Tipps für Gründer
Tipps für Gründer

Investors require more education on solutions for women

Female founders are building solutions to significant problems whose target audience are sometimes women. What happens to funding when male VCs don’t understand the target market?

If you’ve recently spoken to a female founder who’s fundraising, odds are you were speaking with someone who’s very, very tired.

This is true for all founders who are fundraising, especially in the last year when funds are tight. But female founders experience this fatigue on another level. All-women teams are tired of fundraising before they’ve begun to raise, because they know it’s almost a lost battle from the start. 

So what are they doing while they’re fundraising? They’re building their business and extending their runway more aggressively than their male counterparts. And if they’re able to raise a little bit of cash as an additional injection, great—but they know they can’t rely on it.

We now have data to confirm what I’ve been seeing as an investor for years. According to DocSend’s 2023 Funding Divide report, all-female teams raised 36% less than all-male teams in 2022. The same year, all-female teams with minority members saw 33% fewer investor meetings than their peers while also receiving the least amount of funding. 

In 2021, it seemed like we were making progress. After a dismal year in 2020, when all-female teams raised 70% less than their male peers, they raised “only” 25% less in 2021. The discrepancy was still wide, to be sure, but now we’re seeing a rollback of even that kind of minimal progress.  

So why does this keep happening? I think it’s because male investors don’t understand the importance of what women are building and for whom. 

Investors aren’t as disruptive as we need them to be

It’s funny—we venture capitalists are supposed to be investing in the most disruptive innovation. But at the same time, it’s hard for us to take risks especially if we are investing at the early-stage (which is what I do). As a result, we tend to default to the status quo. 

When you have a small team, you’re facing time and bandwidth constraints. So you rely on your own network for deals—and if your network tends to look like you, it perpetuates the problem with lack of diversity in funding.

There is a “typical network” in Silicon Valley: Stanford grads who have worked at a tech company before. Most of the time, these are teams of male technical founders who have studied computer science or another STEM-focused subject at some of the country’s top schools. 

If you don’t fit that profile as a minority woman founder with an untraditional background, it’s first and foremost going to be difficult for you to get access to VCs in the Bay Area. But even when access is gained, some of these founders face an even higher hurdle to clear: VCs don’t understand or cannot value their target market or the problem they’re solving.

This isn’t always the case, but a lot of the time women-led startups are building solutions for women. Perhaps it’s a solution that applies to professions that have been typically done by women, such as nursing. Or perhaps it’s a solution for a very real problem that affects minority women more than any other demographic.

As an example, let’s say you’re a white male VC meeting with a Black woman founder who’s building a health platform to prevent maternal death. We know that Black women are more likely to die during childbirth compared to white or Asian women. According to the Maryland Population Research Center (MPRC) at the University of Maryland, Black women faced a maternal death rate 2.5 times that of white women. To the people who understand, this is obviously a big problem. 

But odds are, the person on the other side of that table isn’t affected by this problem. More than that, they can’t comprehend the gravity of the problem and they don’t grasp how huge the demographic actually is. As a result, they overlook transformational opportunities that not only would address an important problem, but also generate high returns. 

It’s not that VCs are malicious, it’s that they don’t understand, they have neither the networks nor the time/bandwidth to educate themselves. And, as we saw in 2021, even the best of intentions can lead to bad outcomes.

Investor qualifications matter for minority-led startups

According to DocSend’s 2023 Funding Divide report, diverse, all-female teams had the highest number of investor meetings in 2021—but they still raised the least. 

In 2021 the murder of George Floyd and the Black Lives Matter movement had a ripple effect on BIPOC-led businesses and startups. We saw a lot of well-intentioned investors inject capital into these companies, but with minimum due diligence. While the intention was to have an impact on the ecosystem, these investors didn’t necessarily have the qualifications to make direct investments. 

What we saw that year was that bigger tech companies, who weren’t VCs by profession, invested in BIPOC-led companies without much understanding of the market, solution, demographic, or without conducting thorough diligence. As a result, those companies didn’t get the guidance they needed on how to spend the money, and they weren’t able to grow the business. 

What I’m particularly worried about now is the bias against BIPOC-led companies as a result of this misalignment. Some investors might say, “Oh, we’ve made investments in companies that were led by these particular founders, and it didn’t work out. We’re not going to do this again.” The result is bad signaling that leads to further bias. 

So how do we solve for this? We need more GPs, actual check writers, who look like those founders. We need more women, Black women, Latina women, in partner positions. Because, at the end of the day, you can bring in deal flow as an associate, but you don’t call the shots unless you’re a partner. If the partners aren’t convinced, there’s very little that you can do as a junior in a firm.

But remember—it’s good to retain control of your business, too

I also want to remind minority founders that it’s okay to have, say, $15 million ARR and grow steadily while owning 100% of your business. 

Many minority founders are interested in entrepreneurship because they want to solve unique problems—but they’re also interested in building generational wealth. Sometimes it’s simply not in their best interest to lose complete control of their companies, by raising venture funding.

Venture capital isn’t the only path to growing a business. Companies that don’t rely on dilutive investments go on to feed families, build communities, and create jobs. I want to remind minority founders that these paths are valid, too—especially if as a founder you end up spending more time educating investors who don’t seem to understand what you’re trying to build instead of focusing on the most important thing: growing your business.

Learn more about the funding discrepancies that still exist in 2023: Download the 2023 Funding Divide report.