I’ve been reading and writing about this issue for so long that I almost can’t believe it’s still an issue—but a plethora of data shows that women business owners are still falling woefully short when it comes to obtaining venture capital.
While some 41 percent of privately held U.S. companies are women-owned, only 3 to 5 percent of them obtain venture capital, according to the Center for Women’s Business Research. With the number of women-owned companies growing, shouldn’t barriers to venture capital be falling? In fact, the opposite seems to be happening.
Forbes Woman recently examined why venture capital remains a “man’s world.” Their article spotlighted Cindy Padnos, an entrepreneur who got interested in the topic in the 1990s when, seeking VC for her high-tech firm, she found that venture capitalists would ignore her during her presentations and talk to her male employees.
Padnos has since founded her own VC firm–Illuminate Ventures, which focuses on early-stage high-tech companies. She’s also spent six months studying women-led businesses, through surveys and academic reports. “[There is] overwhelming evidence that women found companies with lower amounts of capital and that they fail less frequently,” Padnos says.
Given those realities, what are some of the factors hindering women from obtaining VC?
- A shortage of women in the VC field. Only 10 percent of venture capitalists are female, according to data from The Diana Project, which researches women and business ownership. As Padnos notes, people tend to favor others like them—one reason she believes it’s crucial to get more women to become venture capitalists.
- Women tend to sell themselves short when pitching their companies. Even if they have confidence in their businesses, they may not want to overpromise—which can work against them in the VC world.
- Lack of relationships. Like everything else in business, VC funding decisions are heavily influenced by relationships. Simply getting in front of a venture capitalist to make your pitch requires knowing someone who knows someone, and so on. Women may be less likely to have the connections to people with money to invest.
But that could also be women’s salvation. While getting more women into VC is not something that can be achieved overnight, building relationships has long been women business owners’ strong suit. If you’re looking to garner VC for your business, it’s never too soon to start building your connections.
Perhaps this is playing devil’s advocate, but if women are founding companies that fail less frequently maybe we should be looking into what they’re doing right?
In my opinion VC is one of those things you should be careful when wishing for; you just might get it.
No offense to the VC folks, but I do not believe that VC is the best alternative when a business owner (female or male!)needs capital. Venture Capital comes at a much higher cost and with many strings attached. We teach the importance of understanding all of the variables that contribute to the “cost of capital”. Most women entrepreneurs we work with use their own resources to the fullest before taking capital from third parties.
Women start and operate some of the most successful businesses in our economy — I don’t think the reason that a lot of them don’t receive venture capital financing has much to do with gender. The reality is that venture capital is a source of financing that does not make sense for most ventures, regardless of the gender of the owner. Venture capitalists have very stringent and specific requirements for the opportunities they will invest in, many times involving the requirement for proprietary intellectual capital, among others. Most startups and early stage ventures simply don’t meet these requirements.
I wonder why too. Seems bias in this time and age that gender equality is far from attained. Women are infact more capable than men in areas of business. I will write something about this too. Thanks for the inspiration i have recently started blogging on my views on life.
I was sourcing for a vc when i ran into your article. For all the women out there trying to get vc just keep going for it!