your idea, and if prospects don’t buy what you are selling – why should anyone else?

Making money gives your company legitimacy – it’s not just an idea on a napkin.

And you can’t just wish a company into existence and expect to be given money. You need to win on your own.

Investors want returns on their investment

I talked to a number of investors and they all said the same thing – gender doesn’t matter; is about how a business will scale and return on investment.

Kevin Leary from Shark Tank admitted it: “I just looked at deals,” he said. “I never looked at gender. I have no bias. I want to make money. I’m trying to find the path of least resistance with the best people I can find. I’m agnostic to where they came from.”

I spent some time with Louise Kee of Golden Seeds, an angel investment group focused on women-owned businesses. She gave me a crash course in angel investing and where women fit in that ecosystem.

A few facts she reviewed with me:

• 20% of all angel funding goes to women owned businesses (it was only 5% 10 years ago)
• Golden Seeds has met with over 2500 firms and funded more than 65 (2.8% acceptance rate)
• An Angel investor expects a portfolio of 8-10 companies will contain roughly 4 busts, 4 breaking even, and 1 (possibly 2), which will hit a homerun with 10x investment.
• Angels invest in women owned businesses more than VCs

When I asked her what types of firms got funding, she complemented the companies in the Golden Seeds portfolio with, “There isn’t one that doesn’t make you go, ‘Wow!’” But she did tell me that they all share these qualities:

• Focus on disruptive technology and transforming an industry.
• Solve problems in big markets. Lots of room for growth.
• Have extremely scalable business models and potential for exponential customer growth.
• Collaborate. They work with investors to build a better business.

Even if a company meets that criteria, it has to go through a multi-step process to get funding that includes a few pitches and deep dive discussions, a trip to New York, and a due diligence report.

It’s definitely rigorous and industry standard. Women don’t get a pass for their gender (nor should we). It’s about the bottom line.

So what is holding women back from getting funding?

It’s not the investors – gender doesn’t matter. There is more money available for women-owned startups than ever before. It’s not the VCs – they aren’t necessary to start a business. They are about growth. If anything, there needs to be more women-owned businesses eligible for VC funding.

So how do we do this?

• We need to believe we can make money with a product business.
• We need to think scalable – disruptive products in big markets.
• We need to know how startup financing works.
• We need to give ourselves a chance for big success.
• We need to stop giving up before we try.