If you take a look at the founders or board of directors for many VC funded small and startup businesses, you’re likely to find that the majority of the faces are male. It isn’t a coincidence that, historically, businesses run by women have received less funding than ones run by men — which makes it harder for women-run companies to get off the ground in the first place. An Inc.com article in 2014 noted that between 2011 and 2013, only 2.7 per cent of small businesses that received venture funding were run by women. It’s already tough enough to pitch a business to venture capitalists or angel investors — it appears to be even more difficult if you’re a woman.
Enter crowdfunding. The newest way to raise money for a small business venture — online, via backers from around the world — is actually turning out to be a far more effective means for female entrepreneurs to get funding. But is this trend likely to continue, and how can female entrepreneurs use crowdfunding to make their business a reality? Let’s take a look at where the gender gap started, how the change is happening, and how savvy businesswomen can level the playing field.
Gender Funding Divide
We’ve come a long way from the days when women were only seen in the workplace as secretaries or receptionists. Today, women hold high-powered executive positions in professional careers at some of the largest companies in the world. But, many of them didn’t get there without a fight against a subconscious gender bias that tends to favor men in positions of power when it comes to business. And when it comes to female entrepreneurs that are looking to get a new product or idea off the ground, it can be even harder to break the glass ceiling — or even to get venture capitalists to pay attention.
A Fast Company article explains the issue at stake:
“Even though one in five firms in the country with revenue over $1 million is woman-owned, the U.S. Senate Committee on Small Business and Entrepreneurship found that female entrepreneurs receive fewer loans or get less favorable terms than men. An MIT study found that when women pitched investors for funding, they were less likely to score than a man delivering the exact same pitch.”
It’s unfortunate to see that inherent sexism still exists in the business world, yet it’s something that female entrepreneurs know far too well. With less funding for women-run small businesses comes a lack of innovative ideas and potentially life-changing inventions, particularly when it comes to products that women themselves see a need for. Additionally, the fact that there are fewer women involved in successful businesses can discourage other women from attempting to fund their ideas, since it starts to look impossible. The gender gap stymies everyone involved, and everyone loses out as a result.
A shift in thinking
The good news is that female entrepreneurs have begun to see a subtle shift in their favor when it comes to raising funds. Since the rise of crowdfunding platforms like Kickstarter, CircleUp, and Indiegogo, it’s becoming apparent that women have a particular knack for presenting compelling pitches online. In the article from Fast Company, Bonnie Marcus, the author of The Politics Of Promotion, says that “it is easier for venture capital firms to focus on the risk benefit calculation of the deal rather than the gender dynamics that might occur when a woman is pitching them face to face.” It’s this unconscious bias that she believes is at the root of why women have difficulty securing funding through traditional VC pitching, and it appears that crowdfunding diffuses this bias. This is potentially a breakthrough for smashing the glass ceiling!
Indeed, the Fast Company article goes on to note that “…[b]y posting pitches for their projects to online platforms such as Kickstarter and Indiegogo, female founders were more likely to secure funding, researchers from NYU and Wharton discovered. Women-only teams had a 40% better chance of meeting fundraising goals. In tech, the success rate for women-led Kickstarter projects was 65% as opposed to just 35% for men.” These are some astounding numbers that point towards a much brighter future for female entrepreneurs.
How female entrepreneurs can find funding
If you’re a woman with a great idea for a startup company, the time is definitely right for you to be looking into online crowdfunding in order to raise funds. Keep in mind that creating something like a Kickstarter or EquityNet profile should be considered a serious business decision, particularly if you’re aiming to make it the main source of your initial funding. The Inc.com article recommends that the different crowdfunding websites all be researched very closely in order to find the one that best suits your business. More and more seem to pop up every day, so be sure you’re choosing one that has longevity and a proven track record of success. Also, you’re going to want to look for one that gets you the type of funding you want, whether it’s donations (possibly in exchange for goods), loans, or equity.
In any event, when it comes to raising money online, the same rules and cautions apply for women as they do for men – namely, that you need to make sure you have everything in order for your pitch. Get ready to have projections, statistics, risk factors, and growth plans to show your online backers. A business plan is a necessity in order to reassure your supporters that you’re going to be able to follow through on your ideas, especially if you’re planning on expanding in the near future. Finally, it is often the difference between success and failure to have a well drafted private placement memorandum or PPM in hand to make sure you are in full compliance with securities regulations and have all the other legalities of your business covered.
Speaking of legal, whichever crowdfunding platform you choose, be sure to read over the terms and conditions. Some platforms have guidelines and restrictions over what you can and cannot offer or raise funds for, and many require that you have a prototype or production plans in place to ensure that you can deliver on your pitch. Check the Ts&Cs and be ready to provide what’s needed in order to get your crowdfunding venture off the ground.
Using crowdfunding to bridge the gap
Ultimately, because of inherent systemic gender bias, it can still be hard for women entrepreneurs to make as much of a mark as their male counterparts, especially when it comes to seeking funding for a new business or project. Nevertheless, there is mounting evidence that when women look to online crowdfunding and remove the face-to-face bias that can subconsciously come up during pitches, the playing field suddenly becomes even, if not more tilted towards women in small business. So, for many women entrepreneurs who have struggled to attain startup funding, crowdfunding may just be the answer to sexism in America, at least when it comes to business. Just be sure to have your business plan and legal documentation (think PPM) in good order.
Have you used crowdfunding to raise money for your business? How did that work out for you? Tell us in the comments.
