Venture Capitalists Should Drop the ‘Venture’ – Or Start Investing in Women

Women are receiving very little venture capital, despite having innovative ideas for businesses. Are Venture Capitalists missing out?

According to Anna Ruth Williams, Founder and CEO of AR|PR, there is only 7% of Venture Capital that goes to women owned businesses. However, women owned venture back companies have 12% hirer revenues than their male counterparts. When we invest in women, we win. Investors get a return and the female succeeds. While some might celebrate this as an increase from a decade ago, it still doesn’t reflect the fact that many women are starting their own businesses and looking for funding – Forbes estimates 60% of small businesses in the U.S. are founded or co-founded by women. The technology industry above all others is revealed to have the greatest disproportion in funding female-founded companies. In 2013, only 10% of investments in software companies went to those founded by women.

It’s clear from studies that women are receiving less venture capital than their male counterparts. A 2013 Pitchbook study shows that the numbers are as low as 13%. While some might celebrate this as an increase from a decade ago, it still doesn’t reflect the fact that many women are starting their own businesses and looking for funding – Forbes estimates 60% of small businesses in the U.S. are founded or co-founded by women. The technology industry above all others is revealed to have the greatest disproportion in funding female-founded companies. In 2013, only 10% of investments in software companies went to those founded by women.

Why the disconnect?

There is what some refer to as a “matching bias,” where venture capitalists examine prior success stories and look for similar people to invest in. This is particularly true within the sub-culture of the technology industry. Needless to say, this creates the staggeringly disproportionate portfolio wherein 87% of VC funding goes to companies founded by men. It’s clear that the ‘rockstars’ of technology have generally been white males, the best examples being Mark Zuckerberg, Bill Gates, Steve Jobs, Jeff Bezos, Larry Page and Sergey Brin. Using the logic that if it has been successful in the past, then it will be again, venture capitalists now look for more young, highly educated white men to invest in. This ideal profile will change when more female entrepreneurs break through and reset the norm. However, until then, women and other minorities who don’t fit the current profile of an ideal entrepreneur will continue to lose out on the advantages of capital investments. And venture capitalists will continue to lose out on the benefits of some of the pioneering new approaches that women bring to the technology industry.

Janelle Jolley is the founder and CEO of Sidewalk District, a growing online marketplace for consumers to discover, browse and shop from local independent retailers. One of the greatest issues she initially faced was finding VC funding without a male co-founder or Chief Technology Officer.

Despite recognizing great potential in the company, Jolley noted a hesitancy to invest across the board. The world of venture capital, as she puts it, is “irrationally tribal.” In a bid to reduce risk, investors frequently narrow their focus on similar founder profiles, and in some cases demographics. If we do not invest in women, then it will only perpetuate the same male-dominated industries and stifle innovation. It also means that they are out of sync with a rapidly growing consumer base, which may be far better served by a female entrepreneur going forward.

This Doesn’t Have to Stop You.

Jolley is an excellent example of building a business without the traditional angel investment. Her advice for women struggling to obtain funding is to do whatever it takes to create a pilot product first and gain some traction, which can later be presented to investors. This enables entrepreneurs to demonstrate the viability of their business model and redefine the risk profile for an investor. It is far harder to say ‘no’ to any business that has got a clear track record. This approach is far more attractive to an investor and can enable an entrepreneur to better negotiate their terms.

Starting a business has many challenges – not getting funding doesn’t have to be the end of yours.

To read more about Janelle and her business, click here.