Why Venture Capitalists Overlook Women

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The startup world evolves quickly. Though the number of women-led startups continues to be dramatically lower than the number of startups run by men, the number of women launching businesses has increased 68 percent in about 20 years. Currently, more than 10 million U.S. businesses were started and are run by women, including major enterprises like Cisco, SlideShare, and Care.com. What’s more, women-led startups tend to have higher revenues and returns on investment, demonstrating that having a woman in charge is almost preferable.

Yet, the emerging studies on venture capitalism indicate that to VCs, women seem little more than handicaps to budding startups. Only 15 percent of businesses receiving funding boasted a woman on their executive team, and less than 3 percent of VC-funded companies claimed a woman in the entrepreneurial role. Meanwhile, women-led startups that did see VC money received about half as much as men-led companies: an average of $75,000 for women compared to $135,000 for men. Despite the obvious increase in successful female entrepreneurship, VCs remain as sexist as ever. The discrepancy is so evident that many experts are wondering, “Why?” and “How do we overcome?”

 

Possible Reasons for Gender Bias

It should come as little surprise that female entrepreneurs endure similar inequalities in their struggle for business success considering how women are treated in general: The patriarchy is alive and well, and women continue to suffer injustice in most aspects of life. Yet, hypotheses abound as to why VCs in particular demonstrate a gender bias toward male-run startups. For decades, VCs argued that women entrepreneurs failed to pursue profitable industries, utilize effective networking strategies, or cultivate creative and persuasive pitches like male entrepreneurs do. Recently, that theory has proven false, as women engage in near-identical business practices to men and continue to receive less funding.

A more insidious ― and likely more accurate ― postulate is that misogyny runs deep in the subconscious of VCs. Typically, the strategy for allocating funding is one of supporting leaders rather than ideas; if an entrepreneur seems particularly capable, VCs will clamor to invest. Unfortunately, stereotypical qualities of leadership tend to align with stereotypically masculine traits: strength, bravery, assertiveness, competitiveness, etc. Contributing to this problem is that most VC partners are men, who are more likely to recognize and admire masculine virtues in fellow men.

There are a few solutions to encourage VCs to overcome their female bias. The most obvious solution is for women business leaders to continue petitioning VC firms for funding. Eventually, VCs will have no choice but to increase funding to women-run businesses ― otherwise they will suffer increasingly lower returns as wholly male startups become less and less common. However, the most likely option to have a lasting impact is encouraging VC firms to hire more women to partner positions. For one, this introduces gender equality into the profession of venture capitalism; for another, women partners and managing partners are more likely to listen and support female entrepreneurs, thereby decreasing the potential for gender bias in funding.

Alternative Funding Options for Female Entrepreneurs

While it is important that women continue seeking financial aid from venture capitalists, it is unrealistic for most entrepreneurs to expect sufficient funding from VC firms. To supplement or replace VC funds, female entrepreneurs should consider turning to any of the following alternative options that bring cash to a budding company:
Government grants. The Small Business Administration offers a wide variety of grant programs, most targeting otherwise disadvantaged business leaders.
Invoice factoring. Best for somewhat established startups with stunted cash flows, factoring allows leaders to sell unpaid invoices. The factoring company buys a business’s unpaid invoices, reducing the wait between issuing the invoice and the client making their payment.
Angel investors. While female VCs are few and far between, female angel investors are on the rise. Angel investors can provide as much funding without assuming as much control as VCs do, which is why attracting an angel tends to be an entrepreneur’s dream.
Crowdfunding. Women are more effective at gaining the attention and support of the masses than they are at securing funding through VCs, so crowdfunding is a viable option for female entrepreneurs.
Bootstrapping. Bootstrapping, or using personal funds to support a business, is dangerous for dozens of reasons, but financially organized and secure women might turn to bootstrapping to maintain control over their businesses.

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