Despite rise in women-led businesses, female entrepreneurs struggle for funding

RENO, Nev. — Women-led businesses are the fastest growing segment of entrepreneurship in the United States, according to a study conducted by the U.S. Small Business Association.

Further, the study revealed venture capital firms that invested in women-led businesses had more positive performances than firms that did not.

Yet, female entrepreneurs continue to struggle to receive funding, illustrated by this statistic: of the $58 billion that was invested by venture capitalists in 2016, only $1.46 billion reached women-led companies, according to a report by the U.S. Senate Committee on Small Business and Entrepreneurship.

In other words, female entrepreneurs receive only about 2 percent of all venture funding, despite owning 44 percent of the businesses in the U.S.

“There’s absolutely a discrepancy — money’s not flowing to female entrepreneurs,” said Kelly Northridge, an instructor of entrepreneurship at the University of Nevada, Reno.

As a former COO of a woman-led, high-growth venture, Northridge is completing her doctorate at the University of Oxford, with a focus on investing in women.

‘New ways to fund women’

So, why do female entrepreneurs continue to receive less money than their male counterparts?

One glaring factor is that venture capitalists pose different types of questions to male and female entrepreneurs, Northridge said, pointing to a recent Harvard Business Review study.

“With men, they’re always looking at the positive side and growth, so they’re asking questions on how you’re going to grow,” Northridge said. “And with women it’s more the prevention of failure. So when you’re having conversations like that, they don’t seem to compare.”

According to the Harvard study, which observed interactions between 140 venture capitalists and 189 entrepreneurs at TechCrunch Disrupt New York 2017, those who were asked mostly prevention questions raised $2.3 million — roughly seven times less than the $16.8 million raised, on average, by entrepreneurs who fielded mostly promotion questions.

With that in mind, Lauren Klein, owner/chief inspiration officer at Girlmade, an accelerator program based in Reno, said there needs to be “more diversity in how we fund startups.”

“In particular,” she continued, “we need to get unique approaches, like capital as a service, and new ways to fund women. We need to start looking at the ecosystem to see what we’re doing and how we can ensure that female founders are involved in this entire process.”

The challenges ahead

Julie Arsenault, a local entrepreneur who founded Reno-headquartered Panty Drop, a size-inclusive subscription underwear box for women, is in the process of raising money for her growing business.

She said most of the investors she spoke with are men; men who, “didn’t immediately see why women wouldn’t want to shop (in stores) for underwear.”

“One of the biggest challenges I’ve come up against is people saying ‘we don’t think you can raise that much’ or even ‘we don’t think you can raise venture money at all,’” Arsenault wrote in an email to the NNBW. “The latter is bogus, of course, as I’ve had interest and am having conversations with several investors now.

“For the former, it’s basically impossible to know whether this is due to gender bias — that the individual might not even be aware of — or something intrinsic to the business model/stage.”

Northridge said some female entrepreneurs have stopped asking for money all together, or ask for less, for fear of being denied; others opt out due to sexual harassment.

Thinking bigger

Northridge said studies also show that when women entrepreneurs are building out financial projections to show funders, a bank or potential investor, they tend to be more conservative while men’s projections are often “highly inflated.”

“Women tend to really research every number and feel very confident that ‘this is something that I can obtain,’” she continued, adding that, “it’s standard in the venture capital world to take those projections and cut them in half as a mental check. Well, if women put together the conservative reality and you cut it in half, they have no chance.”

In response, Arsenault said she’s pushed herself to think “bigger,” noting that Northridge has been a “great mentor” in that regard.

“Honestly, if I’m hearing ‘no’ or ‘you’re asking for too much’ then I’m probably not asking for enough,” Arsenault said. “One of the things that had been holding me back was a fear of failure — of setting my hopes and expectations too high, and then being let down if the business fell short of that. I had to overcome that fear to really embrace the goal — now I’m very excited about the journey ahead.”

Along the way, Arsenault said she’s realized it’s critical to have a network of investors and fellow founders in order to successfully raise money. She pointed to groups like StartUp NV, the Adams Hub and UNR Innevation Center as great resources in Northern Nevada.

“The vast majority of venture capital firms specify on their websites — to talk with us, find someone in your network who knows us,” she added. “That can be really hard if you’re a first time founder.”

Making change happen

Needless to say, breaking down intrinsic biases in funding female entrepreneurs doesn’t happen overnight. But, progress is being made, Northridge said.

Specifically, the great recession pushed forward a movement called gender lens investing. This, Northridge said, looks at how you integrate gender analysis into financial analysis in order to get better outcomes.

“This movement is putting a real spotlight on pumping out these always-changing best practices,” she said, “so we can think about overcoming some of these unconscious biases when we’re investing.”

In turn, funds are coming up to support female entrepreneurs, including a new fund that is launching at the Economic Development Authority of Western Nevada and Startup Angels workshop on April 11-12. The fund’s focus, Northridge said, is empowering the local community to invest in underserved founders — women, people of color, and people of lower socioeconomic status.

“While we need to study and understand the negatives, we also need to look toward the future outlook of moving forward and growing,” Northridge said. “There are perceptions about investing that are out there, and a lot of very horrible stories that entrepreneurs can tell.

“But, the community at-large, we’re all investors. If we want to see something different, we just need to start making it happen.”