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How Women Entrepreneurs Are Closing The Venture Capital Gap

This article is more than 5 years old.

Just 17% of startups in the U.S. have a woman founder. Even worse, 3% of all venture capital is going to female-led companies. And yet, according to a study by First Round Capital, companies with a woman on the founding team are outperforming all-male companies by 63%. So why aren’t more women getting funded?

What’s Holding Us Back

For starters, only 7% of partners at the top 100 venture firms are women. This gender gap in venture capital is surely a barrier for female founders needing to break into male-dominated venture networks. Bias certainly comes into play as well. As a recent study from Harvard Business Review found, the questions investors pose to women can impact funding. While female founders are often asked “prevention-oriented” questions focused on safety, responsibility, security, and vigilance, male founders are often asked “promotion-oriented” questions focused on hopes, achievement, advancement, and ideals.

Shan-Lyn Ma

We clearly need more women in the room. The Diana Project, a 2014 report from Babson College, found that venture capital firms with women on their team are more than twice as likely to fund a management team with women. “There needs to be a wide representation of genders, races, backgrounds, and experiences in [a venture capitalist] firm; but this is to each individual firm’s discretion,” says Haley Hoffman Smith, author of Her Big Idea.

Smith, a graduating senior at Brown University, has been studying how women develop their sense of self-agency in entrepreneurship and venture capital. In her research, she’s found an emphasis on competence and a lack of confidence in women entrepreneurs compared to men.

“Whether pitching for funding or even at networking events, men overdeliver, conjuring grandeur images of how well their company is doing and how enormous their projections are when in reality, their company is probably only making half of those profits,” Smith explains.

“On the other hand, women are so tied to the competence side that they thoroughly do their research on what their projections can realistically be, and never oversell more than they can prove on their numbers alone. So women are working just as hard as men are (if not harder), but scratching their heads at how the men are announcing enormous projections and landing top press coverage (oftentimes from shoveling over their own money for a publicist). It makes women feel that they're on a hamster wheel, getting nowhere while men are getting ahead.”

How We’ll Get Ahead

In the male-dominated venture capital world, women’s lack of industry ties and networks put us at a disadvantage. But as more women make it over the threshold, they’re reaching back to help others.

Julia Pimsleur, founder of ed-tech company Little Pim, took in about $400,000 in angel investment from friends before setting out to raise venture capital dollars. After raising $2.1 million in venture funding, Pimsleur grew Little Pim into a multi-million dollar company, becoming one of the few women-owned businesses to make it past the million-dollar revenue mark.

This accomplishment motivated Pimsleur to help her peers reach that same milestone. “After I raised my VC round, I wanted to make it easier for other women to raise venture capital, and started teaching women in my conference room on weekends to do the same,” says Pimsleur. “This led to teaching 75 women to raise capital over three years, and they raised $15 million collectively.” Pimsleur went on to write the book Million Dollar Women (Simon & Schuster, 2015) and launch the Million Dollar Women company—which runs an online business program called Million Dollar Women Masterclass to help women build scalable, profitable businesses—all with the mission to get one million women to $1 million in revenues by 2020.

“It is really hard to get to $1 million as an entrepreneur whether male or female, but men are getting there twice as often as we are,” says Pimsleur. “Six percent of all men get to $1 million in revenue, compared to less than three percent of women. That number is just too tiny.”

One way Pimsleur aims to help her fellow women entrepreneurs get ahead is by teaching the necessary financial skills. “I want to help women love the numbers a little bit more,” says Pimsleur. “I was a creative person who became a business owner. I didn’t have a business degree or a finance background. I didn’t love the numbers. But it wasn't until I got much smarter about managing my finances and raising capital that Little Pim started to really take off.”

“Through interviewing women who have built multi-million dollar companies from scratch for Million Dollar Women, I discovered that women only need to get three things right to get to $1M and beyond: the right mindset, the right skillset, and the right network,” says Pimsleur.

Communities created by organizations like Million Dollar Women can accelerate a startup’s success. “Forging relationships with others who can go to bat for you and make introductions is critical, rather than just sharing their advice, although that too is helpful,” says Smith. The connections don’t have to be all female, of course. In fact, Smith argues that they shouldn’t be: “Sometimes proving to ourselves via these positive relationships with men that we are worthy of their time, attention, and understanding can transfer confidence to times when you're in a room of primarily men for a networking event, or pitching solely to men for funding.”

Closing the confidence gap is also crucial. Shan-Lyn Ma, founder and CEO of Zola, has raised more than $40 million dollars for her fast-growing wedding registry startup, but the experience didn’t come without a few nerves. “I was definitely a bit nervous the first time that I met with a potential investor,” says Ma. “But the more VCs I met with, the more I realized that they all ask pretty much the same questions. They want to know why you, why now, how much money they are going to make, and how you're going to disrupt an industry. I learned a lot about myself, like how important it is to project confidence and how important it is not to doubt yourself.”

“Go all in on your business idea,” says Ma. “Don't let imposter syndrome get you down. Most of us are first time founders, and we haven’t run a business worth hundreds of millions of dollars. The reality is that no one has the right answers and we're all trying to figure it out as we go.”

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