Why Men Should Invest In Women-Owned Businesses
After founding and growing three music-related businesses—all while raising eight children—Karmel Larson was well aware of the need for new childcare solutions. And when she finally came up with an app-based solution she calls “caresharing,” she knew this one was not going to be anything like her past business ventures.
“A scalable tech company is very different than a piano store,” Ms. Larson says. “The scale is not even in the same universe.”
Ms. Larson, like so many tech entrepreneurs before her, needed venture capital. But because she is female, her odds of success were slim. Women-founded companies claimed just over two percent of the nation’s available capital in 2017. And Utah, according to local entrepreneurs and investors, can be an especially tough state for women seeking funding.
But Ms. Larson wasn’t aware of the statistics when she started her quest to fund her startup, called Momni, 18 months ago. Had she known, she says, she may not have pursued—and ultimately locked in—a seven-figure funding deal.
“When I started, I wasn’t aware, and I think that’s a benefit that I had,” Ms. Larson says. “I’ve never felt any sort of female discrimination in my life, and so when I started working on a tech company, I was not informed of the nature of the invested world. As I started getting into it, I started learning that the odds were stacked against me. But by the time I started learning, I got so far into it, it just didn’t matter.”
Ms. Larson, alongside others familiar with the venture capital scene, believes attitudes—locally and on a national level—have begun to change. Today is the day for women to claim the funding their ideas merit, they say, because doing so will lay the groundwork for generations of entrepreneurs and investors to come. And women, local investors say, may come up with groundbreaking products and companies that no man would have dreamed up.
“I know the odds are stacked against women statistically,” Ms. Larson says, “but that should never stop any pioneer from trudging ahead.”
The Trials Of Fundraising―As A Woman
For all the glamor associated with it, raising capital doesn’t always get rave reviews from the women who have been there—even those who have procured funding.
“Fundraising is a terrible process,” says Sunny Washington, cofounder and CEO at Beyond Learning. “It’s not fun. A lot of times it can give you whiplash on what you think you should focus on. You can get a lot of bad advice.”
Ms. Washington was no stranger to venture capital when she began seeking funds for her own startup. Fifteen years after she was hired as one of the first employees at the educational technology firm Instructure, Ms. Washington felt sure she had the experience necessary to attract investors.
“I thought that my market expertise and experience would speak for itself, and I wouldn’t have a difficult time raising money,” she says. “It was eye-opening to me when I went in that that didn’t matter—that they didn’t value my experience. But they were happy to write a million-dollar check to a college kid who had never had a job, who had no revenue.”
On the other side of the table, Derrin Hill, the founder and CEO at Provo business accelerator RevRoad, says witnessing similar situations has informed his own desires to help promote female entrepreneurs. “I’ve been aware of situations where women were qualified to receive funding or be on a board,” Mr. Hill says, “where they were held to a different standard, really, than the male candidates.”
Some of the disparity stems from the gender imbalance within the technical and entrepreneurial spaces, Mr. Hill says. But some of it, he and other experts agree, is a direct result of gender bias. Though many venture capitalists want to believe funding is awarded purely on the basis of merit, Rose Maizner, a partner at Salt Lake City investment firm RenewableTech Ventures, says the data suggest capitalists have created what she describes as a “mirrorocracy.”
Ms. Maizner began researching the gender disparity shortly after she transitioned from the nonprofit sector to venture capital and observed noticeable differences in the gender breakdown of those industries. When you strip away other factors, she says, the data show that entrepreneurs are most likely to be funded when they look like the panel of capitalists they pitch—and less than eight percent of venture capitalists are female.
Ms. Maizner’s research also found that capitalists ask women different questions than men. When entertaining a woman’s pitch, she said, investors were more likely to ask about risks and potential drawbacks—putting the entrepreneur on the defensive. Men, on the other hand, were asked to detail upsides and potential opportunities.
This despite the fact, Ms. Maizner said, that women have proven to be more conservative in their use of capital, and tend to earn higher returns for their investors.
The statistics, VentureCapital.org president Brad Bertoth agrees, fly in the face of investors’ behaviors. “If women are more efficient, don’t you think they would get more money?” he says. But male venture capitalists, he says, may tend to overestimate risk when dealing with women out of a desire to protect females from failure.
How Women Can Approach The Pitch
Recently—and only very recently—Ms. Washington says, has she begun to detect a shift in investors’ attitudes about women. But just increasing awareness of the issue will do little to increase women’s access to capital.
“It’s great to have a discussion about the lack of funding available to females,” she says, “and I think that just talking about it doesn’t do anything. We need to see checks written. If Utah wants to continue to be the leader in tech innovation, in growth and jobs and economy, we can’t ignore half of the population here. We can’t ignore female founders.”
Given the changing landscape, Mr. Hill believes the time has come for women entrepreneurs to act courageously and “call a spade a spade,” even if it means outright interrogating capitalists about their treatment of women during a pitch. Doing this puts investors—especially the growing number that is interested in diversity—on notice that women are “tuned in” to their behavior and biases. Mr. Hill also coaches women to call attention to the potential benefits of investing in women, highlighting their high returns, their ability to attract and retain top talent, and their increased likelihood of success.
“I know some misinformed men feel like for a woman to succeed, that they need to act like a man,” Mr. Hill says. “The reality is women and men bring incredible diversity and talent to the workforce, and where those talents and characteristics are different, they are valuable.”
For her, Ms. Larson says, maintaining a positive frame of mind was also key. Rather than worrying that the odds were against her, she says, she focused on how her product could improve the lives of women around the globe. But while she didn’t shy away from the female-centric nature of her business, Ms. Larson says, she also didn’t focus on it.
“When you move quickly to the business model, the revenue, the numbers… that’s when you speak to the audience,” she says. “If you’re talking about how great this is for women, you won’t connect with the investors.”
Women also tend to be their own worst enemy when pitching, Ms. Maizner says. Her research found that women were more likely to focus on ways to mitigate risk, than on opportunities for growth. They also tend to underestimate their earnings potential.
Ms. Larson believes this may have been part of the reason for her success—as a natural optimist, she found she had a tendency to minimize risk, and overestimate potential returns.
How Men Can Help
But Ms. Larson attributes the bulk of her success to her ability—and determination—to seek out and find quality mentors to guide her through the process. But she acknowledges that finding appropriate coaches, and especially female role models, can be difficult.
This is one of the main barriers preventing women from obtaining capital, Mr. Bertoth believes. Traditionally, venture capitalists prefer entrepreneurs with a proven track record of building and exiting businesses successfully.
Historically, Mr. Bertoth says, women have been far less likely to lead businesses than men, which means there are fewer serial entrepreneurs who are female. And while the number of women starting businesses has increased rapidly in recent years, they tend to start smaller, craft-based businesses like restaurants—valuable enterprises, but not the kind of ventures that tend to interest investors.
As more women obtain leadership experience and begin to claim venture capital, Mr. Bertoth believes, they will pave the way for others to follow. Growing the number of women in the capital pipeline, Mr. Bertoth and Ms. Maizner agree, is also critical to increasing the number of female venture capitalists. Successful entrepreneurs often go on to invest in new companies, and bring more women into the investment space.
“The more women we bring to the table as investors,” Ms. Maizner says, “the more … we will reshape the landscape by funding women who start businesses that are more inclusive.”
That landscape is already changing, Ms. Maizner says. While women remain vastly outnumbered in venture capital, they have growing financial power, and they’re turning to nontraditional means, such as crowdsourcing, to support one another.
Ms. Washington, who has successfully crowdsourced funds in addition to securing capital, is excited about the potential of these new avenues. But Ms. Maizner doesn’t believe women will be able to close the gap on their own—men, also, need to take action to increase investment in women.
“The number one voice that will move the needle is the voice of white men,” she says. “That doesn’t mean women should sit back, but it also means men can’t sit back and wait for women to create this world. It has to be a joint effort.”
And empowering women, Mr. Hill says, has benefits for men too. He points to Ms. Larson’s caresharing app, Momni—an idea he says never would have occurred to a man.
“History is our best teacher,” he says. “You can go down the line and see example after example—to the degree that women are not given the same credibility that funders give men, all of society loses. We lose their innovation, we lose their leadership, we lose their products and the jobs they would have created… and that’s really what entrepreneurship is, is solving the problem in front of us, and not kicking it down the road.”