There are many avenues available to women small business owners seeking to grow their business, but which one is right for you? Last week we shared a blog post offering a list of grants available to women small business owners. Of course, business loans of all sorts are also an option, with their own sets of pros and cons. Venture capital is another option to consider. This week, we want to highlight some of the top venture capital firms that support women entrepreneurs as well as explain why venture capital can be the right choice for a growing business.
What Is Venture Capital?
Generally speaking, venture capital is a term for financing provided to startup companies by investors with considerable resources and, often, experience. While the terms of specific deals vary widely, most venture capital situations involve a startup or small business owner pitching their idea, company, or product to a venture capital firm. If the firm likes what it sees, it may choose to invest money—capital—into the company. But unlike a loan, a venture capital investment doesn’t set an interest rate and a repayment schedule. Instead, the venture capital firm receives something more ongoing from the business: a percentage of the company, royalties per product sold, a percentage of the profits, and so on.
What Are the Pros and Cons of Venture Capital?
Because of the way VC agreements are structured, VC firms are quite literally invested in the success of the companies in which they invest. If those companies fail, the firm is usually out their investment. This often leads VC firms to offer some level of business advice or leadership, something that would never happen in a traditional business loan. It’s not uncommon for startups to court a venture capitalist with experience in their industry (or vice versa), so that the startup can gain both a monetary investment and industry connections and know-how.
Another advantage of venture capital is that VC firms will often invest in startups that cannot get other sources of funding. If your idea has real merit, but the bank turns you down for a loan, then venture capital may be the right answer for you.
Of course, there is one big potential negative: loss of complete control. Your VC investor may well push you to do things that make real business sense, but may not fit your vision or ideals for your company. If you’re concerned with keeping absolute control or absolute profit (and if you have another way to proceed), then it’s possible venture capital is not the right solution for you.
Is There Gender Discrimination in VC Funding?
The venture capital industry has long been dominated by men, and sadly it has a checkered history when it comes to the fair treatment of women entrepreneurs. According to Crunchbase, in 2016 around 20 percent of startups making VC pitches were led by women, but only 10 percent of venture capital was invested in women-led companies. We’d expect in a discrimination-free world for these numbers to be nearly equal. The industry has its share of stories of blatant gender discrimination, too.
Besides willful gender discrimination, there’s also a practical side: VCs tend to invest in products and industries with which they have experience. In a male-dominated industry, the number of players with experience in products and companies aimed at the female demographic is overall lower. And while certainly not all women-owned startups are geared toward the female demographic, a good number are. This is why it’s important to pitch to a “good fit” VC firm. If your startup is in children’s clothing, for example, look for a venture capital firm with experience in retail, clothing, kids’ products, or all of the above.
Tips for Finding Women-Friendly VC Firms
The good news is that there are a number of modern VC firms friendly towards women entrepreneurs, including a number that are themselves run by women. The authors of that Crunchbase report concluded, “The small number of venture firms with female founders and/or an unusually high percentage of female partners invest at elevated levels in female entrepreneurs.” You can also look into the portfolio of the venture firms you’d like to pitch. Since 20 percent of pitches are from women, look for firms with 20 percent or higher female-led companies in their portfolio.
Venture Capital Firms Friendly to Women Entrepreneurs
We’ve given you some tips for investigating specific firms, but we’ll go one further and do some heavy lifting for you. Below is a list of firms we believe to be friendly towards women entrepreneurs. If you think venture capital may be right for you, consider starting your search with some of these firms.
The Women’s Venture Capital Fund: This all-women-led VC fund has a dual focus on digital media and sustainability. Startups must be West-Coast based and gender diverse for consideration.
Forerunner Ventures: Led by Kirsten Green, Forerunner’s portfolio is 43 percent female-led. Green made the Midas List this year, one of only six female VCs to do so.
Kapor Capital: Kapor Capital also has a very high rate of female-led investment at 37 percent. The fund is led by Freada Kapor.
Valor Ventures: An Atlanta-based micro VC, Valor has made waves with its Startup Runway, a pitch competition held in the spring and fall.
These are just a sampling of the firms out there. The Female Entrepreneurs Institute has a deeper list. In the end, securing venture capital is a tricky business. But knowing your pitch, researching your prospective firms, and pitching women-friendly firms can substantially improve the likelihood of acquiring VC funding.
Are you looking for ways to grow your business? IAW offers resources to help women start and grow their business. Join IAW today and take your business to the next level!
