outside-the-box-women-owned-businesses-face-a-lack-of-funding-and-heres-how-to-change-this

Outside the Box: Women-owned businesses face a lack of funding — and here’s how to change this

When women entrepreneurs and women-owned businesses seek funding to grow their business, the statistics aren’t pretty.

Just 2.2% of all venture capital in the U.S. goes to companies founded solely by women. In addition, companies with all-male founders receive funding after their first round close to 35% of the time. For companies with female founders, that number is less than 2%.

It’s no wonder that only 2% of women owned businesses ever make it to $1 million in revenue, which is 3.5 times less than their male counterparts.

The F Project intends to change this landscape. How? By providing a website where people can buy female-founded brands and share information about female founders and their products via social media. At the same time, female founders can foster brand collaboration, share stories and support, and strengthen their business networks. Some F Project members are recipients of that tiny slice of venture capital that has gone to women-owned businesses.

We created the The F Project because too many female-founded businesses with impressive revenue and demonstrated potential are not getting funded. Erika’s experience starting a health-focused snack food company is a case study. Her career prior to founding Good Zebra was a successful trajectory of launching brands, reinventing businesses, scaling companies, entering foreign markets, and building relationships with colleagues and consumers. Good Zebra had national distribution, market opportunity, and consumer demand. Two of Erika’s former CEOs were angel investors. Despite all of this, Erika couldn’t land what it would take to grow Good Zebra. She’s hardly the only one.

Consider that revenue generated from female-led funded companies outstrips that of male-led companies, as a MassChallenge/BCG study shows. Then why is there a reluctance to fund women? That study controlled for variables including owners’ education level and judges’ scoring and concluded that gender alone plays a significant role in the lack of funding.

Christina’s company, Farmgirl Flowers, is a sobering example. She bootstrapped her San Francisco-based floral-delivery service in 2010 with $49,000 in savings. Farmgirl Flowers did $56,000 in revenue its first year, $276,000 in its second, and by the third year brought in $920,000. By 2014, Christina realized that her business was getting noticed.

Similar companies to hers kept popping up — all of them male-backed, with large founder teams, and many with tech pedigrees. A few were communicating that they were logistics companies that just happened to be using flowers as their “test” for on-demand delivery, as that was a big focus among the investment community at that time. Their businesses bore a striking resemblance to Farmgirl Flowers, from their products and delivery methods, right down to the copy on their websites, with the exception of one thing — all of the other companies had a minimum of $9 million in venture capital.

Farmgirl Flowers had revenue of $23.4 million in 2018, is profitable, and has a more highly engaged consumer than all of its competitors combined. Yet even though Christina has pitched to almost 100 VC firms now, Farmgirl is still bootstrapping.

A recent study by The Diana Project of Babson College found that, “Contrary to existing perceptions, many fundable women entrepreneurs had the requisite skills and experience to lead high-growth ventures. Nonetheless, women were consistently left out of the networks of growth capital finance and appeared to lack the contacts needed to break through.”

Let’s face it: women don’t look like the venture investors they’re pitching. Only 8% of partners in the top 100 venture firms are female, according to a report by Crunchbase. Traditional avenues of networking, to which men have pretty much exclusive access, funnel into capital investment firms that are made up of mostly… more men.

Julia Spicer, executive director of the Mid-Atlantic Venture Association, said in an interview that typical reasons businesses don’t get funded include, “The funds don't have a partner who specializes in your space, they may have already made an investment bet on a prior deal in that market sector, or they simply don't have enough domain expertise to provide the oversight required.”

The lack of experience that a male investor team brings to the table when it comes to women’s products is not just a problem for women. It’s a missed opportunity for the investors as well. A study by Calvert Impact Capital showed that, on average, over the 11 years reviewed, companies with a higher percentage of women in leadership positions (WLP) outperformed companies with the lowest percentage of WLP as measured by ratios of return on sales, assets, and equity.

Investing firm First Round published a report on its initial 10 years that showed that its female-founded companies had performed 63% better than those with male founders. The Small Business Administration’s Venture Capital, Social Capital and the Funding of Women-led Businesses report found that venture capital firms that invested in women-led businesses saw a positive return on their investments. Further, it asserted that female-founded businesses offered untapped potential for innovation, job creation, and other economic contributions that were limited only by access to venture capital funding.  

Women drive between 70%-80% of all purchase decisions. Why aren’t funders investing in female founders who can connect to these consumers? The majority of female founders currently involved with the F Project (a collective with more than 150 participants) are not talking about harassment or fighting for equality. They are simply trying to find the investors who understand their products, appreciate the purchasing power of female consumers, and support the founders’ willingness to put every ounce of their being into making their companies successful.

Money is being left on the table, good businesses are not scaling, and it’s time for that to change. We are not the only advocates. The Women’s Business Enterprise National Council and WEConnect International have created the Women Owned Logo for storefronts, websites, and products. It signifies that women own, operate, and control at least 51% of that company. Fashion designer Rachel Roy supports an ongoing Female Founded initiative that highlights female founders and their businesses, promoting them and delivering customers directly to their sites to shop.

Ultimately, this is a call to both consumers and investors. Here is how we drive change:

1.      Consumers: Your dollars do the talking. Buy the products that speak to your needs, to your lives, to the health and well-being of the people you love, and share these brands with your networks.  

2.     Brands: Collaborate with female founders, highlight their products, and help them get exposure.

3.     Investors: Give female founders an audience. Educate yourselves on the products that female consumers are buying. Add women to your teams. If you’re looking for superior returns, invest in female founders.

Erika Szychowski is a global branding authority in sports and entertainment, financial services, fashion, and food. She was the founder Good Zebra. Christina Stembel is the founder of flower-delivery service Farmgirl Flowers. They are the co-founders of The F Project, a network of more than 150 women-owned businesses.

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Also read: What happened when these female-led companies labeled their products ‘women-owned’