Know How to Overcome the Funding Challenges of Women-Owned Businesses
This article explores the reasons female-owned businesses face funding challenges and offers 4 strategies for success in the equity capital arena.
Female entrepreneurs are an undeniable force in the global economy. Supporting this broadly-held view, new research from the Boston Consulting Group found that if female entrepreneurs received as much seed funding as male entrepreneurs, the global economy could experience a boost as high as $5 trillion.
Yet businesses owned by women have historically attracted much less capital than those of their male-owned counterparts.
Although the number of women who apply for and obtain equity capital has increased in the past few years, progress has been slow. Let’s look at venture capital (VC), a popular source of funding for entrepreneurs. According to data on private capital markets, companies led by female founders as a whole raised nearly $1 billion more VC dollars in 2018 than in 2017 ($2.88 billion versus $1.90 billion). Yet the percentage of the total VC pie granted to female founders remained stagnant at 2.2 percent -- a surprisingly low share of funding compared to what male founders received.
Why this disparity exists isn't entirely clear. Experts have suggested various possible reasons.
Women are comparatively new to equity markets. In a traditionally male-dominated field, women may not yet have gained the experience necessary to present their case to investors as skillfully as men. This situation is very similar to what women experienced years ago in gaining access to credit. Lenders and investors alike want to see solid business plans that include realistic revenue, cost, and profitability projections.
Women need to gain visibility in the right networks. Knowing people in the right places and feeling comfortable tapping those resources is essential. These networks often include accountants, attorneys, fellow business owners, and mentors who can assist in crafting business plans and making referrals. The National Foundation of Women Business Owners found that two-thirds of the proposals that receive serious consideration by institutional investors come through referral networks.
Not all businesses are candidates for equity investment. Women's businesses tend to be concentrated in the retail and service sectors -- areas that traditionally have received few venture capital or angel investor dollars. Traditionally, high tech, software, and biotech are the types of sectors that have delivered the significant rate of growth that venture capitalists seek.
4 strategies for success
What can you do to increase your chances of securing funding for your business? According to studies conducted by the Center for Women's Business Research, female founders who have succeeded in obtaining equity capital share these 4 characteristics in common:
3 ways to locate sources of equity funding
1. Check with the national equity funding associations:
2. Use the Internet:
3. Consult with a professional:
There are many VC consultants, corporate attorneys, and other professionals, such as a wealth management advisor, available to help you find the VC that is right for you and your business. They can provide advice for increasing profits, help in obtaining traditional financing, and guidance in packaging and marketing your business to VCs.
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