Women Business Owners and Venture Capital: What’s the Disconnect?

Women Business Owners and Venture Capital: What’s the Disconnect?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.

Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.