Why More VCs Should Invest In Female-Founded Businesses.

Written by The Soko Edit Team

The industry needs to embrace change, but will that be enough to turn the tide?

At The Soko Edit we encourage people to support and shop female founders, because with just 3% of funding going to female-owned start-ups in the US last year, it’s time to create change. 

That means 97% of VC funding in the US in 2019 went to male-run businesses. And all those businesses are worthy of funding. But there are more female businesses worth funding too – and they remain underrecognized and undervalued.

VCs use algorithms to predict shifts and trends in ways that will determine the best investments, but they also use their own intuition. Chemistry with the founder is a huge part of the equation, and very often the final decision is to go with their gut.

We all have deep-seated internal biases and we naturally gravitate towards people we connect with and ideas we instantly understand. As the industry has evolved, this has resulted in discrimination, not just against female founders but against businesses targeting women or even people from very different backgrounds to the average Venture Capitalist.

Fitbit recently sold to Google for $2.1 billion. But founder James Park struggled to secure funding in the early days because VCs simply couldn’t visualize the product usage. On Guy Raz’ How I Built This podcast, James explains: 

“The good thing about VCs is that they are incredibly fit people. They’re super fit. But it also made it difficult for a lot of them to understand the value of the product. Because it wasn’t a product meant for super-athletic people. It was really meant to help normal people become more active, healthier, and it was hard for a lot of them to grasp why that was valuable. They’d ask did it do X, or did it do Y and did it do Z. And we’d say no, it doesn’t do any of that. So it’s very difficult for a lot of these super-fit VCs to understand the value of the product, even though a lot of them claim they don’t try to put their own bias on the product. It’s naturally human to do that.”

Female founders frequently run into this issue: Aishetu Fatima Dozie, founder of Bossy Cosmetics struggled to secure funding because male investors were unconvinced that women were interested in buying cosmetics to make them feel good as much as look good.

Funding minority founders takes a different approach, and it means making an extra effort to leave your natural biases at the door. Firms such as January Ventures are looking to make the process more “transparent, open and accessible”. In particular, they do away with the “warm intro” that stops so many from walking through the doors of the larger VCs because they lack the connections.

But implementing this level of equal opportunity is not easy. In giving more people a voice, the January Ventures team attended 400 pitches in their first week alone. A heavy workload and the inherent challenge of ignoring your gut and leaving your comfort zone means that for more traditional firms, incentives to change are not high.

And should the pressure be on VCs alone? The system is broken, and it starts at the roots. Gender equity for MBA programs is on the rise, but it remains a minority share. The number of women in the finance industry continues to decline, so it’s unsurprising that less than ten percent of decision makers at U.S. VC firms are women. It’s the sector as a whole that’s ripe for change.

Moreover, on the founder side, we see a much smaller percentage of women applying for grants and funding. Lisa Nicole Bell, founder of Inspired Life Media Group cites “the Scale Problem” where, as she puts it: “Men often start businesses with the intention of achieving some semblance of world domination, while women are often starting “side hustles” and one-woman operations.”

Scaling slowly is often prudent, but sometimes it is a missed opportunity. The market has already moved on by the time you’re ready to scale. 

Increasing the level of investment in female founded businesses is much more than a decision for VC firms to make. Though it is in part their burden to bear, it is all of ours: MBA admissions staff, financial institutions and female founders themselves, who need to be ready to fight for what they deserve.

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