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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. 

5 Minute Read

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:

  1. A willingness to give up/share management control -- nearly three-quarters of women who have equity capital were prepared to give up day-to-day control of their business.
  2. Strong management teams -- a critical factor investors consider when evaluating proposals.
  3. The ability to project both leadership qualities and marketing expertise -- venture firms' screening process looks for a certain leadership style. Strive to be seen as the CEO of an entrepreneurial enterprise and present a clear business concept and realistic marketing plan.
  4. Persistence -- women who have received equity financing contacted an average of 15 funding entities, while those who are still seeking funding have contacted fewer than 11.


3 ways to locate sources of equity funding

1. Check with the national equity funding associations:

  • The Small Business Administration’s Small Business Investment Company (SBIC) can help you locate equity funding firms that are good fits for your business.
  • National Venture Capital Association (NVCA) is a trade association that provides resources and services to venture capitalists and entrepreneurs, including links to venture capital organizations, software and technology development tools, and industry data and information.
  • Angel Capital Association (ACA) provides listings of professionals, such as corporate attorneys and accountants who work with those seeking funding, and a listing of member VCs (including links to the firms’ websites).

2. Use the Internet:

  • Many VCs use blogging as a way to promote their business and interact with entrepreneurs. To locate VC blogs, check out: The VC Blog Roll, 100 VC blogs and TechFiltered.
  • Search for VCs on social networks, like Twitter, LinkedIn and Facebook.

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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