Here’s a secret – there are no new rules (to overcoming funding gaps or mastering other work-related challenges while female). The new rules are going to be what we make them. Today, there are only the old rules, and an increased awareness that those old rules disadvantage anyone who doesn’t look and act the part.
Then there is our collective hope. Hope that this exposure will lead to a breakdown of the old rules and something new and better will rise like a phoenix from the ashes.
Any student of history will tell you that when a system breaks down what you get in its place is not automatically better. To create something better we need to come together in a concerted effort, driven by popular support and backed by money and power. Change will not happen overnight but it will happen incrementally as individual female founders find their way to capital and meet with success.
In the meantime, what’s a female founder with a funding gap to do?
If it’s not immediately obvious, Investopedia will tell you that a funding gap is the amount of money needed to fund the ongoing operations or future development of a business or project that is not currently provided by cash, equity or debt. Funding gaps can be covered by investment from venture capital or angel investors, equity sales, or through debt offerings and bank loans.
Then understand that unless you are generating the revenue to support a bank loan, you will need to raise money (whether structured as debt or equity) from early stage technology investors – individual angels, family offices, or venture capital firms.
Research them. Try to figure out which ones invest in companies like yours, at your stage. Just because they are women and you are a woman does not mean you will fit their investment thesis. Nor should it. But some investors, male and female, say they are committed to supporting female founders, and those with the nexus of thesis fit and commitment to women-led businesses should be on your list.
Make a target investor list and try to figure out how to get warm introductions to those investors. This can take months if not years. In all likelihood, you will speak with hundreds of people to try to find one that is willing to take a chance on you. In the meantime, you must continuously make progress with your underfunded venture.
Consider incubators in your field that can assist you in the earliest days, provide the credibility that many investors will be looking for, and introduce you to investors in your space. You can google those too.
Like with any budget, make sure you have capital in reserve before getting started. If you don’t consider reserve capital a necessity, you will be much more likely to fail. How much you need will depend on your business, but a general rule of thumb is 3-6 months operating expenses. In the earliest stages, keep your burn rate as low as you can and increase it only to achieve specific strategic goals that will get you to the next level of funding.
In connection with raising a seed round of funding decide with your board and key investors whether you are optimizing for growth or earnings. If you are optimizing for growth, make sure you have a clear path to raising the next round before you burn through too much capital.
Another way you can plan ahead is to make every attempt to fund your business adequately from the outset. This is a tough one – much easier said than done. I was not able to do it myself, however, let my hindsight be your 20/20. One of the most insightful comments I received in the hundreds if not thousands of conversations I have had with advisors, investors, founders, and colleagues was this:
Early stage startup funding is a barbell.
You either (1) raise real capital on your vision with the promise of growth, or (2) execute with limited capital and then raise on the numbers. This works to women’s disadvantage because raising on a vision is a confidence game – one that taps into investors’ most primitive instincts and in the absence of numbers will exacerbate their tendency to pattern match.
It’s been shown that perception biases* cause investors to have less confidence in women’s ability to execute as compared to male counterparts and therefore make it harder for women to raise on the first bump of the barbell.
We know this bias is misplaced since in fact women led companies perform 3X better than the S&P 500. However, if early stage female founders continuously have to operate with insufficient capital relative to our male peers, in addition to making a difficult job even more challenging and scaring women away from the industry, we are inadvertently reinforcing this false perception bias.
Do everything you can to raise on the first bump. Then even when you have early numbers, keep going back to your big, beautiful vision and mission and raise on that.
*If you’d like to learn more about perception bias, two recent studies published in the Harvard Business Review confirm how deeply these gender based biases run and show that female entrepreneurs get asked different questions leading to answers that confirm the bias and result in less capital invested in female founded ventures. The hopeful (yet at the same time frustrating?) insight here is that it turns out that answering “female” questions with “male” responses can lead to higher funding amounts. (See reference below to boot camps training female entrepreneurs to act more like men and my own personal resistance to the concept. Is it a little blame the victim-y?) Entrepreneurs and investors alike should be thinking about how to use these insights to thoughtfully improve the process.
Stop talking, start doing
We can talk all we want about women in tech, but while we’ve been talking the amount of venture capital allocated to women led ventures has been decreasing.
Yes, that’s right, there was less venture capital invested in female founders last year than the year before. In 2016 women received just 2.19% of venture capital dollars, less than all other years in this decade apart from 2008 and 2012.
Any entrepreneur can tell you, capital is the life blood of your startup. If you don’t have it, you can’t function. Game over. So for all the investors out there talking about supporting women, just do it. Find a female founder with a business you believe in and put your money and your muscle behind making them hugely successful.
Though it sucks that we have to, most women I know like to be prepared and excel at doing more with less. We can use this to our advantage when bootstrapping a new company to life.
When I was first out shopping around our startup, I researched and wrote out a detailed business plan, found and negotiated partnerships, convinced a phenomenally talented design firm to work with us pro-bono, and was told by investors that I should raise a little friends and family money, get myself a technical co-founder, build a product and come back to them. So, I did. Even after that, it wasn’t so easy, of course, but without it, it would have been impossible.
Make every effort to outrun the clock
In my experience, raising capital is like a big, real life game of escape the room. You do your best to keep your wits about you, use whatever skills and perspective you have, and try to get to the next room before the clock runs out.
I have the sense that despite every article we read about a couple of young guys who came up with an idea on Thursday and had raised ten million dollars by Monday morning, fundraising is not actually easy for anyone, female or male.
In fact, I once had a drink with two successful male founders who shared that they had each run out of money more than once in the earlier days of their startups. So I asked them what they did when that happened, and one answered: “bluff,” while other responded: “beg,” in unison.
Tap into your inner Beyonce
It is still mostly the case that in order to attract capital a female founder needs to play by the rules created and perpetuated by men. In fact, I’ve been told there are boot camps where women founders can learn to behave more like men.
As off-putting as this may be – and let me tell you, I did not attend this boot camp and that investor (a woman) did not invest in my company – it makes sense because raising money, particularly for a very early stage venture, is all about power. Your job as a founder is to convince investors that you can blow this thing out of the water: be smarter, faster, stronger than the competition, and deliver to them a healthy return on their investment. While they know, probably better than you, how hard that is to achieve. In fact, it’s so hard, I’m always surprised that they find so many men who they think can do it.
Perhaps it’s related to the other thing I’ve been told – that you need to make investors fall in love with you. Again, maybe not as we wish it were, but probably more than a grain of truth nonetheless.
So, let’s see, be powerful + make them fall in love with you. This can go a bunch of ways so you should start by figuring out what version works for you. Know yourself and what your style has been for exercising your power. If it’s not something you are very comfortable with, think of a celebrity, business leader, politician, civil rights advocate or personal friend who does this in a way you like and respect. Try it on. Do it your way, but do it.
So, let me leave you with a piece of advice that you can do, right now, today, with no capital. Let yourself feel the magnitude of what you are trying to achieve. Let it sit with you. Know that there will be good days and bad. Know that you are not alone. Connect with the reason you are doing this in the first place. Hold that with you because the road is going to be long. But when you put your product out there in the world and real people are using it and telling you it is helping them, making their lives easier, better, putting a smile on their face or food on the table, then you will live to fight another day and figure out how in heck to fill that funding gap. Because the world needs your innovation and future female founders need that door nudged open just a little further so that we can all benefit from their innovation as well.