Studies about gender diversity in tech startups paint a relatively grim picture: women are less likely to get funded and are woefully underrepresented in both the startup founder and venture capital (VC) ranks.
However, we’re approaching what might later be called a tipping point.
As the snowball grows, it’s important to realize increasing representation is not a one-and-done thing.
To better understand this moment, BetaKit spoke with CVCA CEO Kim Furlong and Nabeela Merchant, a Senior Associate at the TELUS Pollinator Fund for Good and a Founding Committee Member of Canadian Women in VC. The pair explained how gender diversity in the impact investing and startup space is growing—and why it’s so important to keep going.
Cold start
Women typically face multiple obstacles when it comes to fundraising for startups. First is the nature of how investors question men versus women. Merchant referenced a study by Dana Kanze, an Assistant Professor at London Business School, which looked at the types of questions that investors ask women versus men.
Disproportionately, women were asked “prevention” questions around risk mitigation while men were more often asked “promotion” questions around growth and a winning vision. This by itself might seem innocuous—investors need to understand risk mitigation and growth plans before investing, after all. But Merchant explained that this is a misconception.
“This matters because VCs typically operate on power law returns,” said Merchant. “You want the big wins and you’re more likely to support someone when you’re probing them for their big vision.”
“For every additional prevention question asked of an entrepreneur, the startup raised a staggering $3.8 million less, on average,” Kanze’s study reads.
The second obstacle relates to the networks women have access to. Merchant said investors are excited by momentum, meaning that when someone is cutting a cheque, others are more likely to want in on the deal. But many women often don’t have the network to get big friends-and-family or angel cheques to kickstart momentum.
“It’s really hard to cold start when you don’t have a network, or you’re breaking in, or you’re underrepresented, and don’t historically have that platform to stand on,” said Merchant.
The third obstacle is society’s assumptions of a woman’s role—typically not in the boardroom. This is something many women entrepreneurs have experienced, to the point of being questioned whether they plan on quitting their businesses to raise kids. It’s one challenge Jasmine Crowe-Houston, founder of food waste sustainability startup Goodr, doesn’t like to talk about but acknowledges is present.
“A lot of times when people are like, ‘Oh, we want to do a story about how hard it is for Black women to fundraise,’ I always say, ‘I don’t want to talk about that,’” said Crowe-Houston. “I want to talk about my business because it may be hard for us to fundraise, but that doesn’t take away from the fact that I’ve built a multi-million-dollar business from nothing.”
Chenny Xia, the co-founder of social impact startup Gotcare, looks at things a little differently. Instead of seeing discrimination or bias as a solely negative experience, she almost sees it as a “blessing” in disguise.
“I can meet someone right away and, based on their reaction of what I look like, I can tell if I should stop talking to them,” Xia said. “This is great.”
Changing the narrative
A strong business case already exists for more women in startups and VC ranks: studies show that women-owned startups typically make more revenue per dollar invested. But statistics alone are not enough to unstick generational prejudice.
“To change the above narrative, there needs to be more gender diversity among VCs who are making investment decisions, thus creating the positive cycle of ‘snowball effect’ necessary to change the landscape of capital allocation,” Furlong said.
Merchant explained the snowball effect more like the financial concept of compound interest, describing it as two-pronged. The first prong, as Furlong noted, is more investment since women VCs are twice as likely to invest in women-led companies. But the second is about creating role models to inspire the next generation of both women founders and women investors to lift each other up.
Merchant shared the example of Canadian Women in VC, the group she helped found. When it began in 2018, she noted that there was only a “handful” of women working at VC funds—now the community is over 300 individuals working on their own careers and onboarding more women into the VC world.
“They serve as inspiration, they serve as mentors, they serve as champions, they serve as access into the industry,” Merchant said.
Expanding diversity can also drive social good. Studies show women often care more about environmental, social, and governance projects as their wealth grows.
Crowe-Houston told BetaKit that she “set out early on to create a business that does well by doing good.” And it’s working: Crowe-Houston claimed Goodr has diverted over five million pounds of food waste from landfills and into the homes of people facing hunger. “Every day we’re keeping food from landfill and then we provide meals to people in need,” she added.
Similarly, Xia noted that GotCare’s unique approach to caregiver matching has helped patients get off long wait lists while providing earning opportunities for over 30,000 home care workers.
Growing investment into women-led startups
From both a societal and economic perspective, women-led startups are beginning to see a massive surge in support and funding. This is particularly true with the creation of new funds coming to support women-led companies. The TELUS Pollinator Fund is also taking a leadership role, both as a major investor in women-led impact startups and through programming. To date, over 40 percent of the Fund’s portfolio companies are led by women, compared to industry standard of less than 20 percent, and over 25 percent of the Fund’s committed capital have gone to women-led companies.
To support more investors committing to women-led startups, the social impact fund also co-ran an 11-week investor challenge with Spring Activator to connect investors with women founders. This generated over $300,000 in financing for the winner of the women-led startup challenge.
As the snowball grows, it’s important to realize increasing representation is not a one-and-done thing. In a world where women still face hurdles in getting follow-on and growth funding, it’s critical to not just fund women entrepreneurs in the early stages but to keep funding them as they continue to build their businesses.
Xia acknowledged how difficult it can be for women when representation is still low and these barriers still exist. But she added that individual founders can be their own best advocate—or their own biggest obstacle—depending on their mindset.
“Self imposed, limiting beliefs are the only thing holding us back from changing the world,” she said.
Learn more about the Telus Pollinator Fund and their initiatives.
Photo courtesy Pixabayh.
The post How to grow investment in women-led startups first appeared on BetaKit.