According to the data, female founders don’t just keep up with their male counterparts — they outperform them. Why, then, did women receive just $1.46 billion in venture capital money in 2016 while men received a whopping $58.2 billion? The answer isn’t that women aren’t starting businesses; in fact, they’re doing it at 5 times the national rate.
The reason for small business funding’s gender gap is complex, but a few factors are likely at the heart of the issue:
- 91% of decision-makers at venture capital firms are men, according to a new study from Axios. This inherent gender bias is compounded when female founders launch products geared toward women, as men often struggle to care about these products, understand their value, and see their growth potential.
- Research in the Journal of Business Venturing Insights shows that VCs (and likely other types of investors) evaluate women based on a disadvantageous set of stereotypes. Women are seen as more risk-averse, reluctant toward or incapable of high growth, and likely to underperform. The same research also proves these judgments wrong.
- Women are far less likely to seek VC funding in the first place, and they’re also less likely than men to ask for money in general, whether it’s funding for entrepreneurial pursuits or a raise at work. The socialization in women against even talking about money at all is strong.
Thankfully, this problem isn’t going ignored. From female angel investors and women-led VC firms to female founders who are achieving early profitability with alternative forms of funding, 2019 is gearing up to provide women entrepreneurs with more funding resources to help close the gap.
A growing number of women-led VC firms and female angel investors who prioritize investing in companies with either gender-inclusive leadership or all-female leadership are challenging venture capital’s dire gender inequality problem. Feminist co-working space The Wing — which has raised $117.5 million since its founding 2016 and recently saw 500% year-over-year growth according to Crunchbase — was partially funded by BBG Ventures, which only invests in companies with at least 1 female founder.
Female Founders Fund, based in New York, has invested in some wildly successful women-led technology companies, including Rent the Runway, Zola, and Billie. Backstage Capital has directed over $4 million in investments towards underrepresented founders, almost exclusively backing women, people of color, and LGBT founders. Finally, All Raise, a nonprofit formed by 34 senior female investors, has committed to doubling the number of female partners in the next 10 years.
Crowdfunding platforms such as Kickstarter, GoFundMe, and Indiegogo are proving to be a particularly effective funding source for female entrepreneurs. Women-led crowdfunding campaigns are 32% more successful than their male-led counterparts, according to data from a PricewaterhouseCoopers report. A recent study from Indiana University suggests that stereotypes might be helping women out in this case: on Kickstarter, they’re more likely to have their business ideas funded because they’re seen as trustworthy.
Kiva, a nonprofit that crowdfunds small, 0% interest loans for entrepreneurs, often prioritizes funding women-led ventures. Crowdfunding platform iFundWomen is designed specifically for women and was named one of NASDAQ’s “10 Sources of Funding for Women Entrepreneurs.”
Grants and startup accelerators
Small business and startup grants offer the rare opportunity to fund at least part of your business for free. Luckily for women, many of these grants are designed for underrepresented founders. The Amber Grant, for example, offers $25,000 women’s business grants.
Thinx — a female-founded company committed to breaking the taboo around menstruation with innovative period-proof underwear — was funded using grant money from MassChallenge, according to Crunchbase. MassChallenge is a start-up accelerator led by CEO Siobhan Dullea that is expressly committed to diverse founder teams.
Microloans, lending marketplaces, and borrowing from friends and family
A growing number of women entrepreneurs are turning to nontraditional methods of borrowing money to fund their ventures, such as asking for help from family and friends or getting funding from microloans and lending marketplaces. These options typically offer smaller loan amounts than traditional banks and tend to be more accessible.
Many of these funding resources allow female founders to maintain full ownership, which is attractive to founders who don’t want to sacrifice equity. A Fortune article detailing a survey of 430 women-owned businesses suggests that women, in particular, might be more inclined toward independent funding options that allow them to have complete control over their business. Holding onto equity is what led S’well, a stainless steel water bottle manufacturer fronted by Sarah Kauss, to hit the $100 million revenue mark in 2016.
While massive inequality still exists in the business world, it appears as though many of the stereotypes associated with women that are thought of as negative by some potential investors might be the qualities that push female founders to excel and outperform expectations. Funding for female founders is a gap in the market, and investors are finally wising up to the fact that filling that gap isn’t just a moral imperative — it’s a lucrative business opportunity.