Monday Postcard #51 – Are Female-Run Businesses Unsexy for Venture Capitalists?

Monday Postcard 51 Why Do Venture Capitalists Find Female-Run Start-Ups Unsexy

A bit of a delay this week, as I went to Hong Kong yesterday to speak at a panel and for some meetings. Because of this trip, I used the weekend to work but I also managed to finally catch up on a pile of magazines I had bought a while ago. One article in Bloomberg Business week particularly caught my eye: In 2017, only 2.2% of venture funding went to female-run businesses. (Note: The article focused on the US, therefore, I think this percentage also refers to American businesses. But considering the leading role of Silicon Valley, I think it is probably representative of other countries as well.)

I know what it is like to pitch to investors – as a tech start-up owner, there is no week which passes without meeting potential investors or partners. When I look back, most of the investors to whom I pitched were men, with the exception of two women running funds in Asia. However, the people who actively approached me and subsequently showed interest in investing in my company were 2/3 women, 1/3 men. I actually never thought about the reason for that. Was it because of the nature of the product? Did women just get it because we addressed a female need? Or was it because I was a female founder?

After reading the article, I wondered why the percentage of VC-funding of female-run businesses is still that low. I actually expected it to be between 10-20%. Maybe my view was biased? Because I have met quite a few female founders?  What could be the reason for the low investment?

1. Venture Capital is still a Business for White Men.

It is probably no surprise that the venture capital industry is still a field which is dominated by white men. Various studies have proven that, similar to the corporate world, we are more likely to promote people similar to us. If most of the investors are male and white, it is difficult that they see similarities in a woman or business owners with a different cultural background. Therefore, they are more likely to invest in male-run businesses.

2. Lack of Understanding for the Product.

Entrepreneurs very often solve problems they themselves have. Founders are problem solvers and mostly focus on problems they face themselves. Therefore, female entrepreneurs are naturally more likely to come up with products or service addressing pain points women have. For my personal case, this holds true as well.

I cannot recall how many times I heard investors say: “I went home and my wife told me it is a good product.” or “My secretary said XYZ.” Well, thank you. That is exactly what I told you in my pitch. Fortunately, so far, most of the male investors I pitched to were open-minded and had no issue of understanding the services. Nevertheless, the challenge for us women is to communicate our pain points in a way that men understand them.

I coached a group of students last year working on a business plan for a cosmetics subscription company in Thailand. The panel of professors and experts was exclusively male. Therefore, we decided to explain the pain point very graphically: the average woman in Thailand goes through 16 (!) steps of cleaning and applying makeup on her face daily. We made a video to explain that there were indeed 16 steps and also carried out interviews with potential customers to prove and explain that there is a real need for the service.

3. Are Women Risk Averse?

I am not sure about this. I have met some badass women and I would not consider myself as risk averse. However, I do think that, unfortunately, girls are still being told to take the safe path. Furthermore, I also think that we overthink decisions. Similar to the corporate world where we plan out our whole career, women also plan their businesses out more than their male counterparts. Sometimes, we might overthink everything. On the other hand, this is one of the key factors why women-run business are more likely to succeed in the long-run because there has been a thorough risk analysis.

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4. Do Women Sell Themselves enough?

Definitely not. We really need to step up our game when it comes to selling ourselves. I am not saying that we should lie or fake our success. But our problem is very often that we do not even talk about the facts we have achieved because we have very often been raised to be modest. Who likes a woman who walks around telling everyone about her success? I think this is a major change we have to apply in our society’s mindset and teach girls very early on to believe in themselves and that it is ok to say: “Yes, I earned it. I worked hard for it and I made it.” There is no shame in success!

5. Is Family Planning a Barrier?

The harsh reality is that once you approach 30 as a woman, your CV immediately screams “She will get married and have babies soon.”. I did not believe this myself, but it is shocking that it still is a thing in 2018. Even if you do not have these plans. The mere fact that you are a woman in your thirties still makes recruiters and possible employers question if you can really “handle both”. (Sigh, I think I need to dedicate another post to this topic.)

I would not be surprised if investors thought the same way. In general, investors prefer to invest in companies with at least two co-founders. Just as a safety procedure: what if something happens to one of the two or if he/she drops out? There is still another one. Maybe a woman in her mid-twenties/early thirties sends a signal to investors that the “wish for a family” which we all are supposed to have will endanger her ability to running a business… If this assumption turns out to be true, we have a long way to go until we really reach equality.

What are your thoughts on this topic? Do you know further reasons which could hinder an increase in VC-investment of female-run businesses? Let me know in the comments or send me an email! I’m curious what you think!

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